<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 1999
1933 ACT REGISTRATION NO. 333-43107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT
ON
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE
SEPARATE ACCOUNT R
(EXACT NAME OF REGISTRANT)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1300 South Clinton Street, Fort Wayne, Indiana 46802
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
Depositor's Telephone Number, including Area Code
(219) 455-2000
<TABLE>
<S> <C>
Jack D. Hunter, Esquire COPY TO:
The Lincoln National Life Insurance George N. Gingold, Esquire
Company 197 King Philip Drive
200 East Berry Street West Hartford, CT
P.O. Box 1110 06117-1409
Fort Wayne, Indiana 46802
(NAME AND ADDRESS OF AGENT FOR
SERVICE)
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: CONTINUOUS
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE OF SECURITIES BEING REGISTERED)
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The first Form 24F-2 for Registrant for the fiscal year
ending December 31, 1998 is not yet due.
It is proposed that this filing will become effective:
<TABLE>
<CAPTION>
<C> <S>
-- immediately upon filing pursuant to Rule 485(b).
-- on , 1999 pursuant to Rule 485(b).
-- 60 days after filing pursuant to Rule 485(a).
X on March 23, 1999 pursuant to Rule 485(a).
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
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<S> <C>
1 Cover Page Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 Lincoln Life, the Separate Account and the General Account
6(a) Lincoln Life, the Separate Account and the General Account
6(b) *
9 Legal Proceedings
10(a)-(c) Right-to-Examine Period; Surrenders; Accumulation Value;
Reports to Policy Owners
10(d) Right to Exchange the Policy; Policy Loans; Surrenders;
Allocation of Net Premium Payments
10(e) Lapse and Reinstatement
10(f) Voting Rights
10(g)-(h) Substitution of Securities
10(i) Premium Payments; Transfers; Death Benefits; Payment of Death
Benefit Proceeds; Policy Values; Settlement Options
11 The Funds
12 The Funds
13 Charges; Fees
14 Issuance
15 Premium Payments; Transfers
16 Lincoln Life, the Separate Account and the General Account
17 Surrenders
18 Lincoln Life, the Separate Account and the General Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 Lincoln Life, the Separate Account and the General Account
24 Incontestability; Suicide; Misstatement of Age or Gender
25 Information about Lincoln Life and the Separate Account
26 Fund Participation Agreements
27 Lincoln Life, the Separate Account and the General Account
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
28 Directors and Officers of Lincoln Life
29 Lincoln Life, the Separate Account and the General Account
30 *
31 *
32 *
33 *
34 *
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 The Funds; Premium Payments
45 *
46 Surrenders
47 Lincoln Life, the Separate Account and the General Account;
Surrenders, Transfers
48 *
49 *
50 Lincoln Life, the Separate Account and the General Account
51 Cover Page; Highlights; Premium Payments; Right to Exchange
the Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
</TABLE>
* Not Applicable
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT R -- PROSPECTUS DATED XXXXX
HOME OFFICE LOCATION:
1300 SOUTH CLINTON STREET
P.O. BOX 1110
FORT WAYNE, INDIANA 46802
(800) 942-5500
ADMINISTRATOR MAILING ADDRESS:
VARIABLE LIFE SERVICING CENTER MVLI
350 CHURCH STREET
HARTFORD, CT 06103-1106
(800) 552-9898
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A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
BENEFITS PAYABLE ON DEATH OF SECOND OF TWO INSUREDS
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance
contract (the "Policy"), offered by The Lincoln National Life Insurance Company
("Lincoln Life"). The Policy provides death benefits when the second of the two
named Insureds dies (a "Second Death Policy"). (Page references are to this
Prospectus unless otherwise stated.)
The Policy features:
- flexible premium payments (described on page 10);
- a choice of one of two death benefit options (described on
page 24); and
- a choice of underlying investment options (described on
page 14).
Review your personal financial objectives and discuss them with a qualified
financial counselor before you buy a "second-to-die" variable life insurance
policy. As a death benefit is only paid upon the second Insured's death, this
Policy may, or may not, be appropriate for your financial goals. The value of
the Policy and, under one option, the death benefit amount, depends on the
investment results of the funding options you select.
You may use the value of the Policy to pay the premiums due and continue the
Policy in force if sufficient values are available for premium payments. Be
careful; if the investment options you choose do not do as well as you expect,
there may not be enough value to continue the Policy in force without more
premium payments. Charges against Policy values for the cost of insurance (see
page 20) increase as the Insureds get older.
You may borrow within described limits against the Policy. You may surrender
the Policy in full or withdraw part of its value. A Surrender Charge is applied
if the Policy is surrendered totally.
The mutual funds available through Lincoln Life's Flexible Premium Variable
Life Account R ("Variable Account") are listed on the reverse side of this page.
This Prospectus focuses on the Variable Account investment information that
makes up the "variable" part of the Policy. If you put money into the variable
funds, you take all the investment risk on that money. This means that if the
mutual funds(s) you select go up in value, the value of your Policy, net of
charges and expenses, also goes up. If they lose value, so does your Policy.
Each fund has its own investment objective. You should review each fund's
Prospectus before making your decision.
You may also use Lincoln Life's Fixed Account to fund your Policy. Net
Premium Payments made into the Fixed Account:
- become part of Lincoln Life's General Account;
- do not share the investment experience of the Separate
Account; and
- have a guaranteed minimum interest rate of 4% per year.
Interest beyond 4% is credited at Lincoln Life's discretion. For additional
information, see page 6 and the Policy itself.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance contract with the Policy. This
Prospectus and the Prospectuses of the Funds, furnished with this Prospectus,
should be read carefully to understand the Policy being offered.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AVAILABLE AS INVESTMENT OPTIONS THROUGH THE SEPARATE ACCOUNT UNDER THE
POLICY OFFERED BY THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE READ CAREFULLY TO
UNDERSTAND THE POLICY AND 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.
THIS POLICY MAY NOT BE AVAILABLE IN ALL STATES, AND THIS PROSPECTUS ONLY OFFERS
THE POLICY FOR SALE IN JURISDICTIONS WHERE SUCH OFFER AND SALE ARE LAWFUL.
<PAGE>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
BARON CAPITAL FUNDS TRUST
Baron Capital Asset Fund
BT INSURANCE FUNDS TRUST
BT EAFE-Registered Trademark- Equity Index Fund
BT Equity 500 Index Fund
BT Small Cap Index Fund
DELAWARE GROUP PREMIUM FUND, INC.
Delchester Series
Devon Series
Emerging Markets Series
REIT Series
Small Cap Value Series
Trend Series
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Contrafund Portfolio -- Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Growth Opportunities Portfolio -- Service Class
JANUS ASPEN SERIES
Balanced Portfolio
Worldwide Growth Portfolio
LINCOLN NATIONAL
LN Bond Fund, Inc.
LN Capital Appreciation Fund, Inc.
LN Equity-Income Fund, Inc.
LN Global Asset Allocation Fund, Inc.
LN Money Market Fund, Inc.
LN Social Awareness Fund, Inc.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
International Fund -- Class 2
Stock Fund -- Class 2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
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<S> <C>
HIGHLIGHTS...................................... 3
Initial Choices To Be Made.................... 3
Level or Varying Death Benefit................ 3
Amount of Premium Payment..................... 4
Selection of Funding Vehicles................. 4
Charges and Fees.............................. 4
Changes in Specified Amount................... 5
LINCOLN LIFE, THE SEPARATE ACCOUNT AND THE
GENERAL ACCOUNT................................ 5
BUYING VARIABLE LIFE INSURANCE.................. 6
Replacements.................................. 7
APPLICATION..................................... 8
OWNERSHIP....................................... 8
BENEFICIARY..................................... 8
INSUREDS........................................ 9
THE POLICY...................................... 9
Policy Specifications......................... 9
PREMIUM FEATURES................................ 9
Additional Premiums; Planned Premiums......... 10
Limits on Right to Make Payments of
Additional and Planned Premiums............ 10
Premium Load; Net Premium Payment........... 10
RIGHT-TO-EXAMINE PERIOD......................... 10
TRANSFERS AND ALLOCATION AMONG ACCOUNTS......... 10
Allocation of Net Premium Payments............ 10
Transfers..................................... 11
Optional Sub-Account Allocation Programs...... 11
Dollar Cost Averaging....................... 11
Automatic Rebalancing....................... 12
POLICY VALUES................................... 12
Accumulation Value............................ 12
Variable Account Value........................ 13
Variable Accumulation Unit Value............ 13
Variable Accumulation Units................. 13
Fixed Account and Loan Account Value.......... 14
Net Accumulation Value........................ 14
FUNDS........................................... 14
Substitution of Securities.................... 18
Voting Rights................................. 19
Fund Participation Agreements................. 19
CHARGES AND FEES................................ 19
Deductions Made Monthly....................... 19
Monthly Deduction........................... 20
Cost of Insurance Charge.................... 20
Mortality and Expense Risk Charge and Fund
Expenses................................... 20
Fund Expenses................................. 21
Surrender Charges............................. 23
Transaction Fee for Excess Transfers.......... 24
DEATH BENEFITS.................................. 24
Death Benefit Options......................... 24
Changes in Death Benefit Options and Specified
Amount....................................... 25
<CAPTION>
CONTENTS PAGE
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<S> <C>
Federal Income Tax Definition of Life
Insurance.................................... 25
NOTICE OF DEATH OF INSUREDS..................... 25
PAYMENT OF DEATH BENEFIT PROCEEDS............... 26
POLICY LIQUIDITY................................ 26
Policy Loans.................................. 26
Partial Surrender............................. 27
Surrender of the Policy....................... 28
Surrender Value............................. 28
Deferral of Payment and Transfers............. 28
ASSIGNMENT; CHANGE OF OWNERSHIP................. 28
LAPSE AND REINSTATEMENT......................... 29
Lapse of a Policy............................. 29
No Lapse Provision.......................... 29
Reinstatement of a Lapsed Policy.............. 30
COMMUNICATIONS WITH LINCOLN LIFE................ 30
Proper Written Form........................... 30
Telephone Transaction Privileges.............. 30
OTHER POLICY PROVISIONS......................... 30
Issuance...................................... 30
Date of Coverage.............................. 30
Right to Exchange the Policy.................. 31
Incontestability.............................. 31
Misstatement of Age or Gender................. 31
Suicide....................................... 32
Nonparticipating Policies..................... 32
TAX ISSUES...................................... 32
Tax Treatment of Death Benefit................ 32
Federal Income Tax Considerations............. 32
Taxation of Lincoln Life...................... 33
Other Considerations.......................... 34
FAIR VALUE OF THE POLICY........................ 34
DISTRIBUTION OF POLICIES........................ 34
CHANGES OF INVESTMENT POLICY.................... 34
OTHER CONTRACTS ISSUED BY LINCOLN LIFE.......... 35
STATE REGULATION................................ 35
REPORTS TO OWNERS............................... 35
ADVERTISING..................................... 35
LEGAL PROCEEDINGS............................... 36
EXPERTS......................................... 36
REGISTRATION STATEMENT.......................... 36
Appendix 1...................................... 37
Preparing for Year 2000....................... 37
Appendix 2...................................... 38
Directors and Officers of Lincoln Life........ 38
Appendix 3...................................... 40
Corridor Percentages.......................... 40
Appendix 4...................................... 41
Illustration of Accumulation Values, Surrender
Values, and Death Benefits................... 41
Appendix 5...................................... 46
Definitions................................... 46
Financial Statements............................ S-1
</TABLE>
2
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features.
(Regulations in your state may vary the provisions of your
own Policy.) Your Policy is a flexible premium variable life
insurance policy. Your Policy insures two Insureds. If one
of the Insureds dies, the Policy pays no death benefit. Your
Policy will pay the death benefit only when the second
Insured dies. A "second-to-die" policy might be suitable
when both of the Insureds have income of their own and only
want to provide financial support for their dependents if
both of them should die, or to provide liquidity to heirs
when the Second Insured dies. If replacement income or
immediate cash liquidity is needed upon the death of one
Insured, this type of policy may not be suitable.
The Policy's value may change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
At all times, your Policy must qualify as life insurance
under the Internal Revenue Code of 1986 (the "Code") to
receive favorable tax treatment under Federal law. If these
requirements are met, you may benefit from such tax
treatment. Lincoln Life reserves the right to return your
premium payments if they result in your Policy failing to
meet Code requirements.
INITIAL CHOICES TO BE MADE
The Policy Owner (the "Owner" or "you") is the person named
in the "Policy Specifications" who has all of the Policy
ownership rights. You, as the Owner, have three important
choices to make when the Policy is first purchased. You need
to choose:
1) one of the two Death Benefit Options described on page
24;
2) the amount of premium you want to pay; and
3) the amount of your Net Premium Payment to be placed in
each of the funding options you select. The Net Premium
Payment is the balance of your Premium Payment that
remains after certain charges are deducted from it.
LEVEL OR VARYING DEATH BENEFIT
The Death Benefit is the amount Lincoln pays to the
Beneficiary(ies) when the second Insured dies. Before we pay
the Beneficiary(ies), any outstanding loan account balances
or outstanding amounts due are subtracted from the Death
Benefit. Lincoln calculates the Death Benefit payable as of
the date of the second Insured's death.
When you purchase your Policy, you must choose one of two
Death Benefit Options:
1) a level death benefit; or
2) a varying death benefit.
If you choose the level Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount, which is the amount of the death
benefit in effect for the Policy when the second Insured
died (The Specified Amount may be found on the Policy's
Specification Page); or
2) the Corridor Death Benefit, which is the death benefit
calculated as a percentage of the Accumulation Value.
3
<PAGE>
If you choose the varying Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount plus the Net Accumulation Value when
the second Insured died. The Net Accumulation Value is the
total of the balances in the Fixed Account and the Variable
Account minus any outstanding Loan Account amounts; or
2) the Corridor Death Benefit.
See page 24 for more details.
AMOUNT OF PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 10.
If your Policy lapses because your Monthly Premium Deduction
is larger than the Net Accumulation Value, you may reinstate
your Policy. More information is on page 29.
When you first receive your Policy you will have 10 days to
look it over, unless state law requires a greater time. This
is called the "Right-to-Examine" time period. Use this time
to review your Policy and make sure that it meets your
needs. During this time period, your Initial Premium Payment
will be deposited in the Money Market Account. If you then
decide you do not want your Policy, all Premium Payments
will be returned to you with no interest paid. See page 10.
SELECTION OF FUNDING VEHICLES
You must choose the Fund(s) in which you want to place each
Net Premium Payment. These Fund Sub-Accounts make up the
Variable Account. Each Sub-Account invests in shares of a
certain Fund. You may also choose to place your Net Premium
Payment or part of it into the Fixed Account. A Variable
Sub-Account is not guaranteed and will increase or decrease
in value according to the particular Fund's investment
performance. See page 13.
CHARGES AND FEES
A premium load of 8% will be made against all Premium
Payments. Monthly deductions are made for administrative
expenses (currently, $12.50 per month for the first Policy
Year and $5 per month afterwards), the Cost of Insurance and
any riders that are placed on your Policy. For Policy Years
1-20, a monthly charge of $0.09 per $1,000 of Specified
Amount is deducted. If the No-Lapse Provision is selected,
there will be an additional monthly charge of $0.01 per
$1,000 of Specified Amount. See page 20.
Daily deductions are subtracted from the Variable Account
for mortality and expense risk. Currently, this charge is at
an annual rate of .80%. See page 20.
Each Fund has its own management fee charge, also deducted
daily. Investment results for the Funds you choose will be
affected by each Fund's expense levels. The table on page 21
shows you the expenses currently in effect for each Fund.
Each Policy Year you will be allowed to make 12 transfers
between funding options. Beyond 12, a $25 fee may apply. See
page 11.
You will be charged $25, but not more than 2% of the amount
withdrawn, each time you request a partial surrender of your
Policy. If you totally surrender your Policy within the
first 15 years, a surrender charge will be deducted in
computing what will be paid
4
<PAGE>
you. If you surrender your Policy within the first 15 years
after an increase in the Specified Amount, a surrender
charge will also be imposed, in addition to any existing
surrender charge. See page 23.
If you make a loan against your Policy, interest will be
charged to the Loan Account. Currently, the annual interest
rate is 8%. For the first ten Policy Years interest will be
credited to the Loan Account Value at the annual rate of
interest charged for a loan minus 1%. For Policy Years
eleven and beyond, interest will be credited at an annual
rate equal to the current interest charged minus 0%. See
page 27.
CHANGES IN SPECIFIED AMOUNT
Within certain limits, you may decrease or, with
satisfactory evidence of insurability, increase the
Specified Amount. The minimum specified amount is currently
$250,000. Such changes will affect other aspects of your
Policy. See page 25.
LINCOLN LIFE, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT
Lincoln Life, an Indiana life insurance company incorporated
in 1905, is among the nation's largest writers of annuities,
individual life insurance and life reinsurance. Wholly-owned
by Lincoln National Corporation ("LNC"), a publicly held
Indiana insurance holding company incorporated in 1968, it
is licensed in all states (except New York), the District of
Columbia, Guam, and the Commonwealth of the Northern Mariana
Islands. Its principal office is at 1300 South Clinton
Street, Fort Wayne, IN 46802. Lincoln Life, LNC and their
affiliates comprise the "Lincoln Financial Group" which
provides a variety of wealth accumulation and protection
products and services.
Lincoln Life Flexible Premium Variable Life Account R
("Account R") is a "separate account" of the company
established on December 2, 1997. Under Indiana law, the
assets of Account R attributable to the Policies, though the
property of Lincoln Life, are not chargeable with
liabilities of any other business of Lincoln Life and are
available first to satisfy Lincoln Life's obligations under
the Policies. Account R income, gains, and losses are
credited to or charged against Account R without regard to
other income, gains, or losses of Lincoln Life. Account R's
values and investment performance are not guaranteed.
Account R is registered with the Commission as a "unit
investment trust" under the 1940 Act and meets the 1940
Act's definition of "separate account". Such registration
does not involve supervision by the Commission of Account
R's or Lincoln Life's management, investment practices, or
policies. Lincoln Life has numerous other registered
separate accounts which fund its variable life insurance
policies and variable annuity contracts.
Account R is divided into Sub-Accounts, each of which is
invested solely in the shares of one of the mutual funds
available as funding vehicles under the Policies. On each
Valuation Day, Net Premium Payments allocated to Account R
will be invested in Fund shares at net asset value, and
monies necessary to pay for deductions, charges, transfers
and surrenders from Account R are raised by selling Fund
shares at net asset value.
The Funds now available in Account R and their investment
objectives are on pages 14-18. More Fund information is in
the Funds' prospectuses, which must accompany or precede
this prospectus and should be read carefully. The Funds may
or may not achieve their investment objectives.
5
<PAGE>
Some Funds have investment objectives and policies similar
to those of other funds managed by the same investment
adviser. Their investment results may be higher or lower
than those of the other funds, and there can be no
assurance, and no representation is made, that a Fund's
investment results will be comparable to the investment
results of any other fund.
Lincoln Life reserves the right to add, withdraw or
substitute Funds, subject to the conditions of the Policy
and to compliance with regulatory requirements, if in its
sole discretion legal, regulatory, marketing, tax or
investment considerations so warrant or in the event a
particular Fund is no longer available to Lincoln Life for
investment by the Sub-Accounts. No substitution will take
place without prior approval of the Commission, to the
extent required by law.
Shares of the Funds may be used by Lincoln Life and other
insurance companies to fund both variable annuity contracts
and variable life insurance policies. While this is not
perceived as problematic, the Funds' governing bodies
(Boards of Directors/Trustees) have agreed to monitor events
to identify any material irreconcilable conflicts which
might arise and to decide what responsive action might be
appropriate. If a separate account were to withdraw its
investment in a Fund because of a conflict, a Fund might
have to sell portfolio securities at unfavorable prices.
A Policy may also be funded in whole or in part through the
"Fixed Account", part of Lincoln Life's General Account
supporting its insurance and annuity obligations. Amounts
held in the Fixed Account will be credited with interest at
rates Lincoln Life determines from time to time, but not
less than 4% per year. Interest, once credited, and Fixed
Account principal are guaranteed. Interests in the Fixed
Account have not been registered under the 1933 Act in
reliance on exemptive provisions. The Commission has not
reviewed Fixed Account disclosures, but they are subject to
securities law provisions relating to accuracy and
completeness.
BUYING VARIABLE LIFE INSURANCE
The Policies this Prospectus offers are variable life
insurance policies which provide death benefit protection.
Investors not needing death benefit protection should
consider other forms of investment, as there are extra costs
and expenses of providing the insurance feature. Further,
life insurance purchasers who are risk-aversive or want more
predictable premium levels and benefits may be more
comfortable buying more traditional, non-variable life
insurance. However, variable life insurance is a flexible
tool for financial and investment planning for persons
needing death benefit protection and willing to assume
investment risk and to monitor investment choices they have
made.
Flexibility starts with the ability to make differing levels
of premium payments. A young family just starting out may
only be able to pay modest premiums initially but hope to
increase premium payments over time. At first, this family
would be paying primarily for the insurance feature (perhaps
at ages where the insurance cost is relatively low) and
later use a Policy more as a savings vehicle. A customer at
peak earning capacity may wish to pay substantial premiums
for a limited number of years prior to retirement, after
which Policy values may suffice, based on future expected
return results, though not guaranteed, to keep the Policy
inforce for the expected lifetime and to provide, through
loans, supplemental retirement income. A customer may be
able to pay a large single premium, using the Policy
primarily as a savings and investment vehicle for potential
tax advantages.
6
<PAGE>
Sufficient premiums must always be paid to keep a policy
inforce, and there is a risk of lapse if premiums are too
low in relation to the insurance amount and if investment
results are less favorable than anticipated. The No Lapse
Provision, if elected, may help to assure a death benefit
even if investment results are unfavorable.
Flexibility also results from being able to select, monitor
and change investment choices within a Policy. With the wide
variety of fund options available, it is possible to
finetune an investment mix and change it to meet changing
personal objectives or investment conditions. Policy owners
should be prepared to monitor their investment choices on an
ongoing basis.
Variable life insurance has significant tax advantages under
current tax law. A transfer of values from one fund to
another within the Policy generates no taxable gain or loss.
And any investment income and realized capital gains within
a fund are automatically reinvested without being taxed to
the Policy owners. Policy values therefore accumulate on a
tax-deferred basis. These situations would normally result
in immediate tax liabilities in the case of direct
investment in mutual funds.
While these tax deferral features also apply to variable
annuities, liquidity (the ability of Policy owners to access
Policy values) is normally more easily achieved with
variable life insurance. Unless a policy has become a
"modified endowment contract" (see page 32), an owner can
borrow Policy values tax-free, without surrender charges and
at very low net interest cost. Policy loans can be a source
of retirement income. Variable annuity withdrawals are
generally taxable to the extent of accumulated income, may
be subject to surrender charges, and will result in penalty
tax if made before age 59 1/2.
Depending on the death benefit option chosen, accumulated
Policy values may also be part of the eventual death benefit
payable. If a Policy is heavily funded and investment
performance is very favorable, the death benefit may
increase even further because of tax law requirements that
the death benefit be a certain multiple of Policy value,
depending on the Insured's age (see page 24). The death
benefit is income-tax free and may, with proper estate
planning, be estate-tax free. A tax advisor should be
consulted.
The costs and expenses of variable life insurance ownership
which are directly related to Policy values (i.e. asset
based costs) are not unlike those incurred through
investment in mutual funds or variable annuities. The
significant additional cost of variable life insurance is
the "cost of insurance" charge which is imposed on the
"amount at risk" (the death benefit less Policy value) and
increases as the insured grows older. This charge varies by
age, underwriting classification, smoking status and in most
states by gender. The effect of its increase can be seen in
illustrations in this Prospectus (see Appendix 4) or in
personalized illustrations available upon request.
REPLACEMENTS
Before purchasing the Policy to replace, or to be funded
with proceeds borrowed or withdrawn from, an existing life
insurance policy, a number of matters should be considered
by the applicant. First, the applicant should consider
whether any commission will be paid to an agent or any other
person with respect to the replacement. Second, the
applicant should consider whether coverages and comparable
values are available from the Policy, as compared to his or
her existing policy. For example, the Insureds may no longer
be insurable, or the contestability period may have elapsed
with respect to the existing policy, while the Policy could
be contested. The Owner should consider similar matters
before deciding to replace the Policy or withdraw funds from
the Policy for the purchase of funding a new policy of life
insurance.
7
<PAGE>
APPLICATION
Any person who wants to buy a Policy must first complete an
application on a form provided by Lincoln Life.
A complete application identifies the prospective Insureds
and provides sufficient information about them to permit
Lincoln Life to begin underwriting the risks under the
Policy. A medical history and examination of each of the
Insureds is required. Lincoln Life may decline to provide
insurance on the lives of the Insureds or, if it agrees to
provide insurance, it may place one or both Insureds into a
special underwriting category (these include preferred,
non-smoker standard, smoker standard, non-smoker substandard
and smoker substandard). The amount of the Cost of Insurance
deducted monthly from the Policy value after issue varies
among the underwriting categories as well as by Age and, in
most states, gender of the Insureds.
The applicant will select the Beneficiary or Beneficiaries
who are to receive Death Benefit Proceeds payable on the
Second Death, the initial face amount (the "INITIAL
SPECIFIED AMOUNT") of the Death Benefit and which of two
methods of computing the Death Benefit is to be used. (See
DEATH BENEFITS, DEATH BENEFIT OPTIONS). The applicant will
also indicate both the frequency and amount of Premium
Payments. See PREMIUM FEATURES. The applicant must also
determine how Policy values are initially to be allocated
among the available funding options following the expiration
of the Right-to-Examine Period. (See RIGHT-TO-EXAMINE
PERIOD).
OWNERSHIP
The Owner is the person or persons named as "OWNER" in the
application, and on the Date of Issue will usually be
identified as "OWNER" in the Policy Specifications. If no
person is identified as Owner in the Policy Specifications,
then the Insureds are the Owner. The person or persons
designated to be Owner of the Policy must have, or hold
legal title for the sole benefit of a person who has, an
"insurable interest" in the lives of each of the Insureds
under applicable state law. The Owner may be either or both
of the Insureds, or any other natural person or non-natural
entity. The Owner owns and exercises the rights under the
Policy prior to the Second Death.
The Owner is the person who is ordinarily entitled to
exercise the rights under the Policy so long as either of
the Insureds is living. These rights include the power to
select the Beneficiary and the Death Benefit Option. The
Owner generally also has the right to request policy loans,
make partial surrenders or surrender the Policy. The Owner
may also name a new owner, assign the Policy or agree not to
exercise all of the Owner's rights under the Policy.
If the Owner is a person other than the last surviving
Insured, and that Owner dies before the Second Death, the
Owner's rights in the Policy will belong to the Owner's
estate, unless otherwise specified to Lincoln Life.
BENEFICIARY
The person or persons named in the application as
"BENEFICIARY" are the Beneficiaries under the Policy.
Multiple Beneficiaries will be paid in equal shares, unless
otherwise specified to Lincoln Life.
Except when Lincoln Life has acknowledged an assignment of
the Policy or an agreement not to change the Beneficiary,
the Owner may change the Beneficiary at any time while
either of the Insureds is living. Any request for a change
in the Beneficiary must be in a written form satisfactory to
Lincoln Life and submitted to Lincoln Life.
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Unless the Owner has reserved the right to change the
Beneficiary, such a request must be signed by both the Owner
and the Beneficiary. On recordation, the change of
Beneficiary will be effective as of the date of signature
or, if there is no such date, the date recorded. No change
of Beneficiary will affect, or prejudice Lincoln Life as to,
any payment made or action taken by Lincoln Life before it
was recorded.
If any Beneficiary dies before the Second Death, the
Beneficiary's potential interest shall pass to any surviving
Beneficiaries, unless otherwise specified to Lincoln Life.
If no named Beneficiary survives the Second Death, any Death
Benefit Proceeds will be paid to the Owner or the Owner's
executor, administrator or assignee.
INSUREDS
There are two Insureds under the Policy. At the Date of
Issue of the Policy the Owner must have an insurable
interest in each of the Insureds. On the Second Death, a
Death Benefit is payable under the Policy.
THE POLICY
On issuance, a life insurance contract ("POLICY") will be
delivered to the Owner. The Policy sets forth the terms of
the Policy, as applicable to the Owner, and should be
reviewed by the Owner on receipt to confirm that it sets
forth the features specified in the application. The
ownership and other options set forth in the Policy are
registered, and may be transferred, solely on the books and
records of Lincoln Life. Possession of the Policy does not
represent ownership or the right to exercise the incidents
of ownership with respect to the Policy. If the Owner loses
the form of Policy, Lincoln Life will issue a replacement on
request. Lincoln Life may impose a Policy replacement fee.
POLICY SPECIFICATIONS
The Policy includes a "POLICY SPECIFICATIONS" page, with
supporting schedules, in which is set forth certain
information applicable to the specific Policy. This
information includes the identity of the Owner, the Date of
Issue, the Initial Specified Amount, the Death Benefit
Option selected, the Insureds, the issue Ages, the
Beneficiary, the initial Premium Payment, the Surrender
Charges, Expense Charges and Fees, Guarantee Maximum Cost of
Insurance Rates, and the No Lapse Premium if the No Lapse
Provision has been selected.
PREMIUM FEATURES
The Policy permits flexible premium payments, meaning that
the frequency and the amount of Premium Payments may be
selected by the Owner. After the Initial Premium Payment is
paid there is no minimum premium required, unless to
maintain the No Lapse Provision. (See LAPSE AND
REINSTATEMENT NO LAPSE PROVISION). The initial Premium
Payment is due on the Effective Date and must be equal to or
exceed the amount necessary to provide for two Monthly
Deductions or, if selected, the No Lapse Premium.
If at least one of the Insureds is still living when the
younger Insured attains or would have attained Age 100, and
the Policy has not been surrendered, there are certain
changes under the Policy. Lincoln Life will no longer accept
Premium Payments. Lincoln Life will make no further monthly
deductions. Policy Values held in the Variable Account will
be transferred to the Fixed Account. Lincoln Life will no
longer transfer amounts to Variable Sub-Accounts. The Policy
will remain in force until surrender or the Second Death.
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<PAGE>
ADDITIONAL PREMIUMS; PLANNED PREMIUMS
Any subsequent Premium Payments ("ADDITIONAL PREMIUMS") must
be sent directly to the Administrative Office. Additional
Premiums will be credited only when actually received by
Lincoln Life. Premium Payments may be billed with an annual,
semiannual, or quarterly frequency ("PLANNED PREMIUMS").
Pre-authorized automatic Additional Premium Payments can
also be arranged at any time.
Unless specifically otherwise directed, any payment received
will be applied as Premium Payment.
LIMITS ON RIGHT TO MAKE PAYMENTS OF ADDITIONAL AND PLANNED
PREMIUMS
The Owner may increase Planned Premiums, or pay Additional
Premiums, subject to the following limitations and Lincoln
Life's right to limit the amount or frequency of Additional
Premiums.
Lincoln Life may require evidence of insurability if any
payment of Additional Premium (including Planned Premium)
would increase the difference between the Death Benefit and
the Accumulation Value. If Lincoln Life is unwilling to
accept the risk, the increase in premium will be refunded
without interest and without participation of such amounts
in any underlying investment.
Lincoln Life may also decline any Additional Premium
(including Planned Premium) or a portion thereof that would
result in total Premium Payments exceeding the maximum
limitation for life insurance under federal tax laws. The
excess amount would be returned.
PREMIUM LOAD; NET PREMIUM PAYMENT
Lincoln Life deducts 8.0% from each Premium Payment. This
amount, sometimes referred to as "PREMIUM LOAD," covers
certain Policy-related state tax and federal income tax
liabilities and a portion of the sales expenses incurred by
Lincoln Life. The Premium Payment, net of the premium load,
is called the "NET PREMIUM PAYMENT."
RIGHT-TO-EXAMINE PERIOD
The Owner may return the Policy to Lincoln Life for
cancellation as follows. If the Owner mails or delivers the
Policy to the Administrative Office on or before 10 days (20
to 30 days in some states) after delivery of the Policy and
notice of surrender rights to the Owner, ("RIGHT-TO-EXAMINE
PERIOD") Lincoln Life will refund to the Owner all Premium
Payments.
Any Premium Payments received by Lincoln Life before the end
of the Right-to-Examine Period will be held in the Money
Market Account, and will be allocated to the Sub-Accounts
designated by the Owner at the end of a Right-to-Examine
Period. If the Policy is returned for cancellation within
the Right-to-Examine Period, any Premium Payments will be
returned within seven days, although any refund of a Premium
Payment made by check may be delayed until the check clears.
TRANSFERS AND ALLOCATION AMONG ACCOUNTS
ALLOCATION OF NET PREMIUM PAYMENTS
The allocation of Net Premium Payments among the Fixed and
Variable Sub-Accounts may be set forth in the application.
An Owner may change the allocation of future Net Premium
Payments at any time. In any allocation, the amount
allocated to any Sub-Account must be in whole percentages.
No allocation can be made which would result
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in a Sub-Account Value of less than $50 or a Fixed Account
Value of $2,500. Lincoln Life, at its sole discretion, may
waive minimum balance requirements on the Sub-Accounts.
TRANSFERS
The Owner may make transfers among the Sub-Accounts, on the
terms set forth below, at any time before the younger
Insured reaches or would have reached Age 100. The Owner
should carefully consider current market conditions and each
Sub-Account's investment policies and related risks before
allocating money to the Sub-Accounts.
Transfer of amounts of at least $500 from one Variable
Sub-Account to another or from the Variable Sub-Accounts to
the Fixed Account are possible at any time. Within 30 days
after each anniversary of the Date of Issue, the Owner may
transfer up to 20% of the Fixed Account Value (as of the
preceding anniversary of the Date of Issue) to one or more
Variable Sub-Accounts. Up to 12 transfer requests (a request
may involve more than a single transfer) may be made in any
Policy Year without charge, and any value remaining in a
Sub-Account after a transfer must be at least $500. Lincoln
Life reserves the right to impose a charge for each transfer
request in excess of 12 requests in any Policy Year. Lincoln
Life may further limit transfers from the Fixed Account at
any time.
Transfers must be made in proper written form, unless the
Owner has given written authorization to Lincoln Life to
accept telephone transactions. Authorization to engage in
telephone transactions and permitted telephone transactions
must be made in accordance with the procedures described in
COMMUNICATIONS WITH LINCOLN LIFE, TELEPHONE TRANSACTION
PRIVILEGES. Written transfer requests or adequately
authenticated telephone transfer requests received at the
Administrative Office by the close of the New York Stock
Exchange (usually 4:00 PM ET) on a Valuation Day will be
effected as of that day. Otherwise, requests will be
effective as of the next Valuation Day.
Any transfer among the Variable Sub-Accounts or to the Fixed
Account will result in the crediting and cancellation of
Accumulation Units based on the Accumulation Unit values
next determined after the Administrative Office receives a
request in proper written form or adequately authenticated
telephone transfer requests. Any transfer made which causes
the remaining value of Accumulation Units for a Variable
Sub-Account or the Fixed Account to be less than $500 will
result in those remaining Accumulation Units being canceled
and their aggregate value reallocated proportionately among
the other Variable Sub-Accounts and the Fixed Account to
which Policy values are then allocated.
OPTIONAL SUB-ACCOUNT ALLOCATION PROGRAMS
The Owner may elect to participate in programs providing for
Dollar Cost Averaging or Automatic Rebalancing, but may
participate in only one program at any time.
DOLLAR COST AVERAGING
Dollar Cost Averaging systematically transfers specified
dollar amounts from the Money Market Sub-Account. Transfer
allocations may be made to one or more of the Sub-Accounts
on a monthly or quarterly basis. These transfers do not
count against the free transfers available. By making
allocations on a regularly scheduled basis, instead of on a
lump sum basis, an Owner may reduce exposure to market
volatility. Dollar Cost Averaging will not assure a profit
or protect against a declining market.
If the Owner elects Dollar Cost Averaging, the value in the
Money Market Sub-Account must be at least $1,000 initially.
The minimum amount that may be allocated is $50 monthly.
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<PAGE>
An election for Dollar Cost Averaging is effective after the
Administrative Office receives a request from the Owner in
proper written form or by telephone, if adequately
authenticated. An election is effective within ten business
days, but only if there is sufficient value in the Money
Market Sub-Account. Lincoln Life may, in its sole
discretion, waive Dollar Cost Averaging minimum deposit and
transfer requirements.
Dollar Cost Averaging terminates automatically: (1) if the
number of designated transfers has been completed; (2) if
the value in the Money Market Sub-Account is insufficient to
complete the next transfer; (3) within one week after the
Administrative Office receives a request for termination in
proper written form or by telephone, if adequately
authenticated; or (4) if the Policy is surrendered.
Currently, there is no charge for Dollar Cost Averaging, but
Lincoln Life reserves the right to impose a charge.
AUTOMATIC REBALANCING
Automatic Rebalancing periodically restores to a
pre-determined level the percentage of Policy value
allocated to each Variable Sub-Account (e.g. 20% Money
Market, 50% Growth, 30% Utilities). The Fixed Account is not
subject to rebalancing. The pre-determined level is the
allocation initially selected on the application, until
changed by the Owner. If Automatic Rebalancing is elected,
all Net Premium Payments allocated to the Variable
Sub-Accounts will be subject to Automatic Rebalancing.
The Owner may select Automatic Rebalancing on a quarterly,
semi-annual or annual basis. Automatic Rebalancing may be
elected, terminated or the allocation may be changed at any
time, effective within ten business days upon receipt by the
Administrative Office of a request in proper written form or
by telephone, if adequately authenticated.
Currently, there is no current charge for Automatic
Rebalancing, but Lincoln Life reserves the right to impose a
charge.
POLICY VALUES
The Accumulation Value of the Policy depends on the
performance of the underlying investments. Policy values are
used to fund Policy fees and expenses, including the Cost of
Insurance. Premium Payments to meet your objectives will
vary based on the investment performance of the underlying
investments. A market downturn, affecting the Variable
Sub-Accounts upon which the Accumulation Value of a
particular Policy depends, may require Additional Premium
Payments beyond those expected (unless the No Lapse
Provision requirements have been satisfied) to maintain the
level of coverage or to avoid lapse of the Policy. Review of
periodic statements is strongly suggested to determine if
Additional Premium Payments may be necessary to avoid lapse
of the Policy.
Each Owner will be advised at least annually of the
Accumulation Value, the number of Accumulation Units which
remain credited to the Policy, the current Accumulation Unit
values, the Variable Sub-Account values, the Fixed Account
Value and the Loan Account Value.
ACCUMULATION VALUE
Each Net Premium Payment will be credited to the Policy as
of the end of the Valuation Period in which it is received
at the Administrative Office. The "ACCUMULATION VALUE" of a
Policy is determined by: (1) multiplying the total number of
Variable Accumulation
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Units credited to the Policy for each Variable Sub-Account
by its appropriate current Variable Accumulation Unit Value;
(2) if a combination of Variable Sub-Accounts is elected,
totaling the resulting values; and (3) adding any values
attributable to the Fixed Account and the Loan Account. The
Accumulation Value will be affected by Monthly Deductions.
VARIABLE ACCOUNT VALUE
VARIABLE ACCUMULATION UNIT VALUE
When all or a part of a Net Premium Payment is allocated to
a Variable Sub-Account, the amount allocated is converted
into Variable Accumulation Units by dividing the amount
allocated to the Variable Sub-Account by the value of the
Variable Accumulation Unit for the Variable Sub-Account
calculated at the end of the Valuation Period in which it is
received at the Administrative Office. The Variable
Accumulation Unit value for each Variable Sub-Account was
established at $10.00 for the first Valuation Period of the
particular Variable Sub-Account. The Variable Accumulation
Unit value for each Variable Sub-Account would thereafter
vary independently of the other Variable Sub-Accounts and
may increase or decrease from one Valuation Period to the
next. Allocations to Variable Sub-Accounts are made only as
of the end of a day, called the "VALUATION DAY," on which
the New York Stock Exchange is open for business.
VARIABLE ACCUMULATION UNITS
A "VARIABLE ACCUMULATION UNIT" is a unit of measure used in
the calculation of the value of each Variable Sub-Account.
The Variable Accumulation Unit value will be as determined
for the Valuation Period during which a Premium Payment or
request for transfer is received by Lincoln Life. The
Variable Accumulation Unit value for a Variable Sub-Account
for any later Valuation Period is determined as follows:
1.The total value of Fund shares held in the Variable
Sub-Account is calculated by multiplying the number of
Fund shares owned by the Variable 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 Variable Sub-Account at the end
of the Valuation Period; such liabilities include daily
charges imposed on the Variable 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 Variable
Accumulation Units outstanding at the beginning of the
Valuation Period.
The daily charges imposed on a Variable Sub-Account for any
Valuation Period are equal to the daily mortality and
expense risk charge multiplied by the number of calendar
days in the Valuation Period. The amount of Monthly
Deduction allocated to each Variable Sub-Account will result
in the cancellation of Variable Accumulation Units that have
an aggregate value on the date of such deduction equal to
the total amount by which the Variable Sub-Account is
reduced.
The number of Variable Accumulation Units credited to a
Policy will not be changed by any subsequent change in the
value of a Variable Accumulation Unit. Such value may vary
from Valuation Period to Valuation Period to reflect the
investment experience of the Fund used in a particular
Variable Sub-Account and fees and charges under the Policy.
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<PAGE>
FIXED ACCOUNT AND LOAN ACCOUNT VALUE
The Fixed Account Value and the Loan Account Value reflect
amounts allocated to Lincoln Life's general account through
payment of premiums or through transfers from the Variable
Account. The Fixed Account Value is guaranteed by Lincoln
Life.
NET ACCUMULATION VALUE
The "NET ACCUMULATION VALUE" is the Accumulation Value less
the Loan Account Value. The Net Accumulation Value
represents the net value of the Policy and is the basis for
calculating the Surrender Value.
FUNDS
Each of the Variable Sub-Accounts is invested solely in the
shares of one of the Funds available under the Policies.
Each of the Funds is a series of one of sixteen
Massachusetts or Delaware business trusts or Maryland
corporations. Each such trust or corporation 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 the Delaware Group Emerging Market Series are
diversified under the 1940 Act.
Listed below are the Fund Groups, their investment advisers
and distributors, and the Funds within each that are
available under the Policies:
AIM VARIABLE INSURANCE FUNDS, INC., managed by AIM Advisors,
Inc., and distributed by AIM Distributors Inc., 11 Greenway
Plaza, Suite 100, Houston, TX 77046-1173
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
BARON CAPITAL FUNDS TRUST, managed and distributed by Baron
Capital Inc. , 767 Fifth Avenue, New York, NY 10153
Baron Capital Asset Fund
BT INSURANCE FUNDS 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
BT EAFE-Registered Trademark- Equity Index Fund
BT Equity 500 Index Fund
BT Small Cap Index Fund
DELAWARE GROUP PREMIUM FUND, INC., managed by Delaware
Management Company, Inc., 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
Delaware Group Delchester Series
Delaware Group Devon Series
Delaware Group Emerging Markets Series
Delaware Group REIT Series
Delaware Group Small Cap Value Series
Delaware Group Trend Series
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FIDELITY VARIABLE INSURANCE PRODUCTS FUND II, AND VARIABLE
INSURANCE PRODUCTS FUND III, managed by Fidelity Management
& Research Company and distributed by Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, MA 02103
Fidelity VIP II Contrafund Portfolio -- Service Class
Fidelity VIP III Growth Opportunities Portfolio --
Service Class
JANUS ASPEN SERIES, managed by Janus Capital, 100 Fillmore
St. Denver, CO 80206-4928, and self-distributed.
Janus Balanced Portfolio
Janus Worldwide Growth Portfolio
LINCOLN NATIONAL FUNDS, managed by Lincoln Investment
Management, Inc., 200 East
Berry Street, Fort Wayne IN 46802, and distributed by
Lincoln Financial Advisors, Inc., 1300 S. Clinton Street,
Fort Wayne, IN 46802. Sub-advisors are also noted.
LN Bond Fund, Inc.
LN Capital Appreciation Fund, Inc. (Sub-advised by Janus
Capital)
LN Equity-Income Fund, Inc. (Sub-advised by Fidelity
Management Trust Co.)
LN Global Asset Allocation Fund, Inc. (Sub-advised by
Putnam Investment Management, Inc.)
LN Money Market Fund, Inc.
LN Social Awareness Fund, Inc. (Sub-advised by Vantage
Investment Advisors)
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST, managed
by Massachusetts Financial Services Company and distributed
by MFS Fund Distributors, Inc., 500 Boylston Street, Boston,
MA 02116
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST, managed and
distributed by N&B Management Incorporated, 605 Third
Avenue, 2nd Floor, New York, NY 10158-0006
N&B AMT Mid-Cap Growth Portfolio
N&B AMT Partners Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND, managed by
Templeton Investment Counsel, Inc. and its Templeton and
Franklin affiliates and distributed by Franklin/ Templeton
Distributors, Inc., 100 Fountain Parkway, St. Petersburg, FL
33716-1205
Templeton International Fund -- Class 2
Templeton Stock Fund -- Class 2
The investment advisory fees charged the Funds by their
advisers are shown on page 21 of this Prospectus.
Below is a brief description of the investment objective and
program of each Fund. There can be no assurance that any of
the stated investment objectives will be achieved.
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
a criterion of investment selection, and any such income
should be considered incidental.
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<PAGE>
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 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.
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 markets generally. Income is a secondary
objective and would be satisfied principally from the
interest (interest and dividends) generated by the common
stocks, convertible bonds and convertible preferred stocks
that make up the Fund's portfolio.
BARON CAPITAL ASSET FUND (Mid Cap Stocks): Seeks capital
appreciation through investments in securities of small
sized companies with market capitalizations of approximately
$100 million to $1 billion, and medium sized companies with
market capitalizations of $1 billion to $2 billion, with
undervalued assets or favorable growth prospects.
BT EAFE-REGISTERED TRADEMARK- FUND (Large Cap Stocks --
International): Seeks to replicate as closely as possible
(before the deduction of Expenses) the total return of the
Europe, Australia, Far East Index (the
EAFE-Registered Trademark- Index) , a
capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United
States.
BT 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.
BT SMALL CAP INDEX FUND (Small Cap Stocks): Seeks to
replicate as closely as possible (before the deduction of
Expenses) the total return of the Russell 2000 Small Stock
Index (the "Russell 2000"), an index consisting of
approximately 2,000 small-capitalization common stocks.
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.
DELAWARE GROUP DEVON SERIES (Large Cap Stocks): Seeks
current income and capital appreciation 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 EMERGING MARKETS SERIES (Specialty): Seeks to
achieve long-term capital appreciation by investing
primarily in equity securities of issuers located or
operating in emerging counties. 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.
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<PAGE>
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 marketplace and to have fundamental characteristics
to support growth. Income is not an objective.
FIDELITY VIP II CONTRAFUND PORTFOLIO -- SERVICE CLASS (Large
Cap Stocks): Seeks capital appreciation by investing
primarily in securities of companies whose value the advisor
believes is not fully recognized by the public.
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO -- SERVICE
CLASS (Large Cap Stocks): Seeks capital growth by investing
primarily in common stocks and securities convertible into
common stocks.
JANUS BALANCED PORTFOLIO (Large Cap Stocks): Seeks long term
growth of capital, balanced by current income. The Portfolio
normally invests 40-60% of its assets in securities selected
primarily for their growth potential and 40-60% of its
assets in securities selected primarily for their income
potential.
JANUS WORLDWIDE GROWTH PORTFOLIO (Large Cap Stocks): Seeks
long-term growth of capital in a manner consistent with the
preservation of capital by investing primarily in common
stocks of foreign and domestic insurers.
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 CAPITAL APPRECIATION FUND (Large Cap
Stocks): Seeks long-term growth of capital in a manner
consistent with preservation of capital. The fund invests in
a large number of companies of all sizes if the companies
are competing well and if their products and services are in
high demand. It may also buy some money market securities
and bonds, including junk (high risk) bonds.
LINCOLN NATIONAL EQUITY-INCOME FUND (Large Cap Stocks):
Seeks to achieve reasonable income by investing primarily in
income-producing equity securities. The fund invests mostly
in high-yielding bonds (including junk bonds)
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND (Large Cap
Stocks): Seeks long-term total return consistent with
preservation of capital. The fund allocates its assets among
several categories of equity and fixed-income securities,
both of U.S. and foreign insurers.
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-chartered banks and U.S. branches of foreign
banks.
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<PAGE>
LINCOLN NATIONAL SOCIAL AWARENESS FUND (Specialty): Seeks to
achieve long-term capital appreciation, by investing in
stocks of established companies which adhere to certain
specific social criteria.
MFS 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 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 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.
N&B AMT MID-CAP GROWTH PORTFOLIO (Mid Cap Stocks): Seeks out
capital appreciation by investing in equity securities of
medium sized companies.
N&B AMT PARTNERS PORTFOLIO (Large Cap Stocks): Seeks capital
growth by investing in common stocks and other equity
securities of medium to large capitalization established
companies.
TEMPLETON INTERNATIONAL FUND -- CLASS 2 (Large Cap Stocks):
Seeks long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States. Any income realized
will be incidental.
TEMPLETON STOCK FUND -- CLASS 2 (Large Cap Stocks): Seeks
capital growth through a policy of investing primarily in
common and preferred stocks issued by companies, large and
small, in various nations throughout the world, including
the United States.
The Delaware Group Delchester Series Delaware Group Emerging
Markets Series, Delaware Group Small Cap Value Series, Janus
Balanced, Lincoln National Bond Fund, Lincoln National
Equity-Income Fund, Lincoln National Global Asset Allocation
Fund, MFS Emerging Growth Series, MFS Total Return Series,
and MFS Utilities Series 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.
There is no assurance that the investment objective of any
of the Funds will be met. Each Owner assumes all of the
investment performance risk for the Variable Sub-Accounts
selected by the Owner. There is investment performance risk
in each of the Variable Sub-Accounts, although the amount of
such risk varies significantly among the Variable
Sub-Accounts. Owners should read each Fund's prospectus
carefully and understand the risks before making or changing
investment choices. Additional Funds may, from time to time,
be made available as underlying investments. The right to
select among Funds will be limited by the terms and
conditions imposed by Lincoln Life (SEE ALLOCATION OF NET
PREMIUM PAYMENTS).
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 cease
to be appropriate in view of the purpose of the Variable
Account or in view of
18
<PAGE>
legal, regulatory or federal income tax restrictions,
Lincoln Life may substitute shares of another Fund. There
will be no substitution of securities in any Variable
Sub-Account without prior approval of the Commission.
VOTING RIGHTS
Lincoln Life will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Fund in accordance with instructions received
by the Administrative Office in proper written form from
persons having a voting interest in the Variable Account.
Lincoln Life will vote shares for which it has not received
instructions in the same proportion as it votes shares for
which it has received instructions. The Funds do not hold
regular meetings of shareholders.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Trust not more than sixty (60) days prior to the meeting of
the particular Fund. Voting instructions will be solicited
by written communication at least fourteen (14) days prior
to the meeting.
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 Funds do not foresee
any disadvantage to 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 Fund Groups'
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.
FUND PARTICIPATION AGREEMENTS
Lincoln Life has entered into agreements with the various
Funds and their advisers or distributors under which Lincoln
Life makes the Funds available under the Policies and
performs certain administrative services. In some cases, the
advisers or distributors may compensate Lincoln Life at
annual rates of between .10% and .25% of assets in a
particular Fund attributable to the Policies.
CHARGES AND FEES
Charges will be deducted in connection with the Policy to
compensate Lincoln Life for providing the insurance benefit
set forth in the Policy, administering the Policy, assuming
certain risks in connection with the Policy and for
incurring expenses associated with the distribution of the
Policy.
The nature and amount of these charges are as follows:
DEDUCTIONS MADE MONTHLY
There are various expense deductions that are made monthly.
The Monthly Deduction, including the Cost of Insurance
Charge is made from the Net Accumulation Value.
The Monthly Deductions are deducted proportionately from the
value of each underlying investment subject to the charge.
In the case of Variable Sub-Accounts, Variable Accumulation
Units are canceled and the value of the canceled Variable
Accumulation Units is withdrawn in the same proportion as
their respective values have to the Net Accumulation Value.
The Monthly Deductions are made on the Monthly Anniversary
Day
19
<PAGE>
starting on the Date of Issue. The "MONTHLY ANNIVERSARY DAY"
under the Policy is the same day of each month as the Date
of Issue, provided that if there is no such date in a given
month, it is the first Valuation Day of the next month. If
the day that would otherwise be a Monthly Anniversary Day is
not a Valuation Day, then the Monthly Anniversary Day is the
next Valuation Day.
If either Insured is still living when the younger Insured
would have attained Age 100 and the Policy has not been
surrendered, no further Monthly Deductions will be made and
the Variable Account Value will be transferred to the Fixed
Account. The Policy will then remain in force until
surrender or the Second Death.
MONTHLY DEDUCTION
There is a flat dollar Monthly Deduction of $12.50 until the
first Policy Anniversary and, currently, $5 thereafter
(guaranteed not to exceed $10 after the first Policy Year).
In addition there is a Monthly Deduction charge of $0.09 per
$1000 of Specified Amount for the first twenty years of the
Policy and for the first twenty years following an increase
in Specified Amount. If the No Lapse Provision is in effect
there will also be a Monthly Deduction of $0.01 per $1000 of
Specified Amount.
These charges compensate Lincoln Life for administrative
expenses associated with Policy issue and ongoing Policy
maintenance including premium billing and collection, policy
value calculation, confirmations, periodic reports and other
similar matters.
COST OF INSURANCE CHARGE
The Cost of Insurance charge depends on the Age,
underwriting category and gender (in accordance with state
law) of both Insureds and the current Net Amount at Risk.
The rate on which the Monthly Deduction for the Cost of
Insurance is based will generally increase as the Insureds
age, although the Cost of Insurance charge could decline if
the Net Amount at Risk drops relatively faster than the Cost
of Insurance Rate increases.
The Cost of Insurance charge is determined by dividing the
Death Benefit at the previous Monthly Anniversary Day by
1.0032737 (the monthly equivalent of an annual rate of 4%),
subtracting the Accumulation Value at the previous Monthly
Anniversary Day, and multiplying the result (the "NET AMOUNT
AT RISK") by the applicable Cost of Insurance Rate as
determined by Lincoln Life. The Guaranteed Maximum Cost of
Insurance Rates, per $1,000 of Net Amount at Risk, for
standard risks are based on the 1980 Commissioners Standard
Ordinary Mortality Tables, Age Nearest Birthday (1980 CSO,
Male or Female); or, for unisex rates, on the 1980 CSO-B
Table.
MORTALITY AND EXPENSE RISK CHARGE
Lincoln Life deducts a daily charge as a percentage of the
assets of the Separate Account as a mortality and expense
risk charge. The mortality risk assumed is that insureds may
live for a shorter period than estimated, and therefore, a
greater amount of death benefit will be payable. The expense
risk assumed is that expenses incurred is issuing and
administering the policies will be greater than estimated.
The mortality and expense risk charge is currently 0.80% per
year, and is guaranteed not to exceed 0.90% per year.
20
<PAGE>
FUND EXPENSES
The investment advisor for each of the Funds deducts a daily
charge as a percent of the net assets in each fund as an
asset management charge. The charge reflects fees of the
investment advisor (Management Fees), and other expenses
incurred by the funds (12b-1 fees for Class 2 shares and
Other Expenses). The charge has the effect of reducing the
investment results credited to the Sub-Accounts.
<TABLE>
<CAPTION>
FUND PORTFOLIO ANNUAL EXPENSES
-------------------------------------
MANAGEMENT 12b-1 OTHER
FUND FEES FEES EXPENSES TOTAL
- -------------------------------------------------------------------------- ---------- ----- -------- -----
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund (1).................................................. 0.65% -- 0.08% 0.73%
AIM V.I. International Equity Fund (1).................................... 0.75% -- 0.18% 0.93%
AIM V.I. Value Fund (1)................................................... 0.62% -- 0.08% 0.70%
Baron Capital Asset Fund (2).............................................. 1.00% 0.25% 0.25% 1.50%
BT EAFE Index Fund (3).................................................... 0.45% -- 0.20% 0.65%
BT Equity 500 Index Fund (3).............................................. 0.20% -- 0.10% 0.30%
BT Small Cap Index Fund (3)............................................... 0.35% -- 0.10% 0.45%
Delaware Group Delchester Series (4)...................................... 0.60% -- 0.10% 0.70%
Delaware Group Devon Series (4)(5)........................................ 0.54% -- 0.26% 0.80%
Delaware Group Emerging Markets Series (4)(5)............................. 0.30% -- 1.20% 1.50%
Delaware Group REIT Series (4)............................................ 0.75% -- 0.10% 0.85%
Delaware Group Small Cap Value Series (4)(5).............................. 0.60% -- 0.25% 0.85%
Delaware Group Trend Series (4)(5)........................................ 0.62% 0.23% 0.85%
Fidelity VIPII Contrafund Portfolio -- Service Class (6).................. 0.60% 0.10% 0.11% 0.81%
Fidelity VIPIII Growth Opportunities Portfolio -- Service Class (6)....... 0.60% 0.10% 0.14% 0.84%
Janus Balanced Portfolio (7).............................................. 0.76% -- 0.07% 0.83%
Janus Worldwide Growth Portfolio (7)...................................... 0.66% -- 0.08% 0.74%
LN Bond Fund.............................................................. 0.46% -- 0.07% 0.53%
LN Capital Appreciation Fund (8).......................................... 0.75% -- 0.09% 0.84%
LN Equity Income Fund (8)................................................. 0.75% -- 0.07% 0.82%
LN Global Asset Allocation Fund........................................... 0.72% -- 0.17% 0.89%
LN Money Market Fund...................................................... 0.48% -- 0.11% 0.59%
LN Social Awareness Fund.................................................. 0.36% -- 0.05% 0.41%
MFS Emerging Growth Series (9)............................................ 0.75% -- 0.12% 0.87%
MFS Total Return Series (9)(10)........................................... 0.75% -- 0.25% 1.00%
MFS Utilities Series (9)(10).............................................. 0.75% -- 0.25% 1.00%
AMT MidCap Growth Portfolio (11).......................................... 0.55% -- 0.30% 0.85%
AMT Partners Portfolio (11)............................................... 0.80% -- 0.06% 0.86%
Templeton International Fund -- Class 2 (12).............................. 0.69% 0.25% 0.19% 1.13%
Templeton Stock Fund -- Classs 2 (12)..................................... 0.69% 0.25% 0.19% 1.13%
</TABLE>
---------------------------------------------------
(1) AIM 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, as described
in the accompanying prospectus for the Funds. 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
21
<PAGE>
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) BAMCO, Inc. will reduce its fee to the extent required
to limit Baron Capital Asset Fund's total operating
expenses to 1.5% for the first $250 million in assets
in the Fund, 1.35% for the Fund assets over $250
million and up to $500 million, and 1.25% for Fund
assets over $500 million. Without the expense
limitations, the Fund estimates that actual expenses
would be 1.6%,
(3) 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
EAFE Index Fund, the Equity 500 Index Fund and the
Small Cap 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 EAFE Index Fund, the Equity 500
Index Fund and the Small Cap Index Fund total operating
expenses will not exceed 0.65%, .30%., and 0.45%
respectively. 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 2.75%, 2.78% and 3.27% respectively.
(4) The investment adviser for the Delchester Series, Devon
Series, REIT Series, Small Cap Value Series, Social
Awareness Series and Trend Series is Delaware
Management Company, Inc. ("Delaware Management"). The
investment adviser for the 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, 0.85% for the REIT Series,
Small Cap Value Series, Social Awareness Series and
Trend Series, and 0.80% for the Delchester Series and
Devon Series.
(5) 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 the Devon Series, 2.45% for
the Emerging Market Series, 0.90% for Small Cap Value
Series, 1.40% for the Social Awareness Series, and
0.88% for Trend Series. The declaration of a voluntary
expense limitation does not bind the investment
advisers to declare future expense limitations with
respect to these Funds.
(6) A portion of the brokerage commissions that certain
funds paid 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 and transfer agent expenses. Including
these reductions, Total Fund Portfolio Annual Expenses
would have been 0.78% for the VIP II Contrafund
Portfolio and 0.83% for the VIP III Growth
Opportunities Portfolio.
(7) Management Fees for the Balanced and Worldwide Growth
Portfolios reflect a reduced fee schedule effective
July 1, 1997. The Management Fee for each of these
Portfolios reflects the new rate applied to the net
assets as of December 31, 1997. Other expenses are
based on gross expenses of the shares before expense
offset arrangements for the fiscal year ended December
31, 1997. The information for each Portfolio is net of
fee waivers or reductions from Janus Capital. Fee
reductions for the Balanced and Worldwide Growth
Portfolios reduce the management fee to the level of
the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management
fee and then against other expenses. Without such
waivers or reductions, the Management Fee, Other
Expenses and Total Fund Expenses for the Balanced
Portfolio would have been 0.77%, 0.06% and 0.83% and
for the Worldwide Growth Portfolio would have been
0.72%, 0.09% and 0.81%. Janus Capital may modify or
terminate the waivers or reductions at any time upon at
least 90 days' notice to the Fund's Board of Trustees.
(8) The management fee for the Capital Appreciation Fund
has been decreased from 0.80% to 0.75% effective May 1,
1998, and for the Equity-Income fund it has been
decreased from 0.95% to 0.75% effective January 1,
1998. The expense information in this table has been
restated to reflect current fees.
(9) 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".
(10) The Massachusetts Financial Services Company Adviser
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
22
<PAGE>
current fiscal year. Otherwise, "Other Expenses" for
the Total Return Series and Utilities Series would be
0.27% and 0.45% respectively, and "Total Fund
Portfolio Annual Expenses" would be 1.02% and 1.20%
respectively, for these Series. See "Information
Concerning Shares of Each Series Expenses."
(11) N&B Management has voluntarily undertaken to limit the
Portfolios' expenses by reimbursing each Portfolio for
its Total Operating Expenses and its pro rata share of
its corresponding Series' Total Operating Expenses,
excluding the compensation of N&B Management (except
Mid-Cap Growth Portfolio), taxes, interest,
extraordinary expenses, brokerage commissions and
transaction costs, that exceed, in the aggregate, 1%
per annum of the Portfolio's average daily net asset
value. This undertaking is subject to termination on
60 days' prior written notice to the appropriate
Portfolio. The Mid-Cap Growth Portfolio has in turn
agreed to repay through December 31, 1999, expenses
borne by N&B Management so long as the Portfolio's
annual operating expenses during that period do not
exceed the expense limitations.
(12) Class 2 of the Fund has a distribution plan or "Rule
12b-1 plan" as described under "Distribution Plan" in
the Prospectus. Because Class 2 shares were not
offered until May 1, 1997, figures (other than 12b-1
fees) are estimates for 1998 based on the historical
expenses of the Fund's Class 1 shares for the fiscal
year ended December 31, 1997. Management Fees and
Total Operating Expenses have been restated to reflect
the management fee schedule approved by shareholders
and effective May 1, 1997. Actual Management Fees and
Total Operating Expenses before May 1, 1997 were
lower. See the section "Management Fees" under
"Portfolio Management" in the Prospectus.
SURRENDER CHARGES
A generally declining surrender charge ("SURRENDER CHARGE")
will apply if the Policy is totally surrendered or lapses
during the first fifteen years following the Date of Issue
or the first fifteen years following an increase in
Specified Amount. The Surrender Charge varies by Age of the
Insureds, the number of years since the Date of Issue, and
Specified Amount. The charge is in part a deferred sales
charge and in part a recovery of certain first year
administrative costs. The maximum Surrender Charge is
included in each Policy and is in compliance with each
state's nonforfeiture law. Examples of the Surrender Charge
can be seen in Appendix 4 by subtracting "Surrender Value"
from "Total Accumulation Value" on any chosen set of
investment return assumptions.
The surrender charge under a Policy is proportional to the
face amount of the Policy. Expressed as a percentage of face
amount, it is higher for older than for younger issue ages.
For example, assuming issue ages 80 (the oldest possible
issue ages for a Policy), the first year surrender charge is
$37.40 per $1000 of face amount. At issue ages 65 it is
$25.10 per $1000 of face amount, at issue ages 55 it is
$13.68 per $1000 of face amount, and at issue ages 25 it is
$2.87 per $1000 of face amount. These calculations assume
both insureds are the same age. The surrender charge cannot
exceed Policy value. All surrender charges decline to zero
over the 15 years following issuance of the Policy. See, for
example, the illustrations in Appendix 4 for issue ages 55
and 65.
If the Specified Amount is increased, a new Surrender Charge
will be applicable, in addition to any existing Surrender
Charge. The Surrender Charge applicable to the increase
would be equal to the Surrender Charge on a new Policy whose
Specified Amount was equal to the amount of the increase.
Supplemental Policy Specifications will be sent to the Owner
upon an increase in Specified Amount reflecting the maximum
additional Surrender Charge in the Table of Surrender
Charges. The minimum allowable increase in Specified Amount
is $1,000. Lincoln Life may change this at any time.
If the Specified Amount is decreased while the Surrender
Charge applies, the Surrender Charge will remain the same.
No Surrender Charge is imposed on a partial surrender, but
an administrative fee of $25 (not to exceed 2% of the amount
surrendered) is imposed, allocated pro-rata among the
Sub-Accounts from which the partial surrender proceeds are
taken.
23
<PAGE>
Any surrenders may result in tax implications. SEE TAX
MATTERS
Based on its actuarial determination, Lincoln Life does not
anticipate that the Surrender Charge, together with the
portion of the premium load attributable to sales expense,
will cover all sales and administrative expenses which
Lincoln Life will incur in connection with the Policy. Any
such shortfall, including but not limited to payment of
sales and distribution expenses, would be available for
recovery from the general account of Lincoln Life, which
supports insurance and annuity obligations.
TRANSACTION FEE FOR EXCESS TRANSFERS
Lincoln Life reserves the right to impose a charge for each
transfer request in excess of 12 in any Policy Year. A
single transfer request, either in writing or by telephone,
may consist of multiple transactions.
DEATH BENEFITS
The applicant must select the Specified Amount of the Death
Benefit, which may not be less than $250,000 and the Death
Benefit Option. The two Death Benefit Options are described
below. The applicant must consider a number of factors in
selecting the Specified Amount, including the amount of
proceeds required on the Second Death and the Owner's
ability to make Premium Payments. In evaluating this
decision, the applicant should consider that the greater the
Net Amount at Risk, the greater the monthly deductions for
the Cost of Insurance.
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available under the
Policy. The amount payable under the Policy is the greater
of (a) the Corridor Death Benefit or (b) the amount
determined under the Death Benefit Option in effect on the
date of the Second Death, less (in each case) any
indebtedness under the Policy. In the case of Death Benefit
Option 1, the Specified Amount is reduced by the amount of
any partial surrender. The "CORRIDOR DEATH BENEFIT" is the
applicable percentage (the "CORRIDOR PERCENTAGE") of the
Accumulation Value required to maintain the Policy as a
"life insurance contract" for Federal income tax purposes.
The Corridor Percentage is 250% through the time the younger
Insured reaches or would have reached Age 40 and decreases
in accordance with the table at page 26 of this Prospectus
to 100% when the younger Insured reaches or would have
reached Age 95.
Death Benefit Option 1 provides Death Benefit Proceeds equal
to the Specified Amount (a minimum of $250,000). If Option 1
is selected, the Policy pays level Death Benefit Proceeds
until the Minimum Death Benefit exceeds the Specified
Amount. (See DEATH BENEFITS, FEDERAL INCOME TAX DEFINITION
OF LIFE INSURANCE).
Death Benefit Option 2 provides Death Benefit Proceeds equal
to the sum of the Specified Amount plus the Accumulation
Value as of the Valuation Day immediately after the second
Insured's death. If Option 2 is selected, the Death Benefit
Proceeds increase or decrease over time, depending on the
amount of premium paid and the investment performance of the
underlying Sub-Accounts.
If for any reason the applicant fails to affirmatively elect
a particular Death Benefit Option, Death Benefit Option 1
shall apply until changed as provided below. The ability of
the Owner to support the Policy is an important factor in
selecting between the Death Benefit Options, because the
greater the Net Amount at Risk at any time, the more that
will be deducted from the value of the Policy to pay the
Cost of Insurance.
24
<PAGE>
Owners who prefer insurance coverage that generally does not
vary in amount and generally has lower Cost of Insurance
Charges should elect Option 1. Owners who prefer to have
favorable investment experience reflected in increased
insurance coverage should select Option 2. Under Option 1,
any Surrender Value at the time of the Second Death will
revert to Lincoln Life.
CHANGES IN DEATH BENEFIT OPTIONS AND SPECIFIED AMOUNT
All requests for changes between Death Benefit Options and
changes in the Specified Amount must be submitted in proper
written form to the Administrative Office. The minimum
amount of increase in Specified Amount currently permitted
is $1,000. If requested, a supplemental application and
evidence of insurability must also be submitted to Lincoln
Life.
In a change from Death Benefit Option 1 to Death Benefit
Option 2, the Specified Amount shall be reduced so it
thereafter equals (a) the amount payable under the Death
Benefit Option in effect immediately before the change,
minus (b) the Accumulation Value immediately before the
change. In a change from Death Benefit Option 2 to Death
Benefit Option 1, the Specified Amount shall be increased so
that it thereafter equals the amount payable under the Death
Benefit Option in effect immediately before the change.
Any reductions in Specified Amount will be made against the
initial Specified Amount and any later increase in the
Specified Amount on a last in, first out basis. Any increase
in the Specified Amount will increase the amount of the
Surrender Charge applicable to the Policy.
Lincoln Life may at its discretion decline any request for a
change between Death Benefit Options or increase in the
Specified Amount. Lincoln Life may at its discretion decline
any request for change of the Death Benefit Option or
reduction of the Specified Amount if, after the change, the
Specified Amount would be less than the minimum Specified
Amount or would reduce the Specified Amount below the level
required to maintain the Policy as life insurance for
purposes of Federal income tax law.
Any change is effective on the first Monthly Anniversary Day
on or after the date of approval of the request by Lincoln
Life, unless the Monthly Deduction Amount would increase as
a result of the change. In that case, the change is
effective on the first Monthly Anniversary Day on which the
Accumulation Value is equal to or greater than the Monthly
Deduction Amount, as increased.
FEDERAL INCOME TAX DEFINITION OF LIFE INSURANCE
The amount of the Death Benefit must satisfy certain
requirements under the Code if the policy is to qualify as
insurance for federal income tax purposes. The amount of the
Death Benefit Proceeds required to be paid under the Code to
maintain the Policy as life insurance under each of the
Death Benefit Options (see INSURANCE COVERAGE PROVISIONS,
DEATH BENEFIT) is equal to the product of the Accumulation
Value and the applicable Corridor Percentage set forth
below.
NOTICE OF DEATH OF INSUREDS
Due Proof of Death must be furnished to Lincoln Life at the
Administrative Office as soon as reasonably practicable
after the death of each Insured. "DUE PROOF OF DEATH" must
be in proper written form and includes a certified copy of
an official death certificate, a certified copy of a decree
of a court of competent jurisdiction as to the finding of
death, or any other proof of death satisfactory to Lincoln
Life.
25
<PAGE>
PAYMENT OF DEATH BENEFIT PROCEEDS
The Death Benefit Proceeds under the Policy will ordinarily
be paid within seven days, if in a lump sum, or in
accordance with any Settlement Option selected by the Owner
or the Beneficiary after receipt at the Administrative
Office of Due Proof of Death of both Insureds. SEE
SETTLEMENT OPTIONS. The amount of the Death Benefit Proceeds
under Option 2 will be determined as of the date of the
Second Death. Payment of the Death Benefit Proceeds may be
delayed if the Policy is contested or if Variable Account
values cannot be determined.
The Owner may elect a Settlement Option before the Second
Death; after the Second Death, if the Owner has not
irrevocably selected a Settlement Option, the Beneficiary
may elect one of the Settlement Options. If no Settlement
Option is selected, the Death Benefit Proceeds will be paid
in a lump sum.
If the Policy is assigned as collateral security, Lincoln
Life will pay any amount due the assignee in one lump sum.
Any remaining Death Benefit Proceeds will be paid as
elected.
A request to elect, change, or revoke a Settlement Option
must be received in proper written form by the
Administrative Office before payment of the lump sum or
under any Settlement Option. The first payment under the
Settlement Option selected will become payable on the date
proceeds are settled under the option. Payments after the
first payment will be made on the first day of each month.
Once payments have begun, the Policy cannot be surrendered
and neither the payee nor the Settlement Option may be
changed.
There are at least four Settlement Options:
The first Settlement Option is an annuity for the
lifetime of the payee.
The second Settlement Option is an annuity for the
lifetime of the payee, with monthly payments guaranteed
for 60, 120, 180, or 240 months.
Under the third Settlement Option, Lincoln Life makes
monthly payments for a stated number of years, at least
five but no more than thirty.
The fourth Settlement Option, provides that Lincoln Life
pays interest annually on the sum left with Lincoln Life
at a rate of at least 3% per year, and pays the amount
on deposit on the payee's death.
Any other Settlement Option offered by Lincoln Life at the
time of election may also be selected.
POLICY LIQUIDITY
The Policy provides only limited liquidity. Subject to
certain limitations, however, the Owner may borrow against
the Surrender Value of the Policy, may make a partial
surrender of some of the Surrender Value of the Policy and
may fully surrender the Policy for its Surrender Value.
POLICY LOANS
The Owner may at any time contract for Policy Loans up to an
aggregate amount not to exceed 90% of the Surrender Value at
the time a Policy Loan is made. It is a condition to
securing a Policy Loan that the Owner execute a loan
agreement and that the Policy be assigned to Lincoln Life
free of any other assignments. Interest on Policy Loans
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accrues at an annual rate of 8%, and loan interest is
payable to Lincoln Life (for its account) once a year in
arrears on each Policy Anniversary, or earlier upon full
surrender or other payment of proceeds of a Policy.
The amount of a loan, plus any accrued but unpaid interest,
is added to the outstanding Policy Loan balance. Unless paid
in advance, any loan interest due will be transferred from
the values in each Fixed and Variable Sub-Account, and
treated as an additional Policy Loan, and added to the Loan
Account Value.
During the first ten Policy Years, Lincoln Life's current
practice is to credit interest to the Loan Account Value at
an annual rate equal to the interest rate charged on the
loan minus 1% (guaranteed not to exceed 2%). Beginning with
the eleventh Policy Year, Lincoln Life's current practice is
to credit interest at an annual rate equal to the interest
rate charged on the loan, less 0% annually (guaranteed not
to exceed 1%). In no case will the annual credited interest
rate be less than 6% in each of the first ten Policy Years
and 7% thereafter.
If the Net Accumulation Value is distributed among more than
one of the Sub-Accounts, transfers from each for loans and
loan interest will be made in proportion to the assets in
each Sub-Account at that time, unless Lincoln Life is
instructed otherwise in proper written form at the
Administrative Office. Repayments on the loan and interest
credited on the Loan Account Value will be allocated
according to the most recent Premium Payment allocation at
the time of the repayment.
A Policy Loan, whether or not repaid, affects the proceeds
payable upon the Second Death and the Accumulation Value.
The longer a Policy Loan is outstanding, the greater the
effect is likely to be. While an outstanding Policy Loan
reduces the amount of assets invested, depending on the
investment results of the Sub-Accounts, the effect could be
favorable or unfavorable.
If at any time the total indebtedness against the Policy,
including interest accrued but not due, equals or exceeds
the then current Accumulation Value less Surrender Charges,
the Policy will terminate without value subject to the
conditions in the Grace Period Provision, unless the No
Lapse Provision is in effect. (SEE LAPSE AND REINSTATEMENT,
LAPSE OF A POLICY)
If a Policy lapses while a loan is outstanding, adverse tax
consequences may result.
PARTIAL SURRENDER
A partial surrender may be made at any time before the
Second Death by request to the Administrative Office in
proper written form or by telephone, if telephone
transactions have been authorized by the Owner. A $25
transaction fee is charged for each partial surrender. Total
partial surrenders may not exceed 90% of the Surrender Value
of the Policy. Each partial surrender may not be less than
$500. Partial surrenders are subject to other limitations as
described below.
Partial surrenders may reduce the Specified Amount and, in
each case, reduce the Death Benefit Proceeds. To the extent
that a requested partial surrender would cause the Specified
Amount to be less than $250,000, the partial surrender will
not be permitted by Lincoln Life. In addition, if following
a partial surrender and the corresponding decrease in the
Specified Amount, the Policy would not comply with the
maximum premium limitations required by federal tax law, the
surrender may be limited to the extent necessary to meet the
federal tax law requirements.
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The effect of partial surrenders on the Death Benefit
Proceeds depends on the Death Benefit Option elected under
the Policy. If Death Benefit Option 1 has been elected, a
partial surrender would reduce the Accumulation Value and
the Specified Amount. The reduction in the Specified Amount,
which would reduce any past increases on a last in, first
out basis, reduces the amount of the Death Benefit Proceeds.
If Death Benefit Option 2 has been elected, a partial
surrender would reduce the Accumulation Value, but would not
reduce the Specified Amount. The reduction in the
Accumulation Value reduces the amount of the Death Benefit
Proceeds.
If the Net Accumulation Value is distributed among more than
one of the Sub-Accounts, surrenders from each will be made
in proportion to the assets in each Sub-Account at the time
of the surrender, unless Lincoln Life is instructed
otherwise in proper written form at the Administrative
Office. Lincoln Life may at its discretion decline any
request for a partial surrender.
SURRENDER OF THE POLICY
The Owner may surrender the Policy at any time. On surrender
of the Policy, Lincoln Life will pay to the Owner, or
assignee, the Surrender Value next computed after receipt of
the request in proper written form at the Administrative
Office. Payment of any amount from the Variable Account on a
full surrender will usually be made within seven calendar
days thereafter. All coverage under the Policy will
automatically terminate if the Owner makes a full surrender.
SURRENDER VALUE
The "SURRENDER VALUE" of a Policy is the amount the Owner
can receive in a lump sum by surrendering the Policy. The
Surrender Value is the Net Accumulation Value less the
Surrender Charge (SEE CHARGES AND FEES, SURRENDER CHARGE).
All or part of the Surrender Value may be applied to one or
more of the Settlement Options. Surrender Values are
illustrated in the Appendix.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of loans or of the Surrender Value from any Variable
Sub-Accounts will be made within 7 days. Payment or transfer
from the Fixed Account may be deferred up to six months at
Lincoln Life's option. If Lincoln Life exercises its right
to defer any payment from the Fixed Account, interest will
accrue and be paid as required by law from the date the
recipient would otherwise have been entitled to receive the
payment.
ASSIGNMENT; CHANGE OF OWNERSHIP
While either Insured is living, the Owner may assign the
Owner's rights in the Policy, including the right to change
the beneficiary designation. The assignment must be in
proper written form, signed by the Owner and recorded at the
Administrative Office. No assignment will affect, or
prejudice Lincoln Life as to, any payment made or action
taken by Lincoln Life before it was recorded. Lincoln Life
is not responsible for any assignment not submitted for
recording, nor is Lincoln Life responsible for the
sufficiency or validity of any assignment. Any assignment is
subject to any indebtedness owed to Lincoln Life at the time
the assignment is recorded and any interest accrued on such
indebtedness after recordation of any assignment.
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Once recorded, the assignment remains effective until
released by the assignee in proper written form. So long as
an effective assignment remains outstanding, the Owner will
not be permitted to take any action with respect to the
Policy without the consent of the assignee in proper written
form.
So long as either Insured is living, the Owner may name a
new Owner by recording a change in ownership in proper
written form at the Administrative Office. On recordation,
the change will be effective as of the date of execution of
the document of transfer or, if there is no such date, the
date of recordation. No such change of ownership will
affect, or prejudice Lincoln Life as to, any payment made or
action taken by Lincoln Life before it was recorded. Lincoln
Life may require that the Policy be submitted to it for
endorsement before making a change.
LAPSE AND REINSTATEMENT
LAPSE OF A POLICY
Except as provided by the No Lapse Provision, if at any time
the Net Accumulation Value is insufficient to pay the
Monthly Deduction, the Policy is subject to lapse and
automatic termination of all coverage under the Policy. The
Net Accumulation Value may be insufficient (1) because it
has been exhausted by earlier deductions, (2) due to poor
investment performance, (3) due to partial surrenders, (4)
due to indebtedness for Policy Loans, or (5) because of some
combination of the foregoing factors. If Lincoln Life has
not received a Premium Payment or payment of indebtedness on
Policy Loans necessary so that the Net Accumulation Value is
sufficient to pay the Monthly Deduction Amount on a Monthly
Anniversary Day, Lincoln Life will send a written notice to
the Owner and any assignee of record. The notice will state
the amount of the Premium Payment or payment of indebtedness
on Policy Loans necessary such that the Net Accumulation
Value is at least equal to two times the Monthly Deduction
Amount. If the minimum required amount set forth in the
notice is not paid to Lincoln Life on or before the day that
is the later of (a) 31 days after the date of mailing of the
notice, and (b) 61 days after the date of the Monthly
Anniversary Day with respect to which such notice was sent
(together, the "GRACE PERIOD"), then the policy shall
terminate and all coverage under the policy shall lapse
without value. If the Second Death occurs during the Grace
Period, Death Benefit Proceeds will be paid, but will be
reduced, in addition to any other reductions, by any unpaid
Monthly Deductions. If the Second Death occurs after the
Policy has lapsed, no Death Benefit Proceeds will be paid.
NO LAPSE PROVISION
The applicant may elect the NO LAPSE PROVISION at issue of
the Policy. If this provision is elected and if at each
Monthly Anniversary Day the sum of all Premium Payments less
any policy loans (including any accrued loan interest) and
partial surrenders is at least equal to the sum of the No
Lapse Premiums (as indicated in the Policy Specifications)
due since the Date of Issue of the Policy, the Policy will
not lapse. A Grace Period will be allotted after each
Monthly Anniversary Day on which insufficient premiums have
been paid (see preceding paragraph). The payment of
sufficient additional premiums during the Grace Period will
keep the No Lapse Provision in force.
The No Lapse Provision will be terminated if the Owner fails
to meet the premium requirements, if there is an increase in
Specified Amount or if the Owner changes the Death Benefit
Option. Once the No Lapse Provision is terminated, it cannot
be reinstated.
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REINSTATEMENT OF A LAPSED POLICY
After the policy has lapsed due to the failure to make a
necessary payment before the end of an applicable Grace
Period, the policy may be reinstated provided (a) the policy
has not been surrendered, (b) there is an application for
reinstatement in proper written form, (c) evidence of
insurability of both insureds is furnished to Lincoln Life
and it agrees to accept the risk, (d) Lincoln Life receives
a payment sufficient to keep the Policy in force for at
least two months, and (e) any accrued loan interest is paid.
The effective date of the reinstated policy shall be the
Monthly Anniversary Day after the date on which Lincoln Life
approves the application for reinstatement. Surrender
Charges will be reinstated as of the Policy Year in which
the Policy lapsed.
If the Policy is reinstated, such reinstatement is effective
on the Monthly Anniversary Day following Lincoln Life
approval. The Accumulation Value at reinstatement will be
the Net Premium Payment then made less all Monthly
Deductions due.
If the Surrender Value is not sufficient to cover the full
Surrender Charge at the time of lapse, the remaining portion
of the Surrender Charge will also be reinstated at the time
of Policy reinstatement.
COMMUNICATIONS WITH LINCOLN LIFE
PROPER WRITTEN FORM
When ever this Prospectus refers to a communication "IN
PROPER WRITTEN FORM," it means a writing, in form and
substance reasonably satisfactory to Lincoln Life, received
at the Administrative Office.
TELEPHONE TRANSACTION PRIVILEGES
Telephone transactions are permitted only if authorized in
proper written form by the applicant or Owner. To effect a
permitted telephone transaction, the Owner or his or her
authorized representative must call the Administrative
Office and provide, as identification, his or her policy
number, a requested portion of his or her Social Security
number, and such other information as Lincoln Life may
require to authenticate the authority of the caller. If
permitted and adequately authenticated, a customer service
representative will accept the telephone transaction
request. Lincoln Life disclaims all liability for losses
resulting from unauthorized or fraudulent telephone
transactions, but acknowledges that if it does not follow
these procedures, which it believes to be reasonable, it may
be liable for such losses.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only when both
Insureds are at least Age 18 but are less than Age 80.
DATE OF COVERAGE
The date of coverage will be the Date of Issue, provided
both Insureds are alive and prior to any change in the
health and insurability of the Insureds as represented in
the application.
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RIGHT TO EXCHANGE THE POLICY
The Owner may, within the first two Policy Years, exchange
the Policy for a permanent life insurance policy then being
offered by Lincoln Life. The benefits for the new policy
will not vary with the investment experience of the Variable
Account. The exchange must be elected within 24 months from
the Date of Issue. No evidence of insurability will be
required.
The Owner, the Insureds and the Beneficiary under the new
policy will be the same as those under the exchanged Policy
on the date of the exchange. The Accumulation Value under
the new Policy will be equal to the Accumulation Value under
the old Policy on the date the exchange request is received.
The new policy will have a Death Benefit on the exchange
date not more than the Death Benefit of the original Policy
immediately prior to the exchange date. If the Accumulation
Value is insufficient to support the Death Benefit, the
Owner will be required to make additional Premium Payments
in order to effect the exchange. The new Policy will have a
Date of Issue and issue Ages as of the date of exchange. The
initial Specified Amount and any increases in Specified
Amount will have the same rate class as those of the
original Policy. Any indebtedness may be transferred to the
new policy.
The exchange may be subject to an equitable adjustment in
rates and values to reflect variances, if any, in the rates
and values between the two Policies. After adjustment, if
any excess is owed the Owner, Lincoln Life will pay the
excess to the Owner in cash. The exchange may be subject to
federal income tax withholding.
If at any time while both Insureds are alive, a change in
the Internal Revenue Code would result in a less favorable
tax treatment of the Insurance provided under the policy or
if the Insureds are legally divorced while the policy is in
force, the Owner may exchange the policy for separate single
life policies on each of the Insureds subject to the
following conditions: (a) evidence of insurability
satisfactory to Lincoln Life is furnished, (b) the amount of
insurance of each new Policy is not larger than one half of
the amount of insurance then in force under the policy, (c)
the premium for each new policy is determined according to
Lincoln Life's rates then in effect for that policy based on
each Insured's then attained age and sex, and (d) any other
requirements as determined by Lincoln Life are met. The new
policy will not take effect until the date all such
requirements are met.
INCONTESTABILITY
Lincoln Life will not contest payment of the Death Benefit
Proceeds based on the initial Specified Amount after the
Policy has been in force for two years from the Date of
Issue so long as both Insureds were alive during those two
years. For any increase in Specified Amount requiring
evidence of insurability, Lincoln Life will not contest
payment of the Death Benefit Proceeds based on such an
increase after it has been in force for two years from its
effective date so long as both Insureds were alive during
those two years.
MISSTATEMENT OF AGE OR GENDER
If the Age or gender of either of the Insureds has been
misstated, the affected benefits will be adjusted. The
amount of the Death Benefit Proceeds will be 1. multiplied
by 2. and then the result added to 3. where:
1. is the Net Amount at Risk at the time of the Second
Death;
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2. is the ratio of the monthly Cost of Insurance applied
in the Policy month of death to the monthly Cost of
Insurance that should have been applied at the true
Age and gender in the Policy month of death; and
3. is the Accumulation Value at the time of the Second
Death.
SUICIDE
If the Second Death is by suicide, while sane or insane,
within two years from the Date of Issue, Lincoln Life will
upon the Second Death pay no more than the sum of the
premiums paid, less any indebtedness and the amount of any
partial surrenders. If the Second Death is by suicide, while
sane or insane, within two years from the date an
application is accepted for an increase in the Specified
Amount, Lincoln Life will upon the Second Death pay no more
than a refund of the monthly charges for the cost of such
additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends
are payable. These Policies do not share in the profits or
surplus earnings of Lincoln Life.
TAX ISSUES
Section 7702 of the Code provides that if certain tests are
met, a Policy will be treated as a life insurance policy for
federal tax purposes. Lincoln Life will monitor compliance
with these tests. The Policy should thus receive the same
federal income tax treatment as fixed benefit life
insurance.
TAX TREATMENT OF DEATH BENEFIT
The death proceeds payable under a Policy are excludable
from gross income of the Beneficiary under Section 101 of
the Code.
FEDERAL INCOME TAX CONSIDERATIONS
Section 7702A of the Code defines modified endowment
contracts as those policies issued or materially changed on
or after June 21, 1988 on which the total premiums paid
during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits
after seven level annual premiums. The Code provides for
taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions
from modified endowment contracts in the same way annuities
are taxed. Modified endowment contract distributions are
defined by the Code as amounts not received as an annuity
and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into
the policy. A 10% tax penalty generally applies to the
taxable portion of such distributions unless the Owner is
over 59 1/2 years of Age or disabled.
The Policies offered by this Prospectus may or may not be
issued as modified endowment contracts. Lincoln Life will
monitor premiums paid and will notify the Owner when the
Policy is in jeopardy of becoming a modified endowment
contract. If a Policy is not a modified endowment contract,
a cash distribution during the first 15 years after a Policy
is issued which causes a reduction in death benefits may
still become fully or partially taxable to the Owner
pursuant to Section 7702(f)(7) of the Code. The Owner should
carefully consider this potential effect and seek further
information before initiating any changes in the terms of
the Policy. Under certain conditions, a Policy may
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become a modified endowment contract as a result of a
material change or a reduction in benefits as defined by
Section 7702A(c) of the Code. Lincoln Life will monitor
compliance with these tests.
In addition to meeting the tests required under Section 7702
and Section 7702A, Section 817(h) of the Code requires that
the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the
Secretary of the Treasury set the standards for measuring
the adequacy of this diversification. A variable life
insurance policy that is not adequately diversified under
these regulations would not be treated as life insurance
under Section 7702 of the Code. To be adequately
diversified, each Variable Sub-Account must meet certain
tests. Lincoln Life believes the Variable Account
investments meet the applicable diversification standards.
Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of funds, transfers
between funds, exchanges of funds or changes in investment
objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code,
Lincoln Life reserves the right to steps required to remain
in compliance.
Lincoln Life will monitor compliance with these regulations
and, to the extent necessary, will change the objectives or
assets of the Variable Sub-Account investments to remain in
compliance. Lincoln Life also reserves the right to make
changes in this Policy or to make distributions from the
Policy to the extent it deems necessary, in its sole
discretion, to continue to qualify this Policy as life
insurance.
A total surrender or termination of the Policy by lapse may
have adverse tax consequences. If the amount received by the
Owner plus total Policy indebtedness exceeds the premiums
paid into the Policy, the excess will generally be treated
as taxable income, whether or not the Policy is a modified
endowment contract.
Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or
Beneficiary.
TAXATION OF LINCOLN LIFE
Lincoln Life is taxed as a life insurance company under the
Code. Since the Variable Account is not a separate entity
from Lincoln Life and its operations form a part of Lincoln
Life, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code.
Investment income and realized capital gains on the assets
of the Separate Account are reinvested and taken into
account in determining the value of Variable Accumulation
Units.
Lincoln Life does not initially expect to incur any Federal
income tax liability that would be chargeable to the
Variable Account. Based upon these expectations, no charge
is currently being made against the Variable Account for
federal income taxes. If, however, Lincoln Life determines
that on a separate company basis such taxes may be incurred,
it reserves the right to assess a charge for such taxes
against the Variable Account.
Lincoln Life may also incur state and local taxes in
addition to premium taxes in several states. At present,
these taxes are not significant. If they increase, however,
additional charges for such taxes may be made.
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OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as
tax advice. Counsel and other competent advisers should be
consulted for more complete information. This discussion is
based on Lincoln Life's understanding of Federal income tax
laws as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the
likelihood of continuation of these current laws and
interpretations.
FAIR VALUE OF THE POLICY
It is sometimes necessary for tax and other reasons to
determine the "fair value" of the Policy. The fair value of
the Policy is measured differently for different purposes.
It is not necessarily the same as the Accumulation Value or
the Net Accumulation Value, although the amount of the Net
Accumulation Value will typically be important in valuing
the Policy for this purpose. For some but not all purposes,
the fair value of the Policy may be the Surrender Value of
the Policy. The fair value of the Policy may be impacted by
developments other than the performance of the underlying
investments. For example, without regard to any other
factor, it increases as the Insureds grow older. Moreover,
on the death of the first of the Insureds to die, it tends
to increase significantly. The Owner should consult with his
or her advisors for guidance as to the appropriate
methodology for determining the fair value of the Policy for
a particular purpose.
DISTRIBUTION OF POLICIES
Lincoln Life intends to offer the Policy in all
jurisdictions where it is licensed to do business. Lincoln
Life, the principal underwriter for the Policies, is
registered with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 as a broker-dealer and
is a member of the National Association of Securities
Dealers ("NASD"). The principal business address of Lincoln
Life is 1300 South Clinton Street, Fort Wayne, IN 46802.
The Policy will be sold by individuals, who in addition to
being licensed as life insurance agents for Lincoln Life,
are also registered representatives. These representatives
ordinarily receive commission and service fees up to 60% of
the first year premium, plus up to 5% of all other premiums
paid. In lieu of premium-based commission, Lincoln Life may
pay equivalent amounts based on Accumulation Value. The
selling office receives additional compensation on the first
year premium and all additional premiums. In some
situations, the selling office may elect to share its
commission with the registered representative. Selling
representatives are also eligible for bonuses and non-cash
compensation if certain production levels are reached. All
compensation is paid from Lincoln Life's resources, which
include sales charges made under this Policy.
CHANGES OF INVESTMENT POLICY
Lincoln Life may materially change the investment policy of
the Variable Account. Lincoln Life must inform the Owners
and obtain all necessary regulatory approvals. Any change
must be submitted to the various state insurance departments
which shall disapprove it if deemed detrimental to the
interests of the Owners or if it renders Lincoln Life's
operations hazardous to the public. If an Owner objects, the
Policy may be converted to a substantially comparable fixed
benefit life insurance policy offered by Lincoln Life on the
life of the Insureds. The Owner has the later of 60 days (6
months in Pennsylvania) from the date of the investment
policy change or 60 days (6 months in Pennsylvania) from
being informed of such change to make this conversion.
Lincoln Life will not require evidence of insurability for
this conversion.
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The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
OTHER CONTRACTS ISSUED BY LINCOLN LIFE
Lincoln Life from time to time offers other variable annuity
contracts and variable life insurance policies with benefits
which vary in accordance with the investment experience of a
separate account of Lincoln Life.
STATE REGULATION
Lincoln Life is subject to the laws of Indiana governing
insurance companies and to regulation by the Indiana
Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year
covering the operation of Lincoln Life for the preceding
year and its financial condition as of the end of such year.
Regulation by the Insurance Department includes periodic
examination to determine Lincoln Life's contract liabilities
and reserves so that the Insurance Department may certify
the items are correct. Lincoln Life's books and accounts are
subject to review by the Insurance Department at all times
and a full examination of its operations is conducted
periodically by the Indiana Department of Insurance. Such
regulation does not, however, involve any supervision of
management or investment practices or policies.
A blanket bond with a per event limit of $25 million and an
annual policy aggregate limit of $50 million covers all of
the officers and employees of the Company.
REPORTS TO OWNERS
Lincoln Life maintains Policy records and will mail to each
Owner, at the last known address of record, an annual
statement showing the amount of the current Death Benefit,
the Accumulation Value, and Surrender Value, premiums paid
and monthly charges deducted since the last report, the
amounts invested in each Sub-Account and any Loan Account
Value.
Owners will also be sent annual reports containing financial
statements for the Variable Account and annual and
semi-annual reports of the Funds as required by the 1940
Act.
In addition, Owners will receive statements of significant
transactions, such as changes in Specified Amount, changes
in Death Benefit Option, transfers among Sub-Accounts,
Premium Payments, loans, loan repayments, reinstatement and
termination.
ADVERTISING
Lincoln Life is also ranked and rated by independent
financial rating services, including Moody's, Standard &
Poor's, Duff & Phelps and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or
claims-paying ability of Lincoln Life. The ratings are not
intended to reflect the investment experience or financial
strength of the Separate Account. Lincoln Life may advertise
these ratings from time to time. In addition, Lincoln Life
may include in certain advertisements, endorsements in the
form of a list of organizations, individuals or other
parties which recommend Lincoln Life or the Policies.
Furthermore, Lincoln Life may occasionally include in
advertisements comparisons of currently taxable and tax
deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles
and general economic conditions.
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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
lawsuits 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, 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 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.
EXPERTS
Actuarial matters included in this prospectus have been
examined by Vaughn W. Robbins, FSA as stated in the opinion
filed as an exhibit to the registration statement.
Legal matters in connection with the Policies described
herein are being passed upon by Robert A. Picarello, Esq.,
as stated in the opinion filed as an exhibit to the
registration statement.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered hereby. This
Prospectus does not contain all the information set forth in
the Registration Statement and amendments thereto and
exhibits filed as a part thereof, to all of which reference
is hereby made for further information concerning the
Variable Account, Lincoln Life, and the Policies offered
hereby. Statements contained in this Prospectus as to the
content of Policies and other legal instruments are
summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
36
<PAGE>
APPENDIX 1
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits to
identify a year in the date field. These programs were
designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results
by or at the year 2000. The year 2000 issue affects
virtually all companies and organizations.
Lincoln Life, as part of its year 2000 updating process, is
responsible for the updating of the its Account R-related
computer systems. An affiliate of Lincoln Life, Delaware
Service Company (Delaware), provides substantially all of
the necessary accounting and valuation services for Account
R. Delaware, for its part, is responsible for updating all
of its internal computer systems, including those which
service Account R, 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 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, 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 Account R. 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 is being 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.
37
<PAGE>
APPENDIX 2
DIRECTORS AND OFFICERS OF LINCOLN LIFE
The following persons are Directors and Officers of Lincoln
Life. Except as indicated below, the address of each is 1300
South Clinton Street, Fort Wayne, Indiana 46802 and each has
been employed by Lincoln Life or its affiliates for more
than five years.
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S) WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- --------------------------------- ----------------------------------------------------
<S> <C>
NANCY J. ALFORD Vice President [4/96-present], (formerly Second Vice
VICE PRESIDENT President [1/90-4/96]), Lincoln National Life
Insurance Co.
ROLAND C. BAKER President [1/95-present], First Penn-Pacific Life
VICE PRESIDENT AND DIRECTOR Insurance Co. Formerly: Chairman and CFO
1801 S. Meyers Road [7/88-1/95], Baker, Ralish, Shipley and Politzer,
Oakbrook Terrace, Ill. 60181 Inc.
JON A. BOSCIA President and Director, Lincoln National Corp.
DIRECTOR [1/98-present] (Formerly: President and Chief
200 East Berry Street Executive Officer [10/96-1/98] and Chief Operating
Fort Wayne, Ind. 46802 Officer [5/94-10/96]), Lincoln National Life
Insurance Co.; President [7/91-5/94] Lincoln
Investment Management, Inc.
JOHN GOTTA Vice President and General Manager [1/98-present]
SENIOR VICE PRESIDENT AND Lincoln National Life Insurance Co. Formerly: Senior
ASSISTANT SECRETARY Vice President, Connecticut General Life Insurance
350 Church Street Company [3/96-12/97]; Vice President, Connecticut
Hartford, Ct. 06103 Mutual Life Insurance Company [8/94-3/96]; Vice
President, CIGNA [3/93-8/94]
J. MICHAEL HEMP President [11/96-Present], Lincoln Financial
SENIOR VICE PRESIDENT Advisors Corp.; Vice President [10/95-Present],
350 Church Street Lincoln National Life Insurance Co. Formerly:
Hartford, Ct. 06103 Regional Chief Executive Officer [11/79-10/95],
Lincoln Dallas RMO.
STEPHEN H. LEWIS Senior Vice President, [5/94-present] Lincoln
SENIOR VICE PRESIDENT National Life Insurance Co. Formerly: President
[2/85-5/94], First Penn-Pacific Life Insurance Co.
H. THOMAS MCMEEKIN President [5/94-present], Lincoln Investment
DIRECTOR Management, Inc.; Executive Vice President
200 East Berry Street [5/94-Present], Lincoln National Corporation
Fort Wayne, Ind. 46802 (formerly Senior Vice President [11/92-5/94])
ARTHUR S. ROSS Vice President, Lincoln National Life Insurance Co.
VICE PRESIDENT
LAWRENCE T. ROWLAND Executive Vice President [10/96-present] (formerly
EXECUTIVE VICE PRESIDENT AND Senior Vice President [1/93-10/96]), Lincoln
DIRECTOR National Life Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S) WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- --------------------------------- ----------------------------------------------------
<S> <C>
KEITH J. RYAN Senior Vice President (formerly Vice President),
SENIOR VICE PRESIDENT, CHIEF Chief Financial Officer and Assistant Treasurer
FINANCIAL OFFICER AND ASSISTANT [1/96-present]. Formerly: Controller [6/95-12/95],
TREASURER Business Controls Director [11/90-6/95], Lincoln
National Life Insurance Co.
GABRIEL L. SHAHEEN President and Chief Executive Officer
PRESIDENT, CHIEF EXECUTIVE [1/98-present], Lincoln National Life Insurance Co.
OFFICER AND DIRECTOR Formerly: Chairman and Managing Director, Lincoln
National (UK) PLC [12/96-1/98]; President, Lincoln
National Reassurance Company [7-95-12/96]; Senior
Vice President, Lincoln National Life Reinsurance
Company [1/93-7/95]
RICHARD C. VAUGHAN Executive Vice President and Chief Financial Officer
DIRECTOR [1/95-present] (formerly Senior Vice President
200 East Berry Street [4/92-1/95]), Lincoln National Corp.
Fort Wayne, Ind. 46802
MICHAEL R. WALKER Vice President [1/96-present], Lincoln National Life
VICE PRESIDENT Insurance Co. Formerly: Vice President [3/93-1/96],
Employers Health Insurance Co.
ROY V. WASHINGTON Vice President [7/96-present], Lincoln National Life
VICE PRESIDENT Insurance Co. (formerly, Associate Counsel
[2/95-7/96]). Formerly: Director of Compliance
[8/94-2/95], Lincoln Investment Management, Inc.;
Compliance Consultant [8/89-8/94], Lincoln National
Corp.
MICHAEL L. WRIGHT Senior Vice President [3/95-present], Lincoln
SENIOR VICE PRESIDENT National Life Insurance Co. Formerly: Executive Vice
President and Chief Operating Officer [11/88-3/95],
The Associate Group.
</TABLE>
39
<PAGE>
APPENDIX 3
CORRIDOR PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED AGE OF THE YOUNGER
INSURED (NEAREST BIRTHDAY) CORRIDOR PERCENTAGE
- ---------------------------- -------------------
<S> <C>
0-40 250%
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75-90 105
91 104
92 103
93 102
94 101
95-99 100
</TABLE>
40
<PAGE>
APPENDIX 4
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES, AND
DEATH BENEFIT PROCEEDS
The illustrations in this Prospectus have been prepared to
help show how values under the Policies change with
investment performance. The illustrations illustrate how
Accumulation Values, Surrender Values and Death Benefit
Proceeds under a Policy would vary over time if the
hypothetical gross investment rates of return were a uniform
annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuates above or
below those averages for individual years, the Accumulation
Values, Surrender Values and Death Benefit Proceeds may be
different. The illustrations also assume there are no Policy
Loans or Partial Surrenders, no additional Premium Payments
are made other than shown, no Accumulation Values are
allocated to the Fixed Account, and there are no changes in
the Specified Amount or Death Benefit Option, and that the
No-Lapse Provision is not selected.
The amounts shown for the Accumulation Value, Surrender
Value and Death Benefit Proceeds as of each Policy
Anniversary reflect the fact that charges are made and
expenses applied which lower investment return on the assets
held in the Sub-Accounts. Daily charges are made against the
assets of the Sub-Accounts for assuming mortality and
expense risks. The current mortality and expense risk
charges are equivalent to an annual effective rate of 0.80%
of the daily net asset value of the Variable Account. The
mortality and expense risk charge is guaranteed never to
exceed an annual effective rate of 0.90% of the daily net
asset value of the Variable Account. In addition, the
amounts shown also reflect the deduction of Fund investment
advisory fees and other expenses which will vary depending
on which funding vehicle is chosen but which are assumed for
purposes of these illustrations to be equivalent to an
annual effective rate of 0.83% of the daily net asset value
of the Variable Account. This rate reflects an arithmetic
average of total Fund portfolio annual expenses for the year
ending December 31, 1997.
Considering guaranteed charges for mortality and expense
risks and the assumed Fund expenses, gross annual rates of
0%, 6% and 12% correspond to net investment experience at
constant annual rates of -1.71%, 4.29% and 10.29%.
The illustrations also reflect the fact that the Company
makes monthly charges for providing insurance protection.
Current values reflect current Cost of Insurance charges and
guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for
Policies which are issued as preferred and standard.
Policies issued on a substandard basis would result in lower
Accumulation Values and Death Benefit Proceeds than those
illustrated.
The illustrations also reflect the fact that the Company
deducts a premium load of 8.0% from each Premium Payment.
The Surrender Values shown in the illustrations reflect the
fact that the Company will deduct a Surrender Charge from
the Policy's Accumulation Value for any Policy surrendered
in full during the first fifteen Policy Years. Surrender
Charges reflect, in part, age and Specified Amount, and are
shown in the illustrations.
In addition, the illustrations reflect the fact that the
Company deducts a monthly administrative charge at the
beginning of each Policy Month. This monthly administrative
expense charge is a flat dollar charge of $12.50 per month
in the first year. Current values reflect a current flat
dollar monthly administrative expense charge of $5 (and
guaranteed values, $10) in subsequent Policy Years. The
charge also includes $0.09 per $1,000 of Specified Amount
during the first twenty Policy Years.
Upon request, the Company will furnish a comparable
illustration based on the proposed insureds' ages, gender
classification, smoking classification, risk classification
and premium payment requested.
41
<PAGE>
MALE AGE 55/FEMALE AGE 55 NONSMOKER
STANDARD -- $13,807 ANNUAL PREMIUM
FACE AMOUNT $1,000,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT PROCEEDS TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF SURRENDER
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% CHARGE
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 14,497 1,000,000 1,000,000 1,000,000 11,194 11,907 12,622 0 0 0 13,676
2 29,720 1,000,000 1,000,000 1,000,000 22,062 24,181 26,386 8,796 10,915 13,120 13,266
3 45,703 1,000,000 1,000,000 1,000,000 32,552 38,777 41,350 19,799 24,024 28,597 12,753
4 62,485 1,000,000 1,000,000 1,000,000 42,642 49,681 57,608 30,435 37,475 45,402 12,206
5 80,107 1,000,000 1,000,000 1,000,000 52,304 62,874 75,261 40,577 51,146 63,534 11,728
6 98,610 1,000,000 1,000,000 1,000,000 61,508 76,329 94,417 50,395 65,217 83,305 11,112
7 118,038 1,000,000 1,000,000 1,000,000 70,206 90,008 115,183 60,328 80,131 105,306 9,877
8 138,437 1,000,000 1,000,000 1,000,000 78,337 103,856 137,668 69,694 95,213 129,025 8,643
9 159,856 1,000,000 1,000,000 1,000,000 85,819 117,792 161,975 78,411 110,384 154,567 7,408
10 182,346 1,000,000 1,000,000 1,000,000 92,555 131,727 188,216 86,382 125,554 182,042 6,173
11 205,961 1,000,000 1,000,000 1,000,000 98,446 145,561 216,520 93,507 140,623 211,581 4,939
12 230,756 1,000,000 1,000,000 1,000,000 103,386 159,192 247,045 99,682 155,488 243,341 3,704
13 256,791 1,000,000 1,000,000 1,000,000 107,270 172,516 279,983 104,801 170,047 277,513 2,469
14 284,128 1,000,000 1,000,000 1,000,000 109,995 185,432 315,571 108,761 184,197 314,336 1,235
15 312,832 1,000,000 1,000,000 1,000,000 111,419 197,801 354,070 111,419 197,801 354,070 0
20 479,369 1,000,000 1,000,000 1,000,000 88,836 241,962 601,682 88,836 241,962 601,682 0
25 691,916 0 1,000,000 1,066,315 0 216,457 1,015,538 0 216,457 1,015,538 0
30 963,187 0 0 1,789,114 0 0 1,703,918 0 0 1,703,918 0
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.83% per year. See "Fund
Expenses" at page 21 of this Prospectus.
42
<PAGE>
MALE AGE 55/FEMALE AGE 55 NONSMOKER
STANDARD -- $13,807 ANNUAL PREMIUM
FACE AMOUNT $1,000,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT PROCEEDS TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF SURRENDER
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% CHARGE
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 14,497 1,000,000 1,000,000 1,000,000 11,267 11,983 12,700 0 0 0 13,676
2 29,720 1,000,000 1,000,000 1,000,000 22,418 24,554 26,778 9,152 11,288 13,511 13,266
3 45,703 1,000,000 1,000,000 1,000,000 33,362 37,643 42,275 20,609 24,890 29,522 12,753
4 62,485 1,000,000 1,000,000 1,000,000 44,099 51,269 59,336 31,893 39,063 47,130 12,206
5 80,107 1,000,000 1,000,000 1,000,000 54,629 65,452 78,118 42,902 53,724 66,391 11,728
6 98,610 1,000,000 1,000,000 1,000,000 64,951 80,211 98,795 53,839 69,099 87,683 11,112
7 118,038 1,000,000 1,000,000 1,000,000 75,063 95,568 121,557 65,186 85,691 111,679 9,877
8 138,437 1,000,000 1,000,000 1,000,000 84,964 111,544 146,617 76,322 102,901 137,974 8,643
9 159,856 1,000,000 1,000,000 1,000,000 94,652 128,162 174,207 87,244 120,754 166,799 7,408
10 182,346 1,000,000 1,000,000 1,000,000 104,123 145,443 204,586 97,950 139,270 198,413 6,173
11 205,961 1,000,000 1,000,000 1,000,000 113,375 163,413 238,040 108,437 158,474 233,101 4,939
12 230,756 1,000,000 1,000,000 1,000,000 122,331 182,025 274,817 118,627 178,321 271,113 3,704
13 256,791 1,000,000 1,000,000 1,000,000 130,956 201,273 315,241 128,487 198,804 312,772 2,469
14 284,128 1,000,000 1,000,000 1,000,000 139,181 221,121 359,644 137,946 219,887 358,410 1,235
15 312,832 1,000,000 1,000,000 1,000,000 146,973 241,569 408,439 146,973 241,569 408,439 0
20 479,369 1,000,000 1,000,000 1,000,000 175,799 350,746 735,656 175,799 350,746 735,656 0
25 691,916 1,000,000 1,000,000 1,343,962 180,989 472,353 1,279,963 180,989 472,353 1,279,963 0
30 963,187 1,000,000 1,000,000 2,269,194 122,028 590,992 2,161,138 122,028 590,992 2,161,138 0
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.83% per year. See "Fund
Expenses" at page 21 of this Prospectus.
43
<PAGE>
MALE AGE 65/FEMALE AGE 65 NONSMOKER
STANDARD -- $21,742 ANNUAL PREMIUM
FACE AMOUNT $1,000,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT PROCEEDS TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- ----------- ----------- ----------- -------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 22,829 1,000,000 1,000,000 1,000,000 18,082 19,220 20,360 0 0 0
2 46,800 1,000,000 1,000,000 1,000,000 35,077 38,455 41,971 11,017 14,395 17,911
3 71,969 1,000,000 1,000,000 1,000,000 50,838 57,539 64,797 27,848 34,548 41,806
4 98,396 1,000,000 1,000,000 1,000,000 65,251 76,337 88,842 43,298 54,385 66,889
5 126,145 1,000,000 1,000,000 1,000,000 78,187 94,698 114,108 57,303 73,815 93,224
6 155,282 1,000,000 1,000,000 1,000,000 89,475 112,427 140,574 69,630 92,581 120,728
7 185,975 1,000,000 1,000,000 1,000,000 98,885 129,266 168,178 81,245 111,626 150,538
8 217,998 1,000,000 1,000,000 1,000,000 106,095 144,866 196,800 90,660 129,431 181,364
9 251,727 1,000,000 1,000,000 1,000,000 110,683 158,776 226,257 97,453 145,546 213,027
10 287,142 1,000,000 1,000,000 1,000,000 112,153 170,468 256,350 101,128 159,443 245,325
11 324,328 1,000,000 1,000,000 1,000,000 109,958 179,358 286,896 101,138 170,538 278,075
12 363,374 1,000,000 1,000,000 1,000,000 103,497 184,808 317,753 96,881 178,192 311,138
13 404,371 1,000,000 1,000,000 1,000,000 92,118 186,117 348,852 87,708 181,707 344,442
14 447,419 1,000,000 1,000,000 1,000,000 75,083 182,489 380,187 72,878 180,283 377,982
15 492,619 1,000,000 1,000,000 1,000,000 51,422 172,887 411,760 51,422 172,887 411,760
20 754,866 0 0 1,000,000 0 0 571,700 0 0 571,700
25 1,089,567 0 0 1,000,000 0 0 775,466 0 0 775,466
30 1,516,739 0 0 1,300,230 0 0 1,287,357 0 0 1,287,357
<CAPTION>
END OF
POLICY SURRENDER
YEAR CHARGE
- ------ ---------
<S> <C>
1 25,098
2 24,060
3 22,991
4 21,953
5 20,883
6 19,845
7 17,640
8 15,435
9 13,230
10 11,025
11 8,820
12 6,615
13 4,410
14 2,205
15 0
20 0
25 0
30 0
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.83% per year. See "Fund
Expenses" at page 21 of this Prospectus.
44
<PAGE>
MALE AGE 65/FEMALE AGE 65 NONSMOKER
STANDARD -- $21,742 ANNUAL PREMIUM
FACE AMOUNT $1,000,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT PROCEEDS TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- ----------- ----------- ----------- -------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 22,829 1,000,000 1,000,000 1,000,000 18,389 19,537 20,687 0 0 0
2 46,800 1,000,000 1,000,000 1,000,000 36,417 39,858 43,437 12,357 15,798 19,377
3 71,969 1,000,000 1,000,000 1,000,000 54,013 60,915 68,380 31,023 37,924 45,390
4 98,396 1,000,000 1,000,000 1,000,000 71,161 82,720 95,723 49,209 60,767 73,770
5 126,145 1,000,000 1,000,000 1,000,000 87,854 105,292 125,703 66,971 84,409 104,820
6 155,282 1,000,000 1,000,000 1,000,000 104,082 128,652 158,583 84,236 108,806 138,738
7 195,875 1,000,000 1,000,000 1,000,000 119,835 152,821 194,658 102,195 135,181 177,017
8 217,998 1,000,000 1,000,000 1,000,000 135,103 177,824 234,255 119,668 162,388 218,820
9 251,727 1,000,000 1,000,000 1,000,000 149,875 203,685 277,743 136,645 190,455 264,512
10 287,142 1,000,000 1,000,000 1,000,000 164,137 230,433 325,533 153,112 219,407 314,507
11 324,328 1,000,000 1,000,000 1,000,000 177,875 258,098 378,088 169,054 249,277 369,268
12 363,374 1,000,000 1,000,000 1,000,000 190,613 286,290 435,577 183,997 279,675 428,962
13 404,371 1,000,000 1,000,000 1,000,000 202,229 314,951 498,539 197,819 310,541 494,129
14 447,419 1,000,000 1,000,000 1,000,000 212,364 343,824 567,477 210,159 341,619 565,272
15 492,619 1,000,000 1,000,000 1,000,000 220,567 372,603 643,040 220,567 372,603 643,040
20 754,866 1,000,000 1,000,000 1,218,121 216,090 506,543 1,160,115 216,090 506,543 1,160,115
25 1,089,567 1,000,000 1,000,000 2,107,440 115,553 636,447 2,007,086 115,553 636,447 2,007,086
30 1,516,739 0 1,000,000 3,410,360 0 773,094 3,376,594 0 773,094 3,376,594
<CAPTION>
END OF
POLICY SURRENDER
YEAR CHARGE
- ------ ---------
<S> <C>
1 25,098
2 24,060
3 22,991
4 21,953
5 20,883
6 19,845
7 17,640
8 15,435
9 13,230
10 11,025
11 8,820
12 6,615
13 4,410
14 2,205
15 0
20 0
25 0
30 0
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.83% per year. See "Fund
Expenses" at page 21 of this Prospectus.
45
<PAGE>
APPENDIX 5
DEFINITIONS
ACCUMULATION VALUE: The sum of the Fixed Account Value,
Variable Account Value and the Loan Account Value.
ADMINISTRATIVE OFFICE: The administrative office of The
Lincoln National Life Insurance Company, whose mailing
address is 350 Church Street, Hartford, CT 06103-1106.
AGE: The age of the subject person at her or his nearest
birthday.
BENEFICIARY: The person designated by the applicant or Owner
to receive any Death Benefit Proceeds payable under the
Policy.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: The Securities and Exchange Commission.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a
percentage of the Accumulation Value rather than by
reference to the Specified Amount to satisfy the Internal
Revenue Service definition of "life insurance."
COST OF INSURANCE: The portion of the Monthly Deduction
designed to compensate Lincoln Life (defined below) for the
anticipated cost of paying Death Benefits in excess of the
Accumulation Value, not including riders, supplemental
benefits or monthly expense charges.
DATE OF ISSUE: The date on which Lincoln Life begins life
insurance coverage under a Policy.
DEATH BENEFIT OPTION: Either of two methods for determining
the Death Benefit Proceeds.
DEATH BENEFIT PROCEEDS: The amount payable to the
Beneficiary upon the Second Death (defined below), in
accordance with the Death Benefit Option elected, before
deduction of the amount necessary to repay any loans in
full, and overdue deductions.
EFFECTIVE DATE: The date on which the initial premium is
applied to the Policy.
FIXED ACCOUNT: The account under which principal is
guaranteed and interest is credited at a rate of not less
than 4% per year. Fixed Account assets are general assets of
Lincoln Life held in Lincoln Life's General Account.
FIXED ACCOUNT VALUE: The portion of the Accumulation Value,
other than the Loan Account Value, held in Lincoln Life's
General Account.
FUND(S): One or more of the Funds listed on the inside front
cover of this prospectus. Each of them is an open-end
management investment company (mutual fund) whose shares are
available to fund a Variable Sub-Account under the Policy.
GRACE PERIOD: The 61-day period following a Monthly
Anniversary Day on which the Policy's Net Accumulation Value
is insufficient to cover the current Monthly Deduction.
Lincoln Life will send notice at least 31 days before the
end of the Grace Period that the Policy will lapse without
value unless a sufficient payment (described in the
notification letter) is received by Lincoln Life.
HOME OFFICE: The Headquarters of The Lincoln National Life
Insurance Company, located at 1300 South Clinton Street,
Fort Wayne, Indiana 46802.
INITIAL SPECIFIED AMOUNT: The amount (at least $250,000),
originally chosen by the applicant, initially equal to the
Death Benefit. The Specified Amount may be increased or
decreased as described in this Prospectus.
INSURED: Each of the two persons whose lives are insured by
the Policy. Any Death Benefit is payable only on the Second
Death of the Insureds.
LINCOLN LIFE: The Lincoln National Life Insurance Company.
46
<PAGE>
LOAN ACCOUNT: The account in which Policy indebtedness
(outstanding loans and interest) accrues once it is
transferred out of the Fixed and Variable Sub-Accounts.
LOAN ACCOUNT VALUE: The value of the Loan Account.
MONTHLY ANNIVERSARY DAY: The day of the month (as shown in
the Policy Specifications) when Lincoln Life makes the
Monthly Deduction, or the next Valuation Day if that day is
not a Valuation Day or is nonexistent for that month.
MONTHLY DEDUCTION: The monthly deduction made from Net
Accumulation Value; this deduction includes the cost of
insurance, an administrative expense charge, and charges for
supplemental riders or benefits, if applicable.
NET ACCUMULATION VALUE: The Accumulation Value less the Loan
Account Value.
NET AMOUNT AT RISK: The Death Benefit minus the Accumulation
Value.
NET PREMIUM PAYMENT: The portion of a Premium Payment, after
deduction of 8.0% for the premium load, available for
allocation to the Fixed and Variable Sub-Accounts.
NO LAPSE PREMIUM: The cumulative premium required to have
been paid by each Monthly Anniversary Day to prevent the
Policy from lapsing.
OWNER: The person or persons (including non-natural
persons), holding legal ownership rights to the Policy so
long as one or both Insureds are living.
PLANNED PREMIUMS: The amount of premium (as shown in the
Policy Specifications) the applicant chooses to pay Lincoln
Life on a scheduled basis. This is the amount for which
Lincoln Life sends a premium reminder notice.
POLICY: The life insurance contract described in this
Prospectus.
POLICY ANNIVERSARY: The day of the year the Policy was
issued, or the next Valuation Day if that day is not a
Valuation Day or is nonexistent for that year.
POLICY YEAR: Each twelve-month period, beginning on the Date
of Issue, during which the Policy is in effect.
PREMIUM PAYMENT: A premium payment made to Lincoln Life
under the Policy.
RIGHT-TO-EXAMINE PERIOD: The period of time, generally 10
days unless otherwise stipulated by state law requirements,
beginning when the Policy is delivered to the Owner, during
which the Owner may return the Policy and receive a refund
of premiums paid.
SECOND DEATH: The Death of the second of the two Insureds to
die.
SEPARATE ACCOUNT: Lincoln Life Flexible Premium Variable
Life Account R. Assets maintained in the Separate Account
are kept separate from the general assets of Lincoln Life
and are not subject to the general liabilities of Lincoln
Life.
SETTLEMENT OPTION(S): Several ways in which the Beneficiary
may receive Death Benefit Proceeds, or in which the Owner
may choose to receive payments upon surrender of the Policy.
SUB-ACCOUNTS: The investment options available under this
Policy, including Fixed and Variable Sub-Accounts.
SURRENDER CHARGE: The amount retained by Lincoln Life upon
the full surrender of the Policy.
SURRENDER VALUE: The amount an Owner can receive in cash by
surrendering the Policy. This equals the Net Accumulation
Value minus the applicable Surrender Charge. All of the
Surrender Value may be applied to one or more of the
Settlement Options.
VALUATION DAY: Every day on which Accumulation Units are
valued; that is any day on which the New York Stock Exchange
is open, except any day on which trading on the Exchange is
restricted, or on which an emergency exists, as determined
by the Commission, so that valuation or disposal of
securities is not practicable.
47
<PAGE>
VALUATION PERIOD: The period of time beginning on the day
following a Valuation Day and ending on the next Valuation
Day. A Valuation Period may be more than one day in length.
VARIABLE ACCOUNT: The aggregate of the Variable Sub-Accounts
of Lincoln Life Flexible Premium Variable Life Account R
each invested in shares of a Fund. The Variable Account is
also the Separate Account.
VARIABLE ACCOUNT VALUE: The portion of the Accumulation
Value attributable to the Variable Account.
VARIABLE ACCUMULATION UNIT: A unit of measure used to
calculate the value of a Variable Sub-Account.
48
<PAGE>
The Lincoln National Life Insurance Company
SEPARATE ACCOUNT AND COMPANY FINANCIALS TO BE FILED BY AMENDMENT
S-1
<PAGE>
PART II
FEES AND CHARGES REPRESENTATION
Lincoln Life represents that the fees and charges deducted
under the Contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by Lincoln Life.
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant
hereby undertakes to file with the Securities and Exchange
Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly
adopted pursuant to authority conferred in that section.
INDEMNIFICATION
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of The Lincoln National Life Insurance
Company (LNL) provides that LNL will indemnify certain persons against
expenses, judgments and certain other specified costs incurred by any
such person if he/she is made a party or is threatened to be made a party
to a suit or proceeding because he/she was a director, officer, or
employee of LNL, as long as he/she acted in good faith and in a manner
he/she reasonably believed to be in the best interests of, or not opposed
to the best interests of, LNL. Certain additional conditions apply to
indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of LNL in connection with suits by, or in the
right of, LNL.
Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b) hereto) for
the full text of the indemnification provisions. Indemnification is
permitted by, and is subject to the requirements of, Indiana law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 28(a) above
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the
successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 2 to this registration
statement comprises the following papers and documents:
The facing sheet; A cross-reference sheet (reconciliation
and tie); The prospectus, consisting of 49 pages; The
undertaking to file reports; The fees and charges
representation; Statements regarding indemnification; The
signatures.
Exhibit 2a. Opinion and Consent of Vaughn Robbins, FSA
Exhibit 3a. Opinion and Consent of Robert A. Picarello, Esq.
Other exhibits are incorporated by reference to previous
filings of this registration statement.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the registrant has duly caused
this Post-Effective Amendment No. 2 to its Registration Statement on Form S-6
(File No. 333-43107) to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Hartford and State of Connecticut on the 5th day
of January, 1999.
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE
LIFE ACCOUNT R (Registrant)
By: /s/ JOHN H. GOTTA
-----------------------------------
John H. Gotta
SENIOR VICE PRESIDENT
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
(DEPOSITOR)
By: /s/ JOHN H. GOTTA
-----------------------------------
John H. Gotta
SENIOR VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to this Registration Statement (File No.
333-43107) has been signed below on January 5, 1999 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------ ---------------------------------------------------------------
<C> <S>
/s/ GABRIEL L. SHAHEEN
-------------------------------------- President, Chief Executive Officer and Director (Principal
Gabriel L. Shaheen Executive Officer)
/s/ LAWRENCE T. ROWLAND
-------------------------------------- Executive Vice President and Director
Lawrence T. Rowland
/s/ KEITH J. RYAN Senior Vice President, Assistant Treasurer and Chief Financial
-------------------------------------- Officer (Principal Financial Officer and Principal Accounting
Keith J. Ryan Officer)
/s/ H. THOMAS MCMEEKIN
-------------------------------------- Director
H. Thomas McMeekin
/s/ RICHARD C. VAUGHAN
-------------------------------------- Director
Richard C. Vaughan
/s/ JON A. BOSCIA
-------------------------------------- Director
Jon A. Boscia
</TABLE>
By: /s/ JOHN H. GOTTA
-----------------------------------
John H. Gotta
Attorny-in-Fact
(A Majority of the Directors)
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby severally constitute and appoint John H. Gotta, Robert
A. Picarello and Gary W. Parker, individually, our true and lawful
attorneys-in-fact, with full power to each of them to sign for us, in our names
and in the capacities indicated below, any and all amendments to Registration
Statement No. 333-43107 filed with the Securities and Exchange Commission under
the Securities Act of 1933, on behalf of the Company in its own name or in the
name of its Separate Accounts, hereby ratifying and confirming our signatures as
they may be signed by any of our attorneys-in-fact to any such amendment to said
Registration Statement.
WITNESS our hands and common seal on this 18th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------ ---------------------------------------------------------------
<C> <S>
/s/ GABRIEL L. SHAHEEN
-------------------------------------- President, Chief Executive Officer and Director (Principal
Gabriel L. Shaheen Executive Officer)
/s/ LAWRENCE T. ROWLAND
-------------------------------------- Executive Vice President and Director
Lawrence T. Rowland
/s/ KEITH J. RYAN Senior Vice President, Assistant Treasurer and Chief Financial
-------------------------------------- Officer (Principal Financial Officer and Acting Principal
Keith J. Ryan Accounting Officer)
/s/ H. THOMAS MCMEEKIN
-------------------------------------- Director
H. Thomas McMeekin
/s/ RICHARD C. VAUGHAN
-------------------------------------- Director
Richard C. Vaughan
/s/ JON A. BOSCIA
-------------------------------------- Director
Jon A. Boscia
</TABLE>
<PAGE>
[LOGO] LINCOLN
---------------
FINANCIAL GROUP
LINCOLN LIFE
Lincoln National Life Insurance Co.
350 Church Street
Hartford, CT 06103-1106
December 23, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln Life Flexible Premium
Variable Life Account R ("Account")
Post-Effective Amendment Number 2, File No. 333-43107
Commissioners:
This opinion is furnished in connection with Post-Effective Amendment No. 2 to
the Registration Statement on Form S-6 filed by The Lincoln National Life
Insurance Company under the Securities Act of 1993 recorded as File No.
333-43107. The prospectus included in said Post-Effective Amendment describes
flexible premium variable universal life insurance policies (the "Policies").
The forms of Policies were prepared under my direction.
In my opinion, the illustrations of benefits under the Policies included in the
Section entitled "Illustrations" in the prospectus, based on assumptions stated
in illustrations, are consistent with the provisions of the forms of the
Policies. The ages selected in the illustrations are representative of the
manner in which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to me under the heading "Experts" in the
Prospectus.
Very truly yours,
/s/ Vaughn W. Robbins
Vaughn W. Robbins, FSA, MAAA
VWR: ao
<PAGE>
[LOGO] LINCOLN
---------------
FINANCIAL GROUP
LINCOLN LIFE
Robert A. Picarello
Associate General Counsel
350 Church Street
Hartford, CT 06103-1106
Telephone: (860) 466-1603
Facsimile: (860) 466-1778
December 23, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Lincoln Life Flexible Premium Variable Life Account R ("Account")
The Lincoln National Life Insurance Company
Post-Effective Amendment Number 2, File No. 333-43107
Dear Sirs:
As Associate General Counsel of The Lincoln National Life Insurance Company
("Company"), I am familiar with the actions of the Board of Directors of the
Company establishing the Account and its method of operation and authorizing the
filing of a Registration Statement under the Securities Act of 1933 (and
amendments thereto) for the securities to be issued by the Account and the
Investment Company Act of 1940 for the Account itself.
In the course of preparing this opinion, I have reviewed the Certificate of
Incorporation and the By-Laws of the Company, the Board actions with respect to
the Account, and such other matters as I deemed necessary or appropriate. Based
on such review, I am of the opinion that the variable life insurance policies
(and interests therein) which are the subject of the Registration Statement
under the Securities Act of 1933, as amended, for the Account will, when issued,
be legally issued and will represent binding obligations of the Company, the
depositor for the Account.
I further consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 2 to said Registration Statement and to the reference to me under
the heading "Experts" in said Registration Statement, as amended.
Very truly yours,
/s/ Robert A. Picarello
Robert A. Picarello
Associate General Counsel
