<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
SERVICING OFFICE:
Lincoln Financial Direct
P.O. Box 691
Leesburg, VA 20178
This prospectus describes an individual flexible premium deferred variable
annuity contract (Contract) issued by The Lincoln National Life Insurance
Company (Lincoln Life). This Contract may be sold under different names. Most
transactions involving this Contract may be performed through Lincoln Life's
Internet Service Center.
The Contract described in this prospectus is offered for both traditional and
Roth individual retirement annuities (IRAs) and as a nonqualified Contract. A
nonqualified Contract can be owned jointly only by spouses and is purchased with
after-tax money.
The Contract offers you the accumulation of Contract Value and payment of
periodic annuity benefits. These benefits are paid on a variable basis. Annuity
benefits start at the Annuity Commencement Date which you select. If the
Contractowner dies before the Annuity Commencement Date, the Contract Value will
be paid to the Beneficiary. (See DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT
DATE.)
The minimum initial Purchase Payment for the Contract is $1,000. The minimum
payment to the Contract, after the initial Purchase Payment, is $100 per
payment. Lincoln Life reserves the right to limit the sum of Purchase Payments
made under this Contract to $5,000,000.
All Purchase Payments will be placed in Lincoln National Variable Annuity
Account C (Variable Annuity Account [VAA]). The VAA is a segregated investment
account of Lincoln Life, which is the depositor. Based upon your instructions,
the VAA invests Purchase Payments (at net asset value) in specified funds. Both
the value of a Contract before the Annuity Commencement Date and the amount of
payouts afterward will depend upon the investment performance of the fund(s) you
selected. INVESTMENTS IN THESE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT OR BY ANY OTHER PERSON OR ENTITY.
This prospectus details the information regarding the VAA that you should know
before investing. You should read it carefully and it will remain available
through Lincoln Life's Internet Service Center. We have also attached current
prospectuses for each of the 21 funds available through the Contract as follows:
The eleven Lincoln National funds prospectuses:
1. Lincoln National Aggressive Growth Fund, Inc.
2. Lincoln National Bond Fund, Inc.
3. Lincoln National Capital Appreciation Fund, Inc.
4. Lincoln National Equity-Income Fund, Inc.
5. Lincoln National Global Asset Allocation Fund, Inc.
6. Lincoln National Growth and Income Fund, Inc.
7. Lincoln National International Fund, Inc.
8. Lincoln National Managed Fund, Inc.
9. Lincoln National Money Market Fund, Inc.
10. Lincoln National Social Awareness Fund, Inc.
11. Lincoln National Special Opportunities Fund, Inc.
The prospectus for Delaware Group Premium Fund, Inc., which contains information
regarding:
12. Delaware Premium--Growth and Income Series (Formerly: Decatur Total Return
Series)
13. Delaware Premium--Global Bond Series
14. Delaware Premium--Trend Series
The BT Insurance Funds Trust prospectus for:
15. Equity 500 Index Fund
16. Small Cap Index Fund
The American Century Variable Portfolios, Inc. prospectus for:
17. VP International
The Baron Capital Funds Trust prospectus for:
18. Baron Capital Asset Fund
The Neuberger Berman Advisers Management Trust Portfolios prospectus for:
19. AMT Partners Portfolio
20. AMT MidCap Growth Portfolio
The Janus Aspen Series prospectus for:
21. Worldwide Growth Portfolio
You should read each of these prospectuses carefully before purchasing a
Contract and save them for future reference.
A Statement of Additional Information (SAI), dated May 1, 1999, concerning the
VAA has been filed with the SEC and is incorporated by reference into this
prospectus. A table of contents for the SAI appears on the last page of this
prospectus. A free copy of the SAI is available upon e-mail request through our
Internet Service Center (http://www.AnnuityNet.com). The SAI is also available
through the SEC website (http://www.sec.gov). In addition, the material
incorporated by reference and other information regarding registrants who file
electronically with the SEC is available through the SEC website.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is May 1, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
- ---------------------------------------------------------
SPECIAL TERMS 3
- ---------------------------------------------------------
EXPENSE TABLES 4
Contractowner transaction expenses 4
VAA annual expenses for subaccounts 4
Annual expenses of the Funds, Series and
Portfolios for the year ended 1998 4
Examples 6
- ---------------------------------------------------------
SYNOPSIS 8
- ---------------------------------------------------------
CONDENSED FINANCIAL INFORMATION 10
Accumulation unit values 10
Additional information for the money market
subaccount 11
- ---------------------------------------------------------
INVESTMENT RESULTS 12
- ---------------------------------------------------------
FINANCIAL STATEMENTS 12
- ---------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE CO. 12
- ---------------------------------------------------------
VARIABLE ANNUITY ACCOUNT (VAA) 12
- ---------------------------------------------------------
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT 12
Investment advisor 12
Funds 13
Investment objectives, policies and
restrictions 15
Reinvestment of dividends and capital gain
distributions 15
Addition, deletion or substitution of
investments 15
- ---------------------------------------------------------
CHARGES AND OTHER DEDUCTIONS 15
Deductions from the VAA 15
Surrender charge 16
Deductions for premium taxes 16
Other charges and deductions 16
Additional information 16
- ---------------------------------------------------------
THE CONTRACT 16
Purchase of Contract 16
Who can invest 17
Purchase Payments 17
Valuation Date 17
Allocation of Purchase Payments 17
Valuation of Accumulation Units 17
Transfers between Subaccounts on or before
the Annuity Commencement Date 17
Transfers after the Annuity Commencement
Date 18
Death benefit before the Annuity
Commencement Date 18
Joint ownership 18
Death of Annuitant 18
Surrenders and Withdrawals 19
<CAPTION>
Page
- ---------------------------------------------------------
<S> <C>
Amendment of Contract 19
Ownership 19
Contractowner questions 19
- ---------------------------------------------------------
ANNUITY PAYOUTS 19
Annuity options 19
General information 20
Variable annuity payouts 20
- ---------------------------------------------------------
FEDERAL TAX STATUS 20
Introduction 20
Taxation of nonqualified annuities 20
Tax Deferral on Earnings 20
Contracts not owned by an individual 20
Investments in the VAA must be diversified 21
Restrictions 21
Age at which Annuity Payouts begin 21
Tax Treatment of Payments 21
Taxation of Withdrawals and Surrenders 21
Taxation of Annuity Payouts 21
Taxation of Death Benefits 21
Penalty Taxes payable on Withdrawals,
Surrenders, or Annuity Payouts 22
Special Rules if you own more than one
Annuity Contract 22
Gifting a Contract 22
Loss of Interest Deduction 22
Qualified retirement plans 22
Types of Qualified Contracts and Terms of
Contracts 22
Tax Treatment of Qualified Contracts 22
Tax Treatment of Payments 23
Federal Penalty Taxes payable on
Distributions 23
Transfers and Direct Rollovers 23
Federal income tax withholding 23
Tax status of Lincoln Life 23
Changes in the law 23
- ---------------------------------------------------------
VOTING RIGHTS 23
- ---------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS 24
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RETURN PRIVILEGE 24
- ---------------------------------------------------------
STATE REGULATION 24
- ---------------------------------------------------------
RECORDS AND REPORTS 24
- ---------------------------------------------------------
OTHER INFORMATION 24
- ---------------------------------------------------------
ADVERTISEMENTS/SALES LITERATURE 25
- ---------------------------------------------------------
PREPARING FOR THE YEAR 2000 25
- ---------------------------------------------------------
LEGAL PROCEEDINGS 26
- ---------------------------------------------------------
</TABLE>
2
<PAGE>
SPECIAL TERMS
Account or Variable Annuity Account (VAA) -- The segregated investment account,
Account C, into which Lincoln Life sets aside and invests the assets for the
Contract offered in this prospectus.
Accumulation Unit -- A measure used to calculate Contract Value before the
Annuity Commencement Date.
Annuitant -- The person upon whose life the annuity benefit payments made after
the Annuity Commencement Date will be based.
Annuity Commencement Date -- The Valuation Date when the funds are withdrawn or
converted into Annuity Units for payment of annuity benefits under the Annuity
Payout Option selected. For purposes of determining whether an event occurs
before or after the Annuity Commencement Date, the Annuity Commencement Date is
deemed to begin at close of business on the Valuation Date.
Annuity Payout Option -- An optional form of payout of the annuity available
under the Contract.
Annuity Payout -- An amount paid at regular intervals after the Annuity
Commencement Date under one of several options available to the Annuitant and/or
any other payee. The amount paid may vary.
Annuity Unit -- A measure used to calculate the amount of Annuity Payouts after
the Annuity Commencement Date.
Beneficiary -- The person whom you designate to receive the Death Benefit, if
any, in case of the Contractowner's death.
Contract (variable annuity contract) -- The agreement between you and us
providing a variable annuity.
Contractowner (you, your, owner) -- The person who has the ability to exercise
the rights under the Contract (decides on investment allocations, transfers,
payout option, designates the Beneficiary, etc.). Usually, but not always, the
owner is also the Annuitant.
Contract Value -- At a given time before the Annuity Commencement Date, the
total value of all Accumulation Units for a Contract.
Contract Year -- Each one-year period starting with the effective date of the
Contract and starting with each Contract anniversary after that.
Death Benefit -- The amount payable to the Owner's designated Beneficiary if the
Owner dies before the Annuity Commencement Date.
Internet Service Center -- The Internet site that Lincoln Life maintains to
provide variable annuity contract documents and information to current and
prospective annuity Contractowners and through which various transactions may be
performed. Certain of these transactions may require faxed or mailed signatures.
Lincoln Life (we, us, our) -- Lincoln National Life Insurance Co.
Purchase Payments -- Amounts paid into the Contract.
Subaccount -- That portion of the VAA that reflects investments in Accumulation
and Annuity Units of a class of a particular fund. A Subaccount corresponds to
each fund.
Surrender Charge -- Also known as a contingent deferred sales charge, this
charge may be assessed upon premature withdrawals or surrender of the Contract
and is calculated according to the provisions of the Contract.
Valuation Date -- Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation Period -- The period commencing at the close of trading (currently
4:00 p.m. EST) on each day that the NYSE is open for trading (in other words,
the Valuation Date) and ending at the close of such trading on the next
succeeding Valuation Date.
3
<PAGE>
EXPENSE TABLES
CONTRACTOWNER TRANSACTION EXPENSES:
Currently, there is no charge for transfers between funds. However, we reserve
the right to impose such charges in the future.
The Surrender Charge percentage is reduced to zero after three years according
to the following schedule:
<TABLE>
<CAPTION>
Contract year
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
1 2 3 4 or more
Surrender Charge as % of
Contract Value Withdrawn 3% 2% 1% 0%
- -------------------------------------------------------------------------------------------------------
</TABLE>
This charge may be waived in certain cases. See CHARGES AND OTHER DEDUCTIONS.
VAA ANNUAL EXPENSES FOR SUBACCOUNTS:
(as a percentage of average account value for each Subaccount):
<TABLE>
<S> <C>
Annuity Asset Charge (Mortality and expense risk fees and
Administrative expense fees): 0.55%
</TABLE>
ANNUAL EXPENSES OF THE FUNDS, SERIES AND PORTFOLIOS FOR THE YEAR ENDED 1998
(as a percentage of each funds' average net assets and, where indicated, after
expense reimbursements):
<TABLE>
<CAPTION>
Management 12b-1 Other Total
fees fees + expenses = expenses
<C><S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
1. Lincoln National Aggressive Growth 0.73% N/A 0.08% 0.81%
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
2. Lincoln National Bond 0.44 N/A 0.13 0.57
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
3. Lincoln National Capital Appreciation 0.75 N/A 0.08 0.83
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
4. Lincoln National Equity-Income 0.72 N/A 0.07 0.79
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
5. Lincoln National Global Asset Allocation 0.72 N/A 0.19 0.91
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
6. Lincoln National Growth and Income 0.31 N/A 0.04 0.35
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
7. Lincoln National International 0.79 N/A 0.14 0.93
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
8. Lincoln National Managed 0.36 N/A 0.03 0.39
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
9. Lincoln National Money Market 0.48 N/A 0.11 0.59
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
10. Lincoln National Social Awareness 0.34 N/A 0.04 0.38
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
11. Lincoln National Special Opportunities 0.36 N/A 0.06 0.42
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
12. Delaware Premium--Trend Series(1) 0.75 N/A 0.06 0.80
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
13. Delaware Premium--Growth and Income Series(1) 0.60 N/A 0.11 0.71
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
14. Delaware Premium--Global Bond Series(1) 0.75 N/A 0.08 0.83
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
15. BT Equity 500 Index(2) 0.20 N/A 0.10 0.30
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
16. BT Small Cap Index(3) 0.35 N/A 0.10 0.45
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
17. American Century VP International(4) 1.47 N/A N/A 1.47
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
18. Baron Capital Asset(5) 1.00 0.25 0.20 1.45
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
19. AMT Partners(6) 0.78 N/A 0.06 0.84
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
20. AMT MidCap Growth(7) 0.85 N/A 0.15 1.00
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C> <C> <C> <C>
21. Janus Worldwide Growth(8) 0.65 N/A 0.07 0.72
<CAPTION>
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) The investment advisor for the Growth and Income Series (formerly known as
"Decatur Total Return Series"), Trend Series and Global Bond Series is Delaware
Management Company, Inc. ("Delaware Management"). Effective May 1, 1999,
4
<PAGE>
through October 31, 1999, the investment adviser for the series of Delaware
Group Premium Fund, Inc. ("DGPF") have agreed voluntarily to waive its
management fees and reimburse each series for expenses to the extent that total
expenses will not exceed 0.80% for the Growth and Income Series, 0.85% for the
Trend Series. The fee ratios shown above have been restated, if necessary, to
reflect the new voluntary limitations which took effect May 1, 1999. The
declaration of a voluntary expense limitation does not bind the investment
adviser to declare future expense limitations with respect to these funds. The
declaration of a voluntary expense limitation does not bind the investment
advisers to declare future expense limitations with respect to the fund.
Pursuant to a vote of the fund's shareholder's on March 17, 1999, a new
management fee structure based on average daily net assets was approved. The
above ratios have been restated to reflect the new management fee structure
which took effect on May 1, 1999. Without the reimbursements or waivers total
expenses for each series for year ending 12/31/98 would have been -- Global
Bond, 0.92%, Trend, 0.85%.
(2) Under the Advisory Agreement with Bankers Trust Company (the "Advisor"), the
fund will pay an advisory fee at an annual percentage rate of 0.20% of the
average daily net assets of the fund. These fees are accrued daily and paid
monthly. The Advisor has voluntarily undertaken to waive its fee and to
reimburse the fund for certain expenses so the Fund's total operating expenses
will not exceed 0.30% of average daily net assets. If this reimbursement were
not in place, the total operating expenses for the year ended December 31, 1998,
would have been 1.19%. Expenses shown are based on annualized amounts. Actual
expenses may be greater or less than shown.
(3) Under the Advisory Agreement with Bankers Trust Company (the "Advisor"), the
fund will pay an advisory fee at an annual percentage rate of 0.35% of the
average daily net assets of the fund. These fees are accrued daily and paid
monthly. The Advisor has voluntarily undertaken to waive its fee and to
reimburse the fund for certain expenses so the Fund's total operating expenses
will not exceed 0.45% of average daily net assets.
(4) American Century Investment Management, Inc. voluntarily waived a portion of
its management fee from October 1, 1998, through November 16, 1998. In the
absence of the waiver, the average ration of operating expenses to average net
assets would have been 1.48% for the year ended December 31, 1998. The
annualized fee schedule for the fund, effective November 17, 1998, is as
follows: 1.50% on the first $250 million; 1.20% on the next $250 million; and
1.10% thereafter.
(5) The Advisor is contractually obligated to reduce its fee to the extent
required to limit Baron Capital Asset Fund's total operating expenses to 1.5%
for the $250 million of assets in the fund, 1.35% for fund assets over $250
million, and $1.25% for fund assets over $500 million. Without the expense
limitations, total operating expenses for the fund for the period October 1,
1998 through December 31, 1998, would have been 7.62%.
(6) Neuberger Berman Advisors Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Management Trust. The figures
reported under "Management Fees" include the aggregate of the administration
fees paid by the Portfolios and the management fees paid by its corresponding
Series. Similarly, "Other Expenses" includes all other expenses of the
Portfolios and its corresponding Series.
(7) Neuberger Berman Management, Inc. ("NBMI") has undertaken to reimburse
certain operating expenses, including the compensation of NBMI and excluding
taxes, interest, extraordinary expenses, brokerage commissions and transaction
costs, that exceed, in the aggregate, 1% of the portfolio's average daily net
asset value. These expense reimbursement agreements are subject to termination
upon 60 days written notice and there is no assurance that these policies will
be continued thereafter.
(8) The fee reduction reduces 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. Janus Capital has
agreed to continue the waivers and fee reductions until at least the next annual
renewal of the advisory agreement.
5
<PAGE>
EXAMPLES
(reflecting expenses of the VAA and of the funds)
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming a 5% annual
return:
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1. Lincoln National Aggressive Growth $ 45 $ 54 $ 74 $ 164
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
2. Lincoln National Bond 42 45 59 131
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
3. Lincoln National Capital Appreciation 45 55 76 166
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
4. Lincoln National Equity-Income 45 54 73 161
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
5. Lincoln National Global Asset Allocation 46 57 80 175
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
6. Lincoln National Growth and Income 40 40 50 111
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
7. Lincoln National International 46 58 81 177
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
8. Lincoln National Managed 41 42 54 119
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
9. Lincoln National Money Market 43 47 62 137
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
10. Lincoln National Social Awareness 41 41 51 114
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
11. Lincoln National Special Opportunities 41 42 54 119
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
12. Delaware Premium--Trend Series 45 54 74 164
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
13. Delaware Premium--Growth and Income Series* 44 51 69 152
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
14. Delaware Premium--Global Bond Series 45 55 76 166
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
15. BT Equity 500 Index 40 38 47 105
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
16. BT Small Cap Index 41 43 55 122
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
17. American Century VP International 51 74 108 234
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
18. Baron Capital Asset 51 74 108 233
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
19. AMT Partners 45 55 76 167
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
20. AMT MidCap Growth 47 60 84 185
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
21. Janus Worldwide Growth 44 51 70 153
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Formerly known as Decatur Total Return Series.
6
<PAGE>
If you do not surrender your Contract, or if you annuitize, you would pay the
following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1. Lincoln National Aggressive Growth $ 14 $ 43 $ 74 $ 164
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
2. Lincoln National Bond 11 34 59 131
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
3. Lincoln National Capital Appreciation 14 44 76 166
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
4. Lincoln National Equity-Income 14 42 73 161
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
5. Lincoln National Global Asset Allocation 15 46 80 175
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
6. Lincoln National Growth and Income 9 29 50 111
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
7. Lincoln National International 15 47 81 177
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
8. Lincoln National Managed 10 31 54 119
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
9. Lincoln National Money Market 12 36 62 137
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
10. Lincoln National Social Awareness 9 30 51 114
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
11. Lincoln National Special Opportunities 10 31 54 119
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
12. Delaware Premium--Trend Series 14 43 74 164
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
13. Delaware Premium--Growth and Income Series* 13 40 69 152
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
14. Delaware Premium--Global Bond Series 14 44 76 166
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
15. BT Equity 500 Index 9 27 47 105
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
16. BT Small Cap Index 10 32 55 122
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
17. American Century VP International 20 63 108 234
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
18. Baron Capital Asset 20 63 108 233
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
19. AMT Partners 14 44 76 167
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
20. AMT MidCap Growth 16 49 84 185
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
21. Janus Worldwide Growth 13 40 70 153
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Formerly known as Decatur Total Return Series.
This table is provided to assist you in understanding the various costs and
expenses that you will bear directly or indirectly. The table reflects expenses
of the VAA, the funds for the year ended December 31, 1998, although the
expenses have been restated to reflect the current fees for Capital Appreciation
and Equity-Income. For more complete descriptions of the various costs and
expenses involved, see CHARGES AND OTHER DEDUCTIONS in this prospectus, and
MANAGEMENT OF THE FUNDS in the Appendix to the funds' prospectuses and the
prospectus for Delaware Group Premium Fund, Inc. In addition, premium taxes may
be applicable, although they do not appear in the table. Also, we reserve the
right to impose a charge on transfers between Subaccounts, although we do not
currently do so. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
7
<PAGE>
SYNOPSIS
WHAT TYPE OF CONTRACT AM I BUYING? It is an individual deferred variable annuity
contract issued by Lincoln Life. See THE CONTRACT.
WHAT IS THE VARIABLE ANNUITY ACCOUNT (VAA)? It is a separate account established
under Indiana insurance law, and registered with the SEC as a unit investment
trust. The assets of the VAA are allocated to one or more Subaccounts, according
to your investment choice. Those assets are not chargeable with liabilities
arising out of any other business which Lincoln Life may conduct. See VARIABLE
ANNUITY ACCOUNT.
WHAT ARE MY INVESTMENT CHOICES? Through its various Subaccounts, the VAA uses
your Purchase Payments to purchase shares, at your direction, in one or more of
the 21 funds. In turn, each fund holds a portfolio of securities consistent with
its own particular investment policy. See INVESTMENTS OF THE VARIABLE ANNUITY
ACCOUNT.
HOW DOES THE CONTRACT WORK? During the accumulation period, while you are paying
in, your Purchase Payments will buy Accumulation Units under the Contract.
Should you decide to annuitize (that is, change your Contract to a payout mode
rather than an accumulation mode), your Accumulation Units will be converted to
Annuity Units. Your periodic Annuity Payout will be based upon the number of
Annuity Units to which you became entitled at the time you decided to annuitize
and the value of each unit on the Valuation Date. See THE CONTRACTS.
WHAT CAN I DO THROUGH THE INTERNET SERVICE CENTER? Almost every transaction can
be accomplished through the Internet Service Center. Only in very rare cases
will transactions bypass the Internet Service Center. Documents can be received,
accounts can be monitored, funds moved from one Subaccount to another, addresses
changed, Beneficiaries changed, funds withdrawn from the Contract, etc. As
technology matures, the ease with which transactions can be performed through
the Internet Service Center will improve. For security reasons, you may be
issued a PIN or password. Also, for legal reasons, certain transactions, such as
change of Beneficiary or withdrawal of funds from the Contract, will require the
Contractowner to print or write a document, sign it, and mail or fax it to us.
WHAT CHARGES ARE ASSOCIATED WITH THIS CONTRACT? If you decide to withdraw
Contract Value before your initial Purchase Payment has been in your Contract
for a period of three years, you pay a surrender charge of anywhere from 1% to
3% of Contract Value, depending on how many Contract Years have elapsed. We
waive the surrender charge in certain situations. See SURRENDER CHARGES.
If your state assesses a premium tax with respect to your Contract, we will
deduct those amounts from Purchase Payments or Contract Value at the time the
tax is incurred (or at another time we choose).
Further, we apply an annual charge totaling .55% to the daily net asset value of
the VAA. See CHARGES AND OTHER DEDUCTIONS.
Finally, each fund pays a management fee to its investment advisors based upon
its average daily net asset value. Each fund also has additional operating
expenses associated with the daily operation of the funds. See the EXPENSE
TABLES. These fees and expenses are more fully described in the prospectuses for
the funds.
HOW MUCH MUST I PAY, AND HOW OFTEN? In general, Purchase Payments are flexible,
although some limitations on the amounts may apply. See THE CONTRACT--PURCHASE
PAYMENTS.
HOW WILL MY ANNUITY PAYOUTS BE CALCULATED? If you decide to annuitize, you elect
an Annuity Payout Option. Once you have done so, your periodic payout will be
based upon a number of factors. One factor will be the changing values of the
funds in which you have invested. Another factor will be your age at the Annuity
Commencement Date. See ANNUITY PAYOUTS. REMEMBER THAT PARTICIPANTS IN THE VAA
BENEFIT FROM ANY GAIN, AND TAKE A RISK OF ANY DROP, IN THE VALUE OF THE
SECURITIES IN THE FUNDS, SERIES OR PORTFOLIOS.
WHAT HAPPENS IF I DIE BEFORE I ANNUITIZE? We will pay the Contract Value to your
designated Beneficiary. Your Beneficiary will have certain options for how the
money is to be paid out. See DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE.
MAY I TRANSFER CONTRACT VALUE BETWEEN FUNDS, SERIES AND PORTFOLIOS? Yes.
Currently, an unlimited number of transfers are allowed before the Annuity
Commencement Date. Transfers are limited to three times annually after the
Annuity Commencement Date. See THE CONTRACTS--TRANSFERS BETWEEN SUBACCOUNTS ON
OR BEFORE THE ANNUITY COMMENCEMENT DATE and TRANSFERS AFTER THE ANNUITY
COMMENCEMENT DATE.
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MAY I SURRENDER THE CONTRACT OR MAKE A WITHDRAWAL? Yes, subject to Contract
requirements. See SURRENDERS AND WITHDRAWALS.
If you surrender the Contract or make a withdrawal, certain charges may be
assessed, as discussed above and under CHARGES AND OTHER DEDUCTIONS. In
addition, if you take a distribution before age 59 1/2 the Internal Revenue
Service (IRS) may assess a 10% premature withdrawal penalty tax. A surrender or
a withdrawal may be subject to 10% withholding. See FEDERAL TAX STATUS--FEDERAL
INCOME TAX WITHHOLDING.
DO I GET A FREE LOOK AT THIS CONTRACT? Yes. If within ten days (or a longer
period if required by law) of the date you receive the signed Contract through
the Internet Service Center, you cancel the Contract through the Internet
Service Center or return it, postage prepaid to the servicing office of Lincoln
Life, it will be canceled. During this period, your Purchase Payments will be
invested in the Money Market Fund. See RETURN PRIVILEGE.
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CONDENSED FINANCIAL INFORMATION FOR THE VAA
ACCUMULATION UNIT VALUES
The following information relating to accumulation unit values and number of
accumulation units for each of the 10 years in the period ended December 31,
1998 comes from the VAA's financial statements. It should be read in conjunction
with the VAA's financial statements and notes which are all included in the SAI.
The Contract was first available for sale on August 20, 1998.
<TABLE>
<CAPTION>
1998
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Aggressive Growth subaccount
Accumulation unit value
- - Beginning of period $ 1.559*
- - End of period $ 1.569* trading began in 1998.
Number of accumulation units
- - End of period 3,697
- ---------------------------------------------------------------------------------
Bond subaccount
Accumulation unit value
- - Beginning of period $ 4,845*
- - End of period $ 5.034* trading began in 1998.
Number of accumulation units
- - End of period 425
- ---------------------------------------------------------------------------------
Capital Appreciation
subaccount
Accumulation unit value
- - Beginning of period $ 2.171*
- - End of period $ 2.578* trading began in 1998.
Number of accumulation units
- - End of period 4,421
- ---------------------------------------------------------------------------------
Equity-Income subaccount
Accumulation unit value
- - Beginning of period $ 2.224*
- - End of period $ 2.403* trading began in 1998.
Number of accumulation units
- - End of period 1,054
- ---------------------------------------------------------------------------------
Global Asset Allocation
subaccount
Accumulation unit value
- - Beginning of period $ 2.898*
- - End of period $ 3.061* trading began in 1998.
Number of accumulation units
- - End of period 972
- ---------------------------------------------------------------------------------
Growth and Income subaccount
Accumulation unit value
- - Beginning of period $ 10.320*
- - End of period $ 11.512* trading began in 1998.
Number of accumulation units
- - End of period 224
- ---------------------------------------------------------------------------------
International subaccount
Accumulation unit value
- - Beginning of period $ 1.699*
- - End of period $ 1.776* trading began in 1998.
Number of accumulation units
- - End of period 2,055
- ---------------------------------------------------------------------------------
</TABLE>
10
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<TABLE>
<CAPTION>
1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed subaccount
Accumulation unit value
- - Beginning of period $ 4.921*
- - End of period $ 5.268* trading began in 1998.
Number of accumulation units
- - End of period 530
- ---------------------------------------------------------------------------------
Money Market subaccount
Accumulation unit value
- - Beginning of period $ 2.482*
- - End of period $ 2.521* trading began in 1998.
Number of accumulation units
- - End of period 130,639
- ---------------------------------------------------------------------------------
Social Awareness subaccount
Accumulation unit value
- - Beginning of period $ 5.407*
- - End of period $ 5.885* trading began in 1998.
Number of accumulation units
- - End of period 1,623
- ---------------------------------------------------------------------------------
Special Opportunities
subaccount
Accumulation unit value
- - Beginning of period $ 8.224*
- - End of period $ 8.736* trading began in 1998.
Number of accumulation units
- - End of period 436
- ---------------------------------------------------------------------------------
Trend subaccount
Accumulation unit value
- - Beginning of period $ 1.251*
- - End of period $ 1.371* trading began in 1998.
Number of accumulation units
- - End of period 3,182
- ---------------------------------------------------------------------------------
Decatur Total Return
subaccount
Accumulation unit value
- - Beginning of period $ 1.501*
- - End of period $ 1.613* trading began in 1998.
Number of accumulation units
- - End of period 4,472
- ---------------------------------------------------------------------------------
Global Bond subaccount
Accumulation unit value
- - Beginning of period $ 1.098*
- - End of period $ 1.186* trading began in 1998.
Number of accumulation units
- - End of period 1,781
- ---------------------------------------------------------------------------------
</TABLE>
* These values do not reflect a full year's experience because they are
calculated for the period from the beginning of investment activity of the
subaccounts, through December 31. These values reflect actual numbers for
the eAnnuity-TM- only.
The BT Equity 500 Index Fund, BT Small Cap Index Fund, VP International, Baron
Capital Asset Fund, AMT Partners Portfolio, AMT MidCap Growth Portfolio, and the
Worldwide Growth Portfolio were added on May 1, 1999. Therefore, these funds are
not included in this condensed financial information statement.
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INVESTMENT RESULTS
At times, the VAA may compare its investment results to various unmanaged
indices or other variable annuities in reports to shareholders, sales literature
and advertisements. The results will be calculated on a total return basis for
various periods, with or without surrender charges. Results calculated without
surrender charges will be higher. Total returns include the reinvestment of all
distributions, which are reflected in changes in Accumulation Unit value. See
the SAI for further information.
FINANCIAL STATEMENTS
The financial statements of the VAA and the statutory-basis financial statements
of Lincoln Life are located in the SAI. You can request a free copy of the SAI
through our Internet Service Center or by a written request to our servicing
office.
LINCOLN NATIONAL LIFE INSURANCE CO.
Lincoln Life was founded in 1905 and is organized under Indiana law. We are one
of the largest stock life insurance companies in the United States. We are owned
by Lincoln National Corp. (LNC) which is also organized under Indiana law. LNC's
primary businesses are insurance and financial services. Lincoln Life is the
issuer of the variable annuity contracts. We also serve as principal underwriter
for the Contracts.
VARIABLE ANNUITY ACCOUNT (VAA)
On June 3, 1981, Lincoln Life established the VAA as an insurance company
separate account under Indiana law. The VAA is registered with the SEC as a unit
investment trust under the provisions of the Investment Company Act of 1940
(1940 Act), but the SEC does not supervise the VAA or Lincoln Life.
The VAA is a segregated investment account. This means that by law its assets
cannot be charged with liabilities resulting from any other business that we may
conduct. All income, gains and losses, realized or not, from assets allocated to
the VAA are credited to or charged against the VAA. They are credited or charged
without regard to any other income, gains or losses of Lincoln Life.
We do not guarantee the investment performance of the VAA. Any investment gain
or loss depends on the investment performance of the funds. You assume the full
investment risk for all amounts placed in the VAA.
The VAA is used to support other annuity contracts offered by Lincoln Life in
addition to the contract described in this prospectus.
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT
The VAA consists of several Subaccounts. A separate Subaccount corresponds to
each fund. You decide the Subaccount(s) to which you allocate Purchase Payments.
Shares of the funds will be sold at net asset value to the VAA in order to fund
the Contract. Any transaction you make will take place at the next net asset
values determined after the receipt of your transaction request. The funds are
required to redeem their shares at net asset value upon our request.
A fund's prospectus explains how the net asset value for that fund is
calculated. You should read the funds' prospectuses carefully before you invest
in this Contract. We reserve the right to add, delete or substitute funds,
subject to regulatory approval. All funds may not be available in all states.
INVESTMENT ADVISOR
Lincoln Investment Management, Inc. (Lincoln Investment) is the investment
advisor for each of the Lincoln National funds and is primarily responsible for
the investment decisions affecting these funds. The services it provides are
explained in the prospectuses of the funds. Under an advisory agreement with
each fund, Lincoln Investment provides portfolio management and investment
advice to that fund, subject to the supervision of the fund's Board of
Directors. Lincoln Investment is owned by LNC.
Additionally, Lincoln Investment currently has five sub-advisory agreements in
which the sub-advisor may perform some or substantially all the investment
advisory services required by those respective funds.
No additional compensation from the assets of those funds will be assessed as a
result of the sub-advisory agreements.
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Following is a chart that shows the Lincoln National fund names and the five
sub-advisors under Lincoln Investment:
<TABLE>
<CAPTION>
Sub-advisor Fund
- ---------------------------------------------------
<S> <C>
Delaware
International
Advisers, Ltd. International
<CAPTION>
- ---------------------------------------------------
<S> <C>
Fidelity Management
Trust Co. Equity-Income
<CAPTION>
- ---------------------------------------------------
<S> <C>
Janus Capital Corp. Capital Appreciation
<CAPTION>
- ---------------------------------------------------
<S> <C>
Putnam Investment
Management, Inc. Aggressive Growth
Global Asset Allocation
<CAPTION>
- ---------------------------------------------------
<S> <C>
Vantage Investment
Advisors Growth and Income; Managed
(for stock portfolio);
Social Awareness; and
Special Opportunities
<CAPTION>
- ---------------------------------------------------
</TABLE>
The Bond and Money Market Funds do not have sub-advisors.
Delaware Management Company, Inc. (Delaware Management) is the advisor for the
Trend Series and the Decatur Total Return Series and is primarily responsible
for the investment decisions affecting the funds. Delaware International
Advisers Ltd. (Delaware International), an affiliate of Delaware Management,
furnishes investment management services to the Global Bond Series. Delaware
Management is an indirect subsidiary of LNC.
Bankers Trust Company is the investment advisor for the Equity 500 Index Fund
and the Small Cap Index Fund, and is primarily responsible for the investment
decisions affecting these funds.
American Century Variable Portfolios, Inc. is a part of American Century
Investments, a family of 70 no-load mutual funds, and is the advisor for the VP
International fund and is primarily responsible for investment decisions
affecting this fund.
BAMCO, Inc. is the investment advisor for the Baron Capital Asset Fund. BAMCO,
Inc., is a wholly owned subsidiary of Baron Capital Group, Inc.
NB Management is the investment advisor and Neuberger Bergman, LLC, is the
sub-advisor for the AMT Partners Portfolio and the AMT MidCap Growth Portfolio,
and are primarily responsible for the investment decisions affecting these
funds.
Janus Capital Corporation is the investment advisor for the Janus Aspen Series:
Worldwide Growth Portfolio. Janus Capital Corporation is primarily responsible
for the investment decisions affecting this fund.
FUNDS
Certain funds offered as part of this contract have similar investment
objectives and policies to other portfolios managed by the advisor. The
investment results of the funds, however, may be higher or lower than the other
portfolios that are managed by the advisor. There can be no assurance, and no
representation is made, that the investment results of any of the funds will be
comparable to the investment results of any other portfolio managed by the
advisor.
Following are brief summaries of the investment objectives and policies of the
funds. The year in which each fund started trading is in parentheses. There is
more detailed information in the current prospectuses for the funds.
All of the funds, with the exception of the Lincoln National Special
Opportunities Fund, are diversified, open-end management investment companies.
Diversified funds do not own too large a percentage of the securities of any one
company. An open-end company is one which, in this case, permits Lincoln Life to
sell its shares back to the fund when you make a withdrawal, surrender the
Contract or transfer from one fund to another. Management investment company is
the legal term for a mutual fund.
The Special Opportunities Fund is open-end, but is non-diversified.
Non-diversified means the fund may own a larger percentage of the securities of
particular companies than will a diversified company.
These definitions are very general. The precise legal definitions for these
terms are contained in the Investment Company Act of 1940. PLEASE BE ADVISED
THAT THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE ITS STATED
OBJECTIVES.
1. Aggressive Growth Fund (1994) -- The investment objective is to increase
the value of your shares (capital appreciation). The fund invests in
stocks of smaller, lesser-known companies which have a chance to grow
significantly in a short time.
2. Bond Fund (1981) -- The investment objective is maximum current income
consistent with prudent investment strategy. The fund invests primarily in
medium-and long-term corporate and government bonds.
3. Capital Appreciation Fund (1994) -- The investment objective is long-term
growth of capital in a manner consistent with preservation of capital. The
fund primarily buys stock in companies of all sizes that are competing
well and with products or services are in high demand. It may also buy
some money market securities and bonds, including high risk (junk) bonds.
4. Equity-Income Fund (1994) -- The investment objective is to achieve
reasonable income by investing primarily in income-producing equity
securities. The fund invests mostly in high-income stocks and some
high-yielding bonds (including junk bonds).
5. Global Asset Allocation Fund (1987) -- The investment objective is
long-term return consistent with preservation of capital. The fund
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invests in equity and fixed-income securities, both of U.S. and foreign
issuers.
6. Growth and Income Fund (1981) -- The investment objective is long-term
capital appreciation. The fund buys stocks of established companies.
7. International Fund (1991) -- The investment objective is long-term capital
appreciation. The fund trades in securities issued outside the United
States-- mostly stocks, with an occasional bond or money market security.
8. Managed Fund (1983) -- The investment objective is maximum long-term total
return (capital gains plus income) consistent with prudent investment
strategy. The fund invests in a mix of stocks, bonds, and money market
securities, as determined by an investment committee.
9. Money Market Fund (1981) -- The investment objective is maximum current
income consistent with the preservation of capital. The fund invests in
short-term obligations issued by U.S. corporations, the U.S. Government,
and federally-chartered banks and U.S. branches of foreign banks.
10. Social Awareness Fund (1988) -- The investment objective is long-term
capital appreciation. The fund buys stocks of established companies which
adhere to certain specific social responsibility criteria.
11. Special Opportunities Fund (1981) -- The investment objective is maximum
capital appreciation. The fund primarily invests in mid-size companies
whose stocks have significant growth potential. Current income is a
secondary consideration.
12. Delaware Premium--Growth and Income Series (Formerly Decatur Total Return
Series) (1996) -- seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. Decatur Total Return Series
invests generally, but not exclusively, in common stocks and
income-producing securities convertible into common stocks, consistent
with the fund's objective.
13. Delaware Premium--Trend Series (1996) -- seeks long-term capital
appreciation by investing primarily in small-cap common stocks and
convertible securities of emerging and other growth-oriented companies.
These securities will have been judged to be responsive to changes in the
market place and to have fundamental characteristics to support growth.
Income is not an objective.
14. Delaware Premium--Global Bond Series (1996) -- seeks current income
consistent with preservation of principal by investing primarily in fixed
income securities that may also provide the potential for capital
appreciation. This fund is a global fund. As such, at least 65% of the
fund's assets will be invested in fixed income securities of issuers
organized or having a majority of their assets in or deriving a majority
of their operating income in at least three different countries, one of
which may be the United States.
NOTE: THE FOLLOWING FUNDS (NUMBERS 15 THROUGH 21) MAY NOT BE AVAILABLE IN
ALL STATES.
15. Equity 500 Index Fund (1997) -- seeks to match the performance of the
stock market, as represented by the S&P 500 (R) Index, before expenses.
The fund will include the common stock of those companies included in the
S&P 500, other than Bankers Trust New York Corporation, selected on the
basis of computer-generated statistical data, that are deemed
representative of the industry diversification of the entire S&P 500.
16. Small Cap Index Fund (1997) -- seeks to replicate as closely as possible
the total return of the Russell 2000 Small Stock Index ("the Russell
2000"), an index consisting of 2,000 small-capitalization common stocks.
The fund will include the common stock of those companies included in the
Russell 2000, on the basis of computer-generated statistical data, that
are deemed representative of the industry diversification of the entire
Russell 2000.
17. VP International (1994) -- seeks capital growth, by investing primarily in
an internationally diversified portfolio of common stocks that are
considered by management to have prospects for appreciation. The fund will
invest primarily in securities of issuers located in developed markets.
18. Baron Capital Asset Fund (1998) -- The fund invests in a diversified
portfolio of primarily common stocks of small and medium-sized companies
with undervalued assets or favorable growth prospects. The investment
advisor seeks to purchase stocks, judged by the advisor, to have the
potential of increasing their value at least 50% over two subsequent
years, although that goal may not be achieved.
19. AMT Partners Portfolio (1994) -- seeks capital growth through an
investment approach that is designed to increase capital with reasonable
risk. It invests primarily in common stocks of medium to large
capitalization companies, using the value-oriented investment approach.
20. AMT MidCap Growth Portfolio (1997) -- seeks capital appreciation by
investing primarily in common stocks of medium-capitalization companies,
using a growth-oriented investment approach.
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21. Worldwide Growth Portfolio (1993) -- seeks long-term growth of capital by
investing primarily in common stocks of foreign and domestic issuers, in a
manner consistent with the preservation of capital.
Shares of the Lincoln National funds (funds 1. to 11.), the Delaware Management
funds (funds 12. to 14.) are sold to Lincoln Life for investment of the assets
of the VAA and of Lincoln Life Flexible Premium Variable Life Account K, for
other variable life insurance contracts. Shares of some, but not all, of the
Lincoln National funds are also sold to Lincoln Life for investment of the
assets of Lincoln Life Flexible Premium Variable Life Accounts D and G, also to
fund variable life insurance contracts. In addition, shares of all funds except
the Lincoln National funds are sold to separate accounts of life insurance
companies other than Lincoln Life (in other words, "shared funding" occurs). See
OTHER INFORMATION. Shares of the funds are not sold directly to the general
public.
The portfolio managers for the Neuberger Berman Advisers Management Trust
Portfolios also manage one or more other mutual funds with similar names,
investment objectives and/or investment styles as the Neuberger Berman Advisor
Management Trust funds. You should be aware that each fund is likely to differ
from the other mutual funds in size, cash flow pattern and tax matters.
Accordingly, the holdings and performance of each fund can be expected to vary
from those of the other mutual funds.
We will purchase shares of each of the funds at net asset value and direct them
to the appropriate Subaccounts of the VAA. We will redeem sufficient shares of
the appropriate funds to pay Annuity Payouts, Death Benefits,
surrender/withdrawal proceeds, or for purposes described in the Contract. If you
desire to transfer all or part of your investment from one Subaccount to
another, we may redeem shares held in that Subaccount and purchase shares for
the other Subaccount. The shares are retired, but they may be reissued later.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
All of the investment objectives of the funds are fundamental, which means that
no changes may be made without the affirmative vote of a majority of the
outstanding voting securities of each respective fund. The extent to which the
particular investment policies, practices or restrictions for each fund are
fundamental or non-fundamental depends on the particular fund. If they are
non-fundamental, they may be changed by the Board of Directors of the funds
without shareholder approval.
You are urged to consult the prospectus and SAI for each individual fund for
additional information regarding the fundamental and non-fundamental policies,
practices and restrictions of each of the funds.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
All dividend and capital gain distributions of the funds are automatically
reinvested in shares of the distributing funds at their net asset value on the
date of distribution. Dividends are not paid out to Contractowners as additional
Accumulation Units or Annuity Units, but are reflected in changes in unit
values.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, within the law, to make additions, deletions and
substitutions for the funds held by the VAA. (We may substitute shares of other
funds for shares already purchased, or to be purchased in the future, under the
Contract. This substitution might occur if shares of a fund should no longer be
available, or if investment in any fund's shares should no longer be available,
or if investment in any fund's share should become inappropriate, in the
judgement of our management, for the purposes for the Contract.) We cannot
substitute shares of one fund for another without approval by the SEC.
In this event we will inform you by placing a notice in your personal folder at
the Internet Service Center. This notice will also be sent to your last known
e-mail address.
CHARGES AND OTHER DEDUCTIONS
We will deduct the charges described below to cover our costs and expenses of
providing administrative and distribution services and for assuming certain
risks under the Contract. The amount of a charge may not necessarily correspond
to the costs associated with providing the services or benefits indicated by the
designation of the charge. For example, the Surrender Charge collected may not
fully cover all of the sales and distribution expenses actually incurred by us.
We may pay commissions to broker-dealers as a percentage of Purchase Payments.
Commission payments will not result in increased charges and other expenses, and
thus will not affect your Contract Value.
DEDUCTIONS FROM THE VAA
We deduct from the VAA an amount, computed daily, which is equal to an annual
rate of 0.55% of the daily net asset value. This is our annuity asset charge.
The
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<PAGE>
charge compensates us for administrative expenses we incur and for mortality and
expense risks we assume. Our administrative expenses include, but are not
limited to, bookkeeping costs, the cost of maintaining our Internet Service
Center, and the costs associated with sales of the VAA. We assume the risk that
annuitants as a class may live longer than expected (mortality risk), and that
expenses may be higher than the deductions for those expenses (expense risk). In
either case, the loss will fall on us. Conversely, if such deductions exceed our
actual expenses, the excess will be profit to us.
SURRENDER CHARGE
The Surrender Charge percentage applies (except as described below) to
surrenders or withdrawals according to the following schedule:
<TABLE>
<CAPTION>
Contract Year
1 2 3 4 or more
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Surrender Charge as % of
Contract Value Withdrawn 3% 2% 1% 0 %
</TABLE>
In the case of a withdrawal, the Surrender Charge will be deducted from the
remaining Contract Value and will itself be subject to a Surrender Charge.
A Surrender Charge does not apply to:
1. A surrender or withdrawal after the initial payment has been invested at
least three full years.
2. Annuitization of the Contract by electing an Annuity Payout Option
available within the Contract.
3. A surrender of the Contract as a result of the death of the Contractowner;
or in the case of joint Contractowners, the death of one of the
Contractowners. The Surrender Charges are not waived as a result of the
death of an Annuitant who is not the Contractowner.
If a non-natural person (for example, a corporation) is the Contractowner, the
Annuitant will be considered the Contractowner for purposes of (3) above.
DEDUCTIONS FOR PREMIUM TAXES
Any premium tax or other tax levied by any governmental entity as a result of
the existence of the Contracts or the VAA will be deducted from the Contract
Value when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation or by judicial action. These premium taxes will
vary, depending upon the law of your state of residence. In those states which
tax these premiums, the tax generally ranges from 0.5% to 4.0%.
OTHER CHARGES AND DEDUCTIONS
There are deductions from and expenses paid out of the assets of the underlying
funds that are more fully described in the prospectuses for the funds.
ADDITIONAL INFORMATION
The Surrender Charges described previously may be reduced or eliminated for any
particular Contract. However, these charges will be reduced only to the extent
that we anticipate lower distribution and/or administrative expenses, or that we
perform fewer sales or administrative services than those originally
contemplated in establishing the level of those charges. Lower distribution and
administrative expenses may be the result of economies associated with: (1) the
Internet Service Center; (2) the use of mass enrollment procedures; (3) the
performance of administrative or sales functions by the employer; (4) the use by
an employer of automated techniques in submitting deposits or information
related to deposits on behalf of its employees; or (5) any other circumstances
which reduce distribution or administrative expenses. The exact amount of
Surrender Charges applicable to a particular Contract will be stated in that
Contract.
THE CONTRACT
PURCHASE OF CONTRACT
If you wish to purchase the Contract, you must apply for it through the Internet
Service Center. When we receive the completed application, we decide whether to
accept or reject it. If the application is accepted, the Contract is prepared
and executed by our legally authorized officers. The Contract is then sent to
you through the Internet Service Center. See DISTRIBUTION OF THE CONTRACTS.
Once a completed application and all other information necessary for processing
a purchase order are received, the initial Purchase Payment will be invested in
the VAA no later than two business days after we receive the order. While
attempting to finish an incomplete application, we may hold the initial Purchase
Payment for no more than five business days. If an incomplete application cannot
be completed within those five days, you will be informed of the reasons, and
the Purchase Payment will be returned immediately (unless you specifically
authorize us to keep it until the application is complete). Once the application
is complete, the initial Purchase Payment must be invested in the VAA within two
business days.
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Purchase Payments can be mailed to: Lincoln National Life Insurance Company,
P.O. Box 62120, Baltimore, MD 21264-2120.
WHO CAN INVEST
To apply for the Contract, you must be of legal age--but no older than age
85--in a state where the Contracts may be lawfully sold and also be eligible to
participate in any of the qualified or nonqualified plans for which the
Contracts are designed.
PURCHASE PAYMENTS
The minimum initial Purchase Payment is $1,000. Subsequent Purchase payments to
the Contract must be at least $100. Lincoln Life reserves the right to limit the
sum of Purchase Payments made under this Contract to $5,000,000. Payments may be
made or, if stopped, resumed at any time until the Annuity Commencement Date,
the surrender of the Contract, the maturity date or the death of the
Contractowner (or joint Contractowner, if applicable), whichever comes first.
VALUATION DATE
Accumulation Units and Annuity Units will be valued once daily at the close of
trading (currently, 4:00 p.m. EST) on each day the New York Stock Exchange is
open (Valuation Date). On any date other than a Valuation Date, the Accumulation
Unit value and the Annuity Unit value will not change.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are placed into the VAA's Subaccounts. Following your
allocation instructions, each VAA Subaccount invests in shares of the
corresponding funds.
Upon allocation to the appropriate Subaccount, Purchase Payments are converted
into Accumulation Units. The number of Accumulation Units credited is determined
by dividing the amount allocated to each Subaccount by the value of an
Accumulation Unit for that Subaccount on the Valuation Date on which the
Purchase Payment is received at our servicing office, if received before 4:00
p.m. EST. If the Purchase Payment is received at or after 4:00 p.m. EST, we will
use the Accumulation Unit value computed on the next Valuation Date. The number
of Accumulation Units determined in this way is not changed by any subsequent
change in the value of an Accumulation Unit. However, the dollar value of an
Accumulation Unit will vary depending not only upon how well the underlying
fund's investments perform, but also upon the expenses of the VAA and the
underlying funds.
VALUATION OF ACCUMULATION UNITS
The Contract Value at any time prior to the Annuity Commencement Date equals the
sum of the values of the Accumulation Units credited in the Subaccounts under
the Contract.
The value of a Subaccount on any Valuation Date is the number of Accumulation
Units in the Subaccount multiplied by the value of an Accumulation Unit in the
Subaccount at the end of the Valuation Period.
Accumulation Units for each Subaccount are valued separately. Initially, the
value of an Accumulation Unit was arbitrarily established at the inception of
the Subaccount. It may increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Subaccount for any later Valuation
Period is determined as follows:
(1) THE TOTAL VALUE OF FUND SHARES HELD IN THE SUBACCOUNT is calculated by
multiplying the number of fund shares owned by the Subaccount 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 SUBACCOUNT AT THE END OF THE VALUATION PERIOD (such
liabilities include daily charges imposed on the Subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by Lincoln Life that Lincoln Life determines are as a result of the
operations from the Variable Account); the result DIVIDED BY
(3) THE OUTSTANDING NUMBER OF ACCUMULATION UNITS IN THE SUBACCOUNT AT THE
BEGINNING OF THE VALUATION PERIOD.
The daily charges imposed on a Subaccount for any Valuation Period represent the
annuity asset charge adjusted for the number of calendar days in the Valuation
Period. On an annual basis the annuity asset charge will not exceed 0.55%. The
Accumulation Unit value and Annuity Unit value may increase or decrease the
dollar value of benefits under the Contract. The dollar value of benefits will
not be adversely affected by expenses incurred by Lincoln Life.
TRANSFERS BETWEEN SUBACCOUNTS ON OR BEFORE THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment from one Subaccount to
another. A transfer involves the surrender of Accumulation Units in one
Subaccount and the purchase of Accumulation Units in another Subaccount. A
transfer will be done using the respective Accumulation Unit values determined
at the end of the Valuation Date on which the transfer request is received.
Currently, there is no charge for a transfer. However, we reserve the right to
impose a charge in the future for transfers.
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A transfer may be made through our Internet Service Center or by writing to our
servicing office. In order to prevent unauthorized or fraudulent Internet
transfers, we may require Contractowners to provide certain identifying
information before we will act upon their instructions. We may also assign the
Contractowner a password to serve as identification. We will not be liable for
following instructions we reasonably believe are genuine. Confirmation of all
transfer requests will be mailed electronically to the Contractowner on the next
Valuation Date. Internet transfers will be processed on the Valuation Date that
they are received when they are received at our Internet Service Center before 4
p.m. EST.
When thinking about a transfer of Contract Value, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that a transfer will be made at an inopportune time.
TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
You may transfer all or a portion of your investment in one Subaccount to
another Subaccount. Those transfers will be limited to three times per Contract
Year. Currently, there is no charge for these transfers. However, we reserve the
right to impose a charge in the future for transfers.
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
You may designate a Beneficiary during your lifetime and, unless prohibited by a
previous designation, change the Beneficiary by filing a written request with
our servicing office, or through our Internet Service Center. Each change of
Beneficiary revokes any previous designation.
If there is a single Contractowner and the Contractowner dies before the Annuity
Commencement Date, the Death Benefit paid to the designated Beneficiary will be
the Contract Value as of the day on which Lincoln Life approves the payment of
the claim.
The value of the Death Benefit will be determined as of the date on which the
death claim is approved for payment. This approval will be granted upon receipt
of: (1) proof, satisfactory to us, of the death of the owner; (2) written
authorization for payment; and (3) our receipt of all required claim forms,
fully completed.
If a lump sum settlement is requested, the proceeds will be paid within seven
days of receipt of satisfactory claim documentation as discussed previously.
Contract proceeds from the VAA will be paid within seven days as stated
previously, except (i) when the NYSE is closed (except weekends and holidays);
(ii) at times when market trading is restricted or the SEC declares an
emergency, and we cannot value units or the funds cannot redeem shares; or (iii)
when the SEC so orders to protect contract owners. This payment may be postponed
as permitted by the 1940 Act.
Payment will be made in accordance with applicable laws and regulations
governing payment of Death Benefits. All payments must satisfy the requirements
of Internal Revenue Code of 1986, as amended, (Code) section 72(s) or 401(a)(9)
as applicable, as amended from time to time.
Unless otherwise provided in the Beneficiary designation, one of the following
procedures will take place on the death of a Beneficiary:
1. If any Beneficiary dies before the Contractowner, that Beneficiary's
interest will go to any other Beneficiaries named, according to their
respective interests; and/or
2. If no Beneficiary survives the Contractowner, the proceeds will be paid to
the Contractowner's estate.
The Death Benefit payable to the Beneficiary must be distributed within five
years of the Contractowner's date of death unless the Beneficiary begins
receiving within one year of the Contractowner's death substantially equal
installments over a period not extending beyond the Beneficiary's life
expectancy.
If the Beneficiary is the spouse of the Contractowner, then the spouse may elect
to continue the Contract as Contractowner. If the Contractowner is a corporation
or other non-individual (non-natural person), the death of the Annuitant will be
treated as death of the Contractowner and the above distribution rules apply.
If there are joint Contractowners, upon the death of the first joint
Contractowner, the surviving joint Contractowner will receive the Death Benefit.
The surviving joint Contractowner will be treated as the primary, designated
Beneficiary. Any other Beneficiary designation on record at the time of death
will be treated as a contingent Beneficiary.
If the surviving joint Contractowner, as spouse of the deceased joint
Contractowner, continues the Contract as the sole owner in lieu of receiving the
Death Benefit, then the designated Beneficiary(s) will receive the Death Benefit
upon the death of the surviving spouse.
JOINT OWNERSHIP
If a joint Contractowner is named in the application, the joint Contractowners
shall be treated as having equal undivided interests in the Contract. Either
Contractowner, independently of the other, may exercise any ownership rights in
this Contract. Only spouses may be joint Contractowners.
DEATH OF ANNUITANT
If the Annuitant is also the Contractowner or a joint Contractowner, then the
Death Benefit will be subject to the provisions of this Contract regarding death
of the Contractowner. If the surviving spouse assumes the
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Contract, the contingent Annuitant becomes the Annuitant. If no contingent
Annuitant is named, the surviving spouse becomes the Annuitant.
If an Annuitant who is not the Contractowner or joint Contractowner dies, then
the contingent Annuitant, if any, becomes the Annuitant. If no contingent
Annuitant is named, the Contractowner (or joint owner if younger) becomes the
Annuitant.
SURRENDERS AND WITHDRAWALS
Before the Annuity Commencement Date, we will allow the surrender of the
Contract or a withdrawal of the Contract Value upon your written request or
through our Internet Service Center, subject to the rules discussed below. None
of the current annuitization options allow surrender or withdrawal rights after
the Annuity Commencement Date.
The Contract Value available upon surrender/withdrawal is the cash surrender
value (Contract Value less any applicable Surrender Charge) at the end of the
Valuation Period during which the request for surrender/ withdrawal is received
at the servicing office or Internet Service Center. Unless a request for
withdrawal specifies otherwise, withdrawals will be made from all Subaccounts
within the VAA in the same proportion that the amount of withdrawal bears to the
total Contract Value. The minimum amount which can be withdrawn is $300, and the
remaining Contract Value must be at least $1000. Unless prohibited,
surrender/withdrawal payments will be mailed or electronically transferred
within seven days after we receive a valid request at the servicing office or
through the Internet Service Center. The payment may be postponed as permitted
by the Investment Company Act of 1940.
There may be charges associated with surrender of the Contract or withdrawal of
Contract Value. These charges are deducted from the amount you request to be
withdrawn. See CHARGES AND OTHER DEDUCTIONS.
The tax consequences of a surrender or withdrawal are discussed in the section
FEDERAL TAX STATUS of this prospectus.
We reserve the right to terminate the Contract, if your Contract fails to meet
minimum Contract Value or payment frequencies as set forth in your state's
nonforfeiture law for individual deferred annuities.
AMENDMENT OF CONTRACT
We reserve the right to amend the Contract to meet the requirements of the 1940
Act or other applicable federal or state laws or regulations. You will be
notified of any changes, modifications or waivers.
OWNERSHIP
As Contractowner, you have all rights under the Contract. According to Indiana
law, the assets of the VAA are held for the exclusive benefit of all
Contractowners and their designated Beneficiaries. The assets of the VAA are not
chargeable with liabilities arising from any other business that we may conduct.
IRAs may not be assigned or transferred except as permitted by a domestic
relations order and upon written notification to us. We assume no responsibility
for the validity or effect of any assignment. Consult your tax advisor about the
tax consequences of an assignment.
CONTRACTOWNER QUESTIONS
The obligations to purchasers under the Contracts are those of Lincoln Life.
Questions about your Contract should be directed to us by e-mail to our Internet
Service Center or in writing to our servicing office.
ANNUITY PAYOUTS
You may select any Annuity Commencement Date permitted by law provided that the
Annuity Commencement Date occurs before the Annuitant's (or the elder of the
joint Annuitants') 85th birthday. You may select one of the forms of payout of
annuities available under the Contract (described below). Annuity payments to
you under any of the Annuity Payout Options are made on a monthly basis and may
vary in amount.
ANNUITY OPTIONS
LIFE ANNUITY. This option offers a periodic payout during the lifetime of the
Annuitant and ends with the last payout before the death of the Annuitant. This
option offers the highest periodic payout since there is no guarantee of a
minimum number of payouts or provision for a Death Benefit for Beneficiaries.
HOWEVER, THERE IS THE RISK UNDER THIS OPTION THAT THE RECIPIENT WOULD RECEIVE NO
PAYOUTS IF THE ANNUITANT DIES BEFORE THE DATE SET FOR THE FIRST PAYOUT; ONLY ONE
PAYOUT IF DEATH OCCURS BEFORE THE SECOND SCHEDULED PAYOUT, AND SO ON.
LIFE INCOME WITH PAYOUTS GUARANTEED FOR DESIGNATED PERIOD. This option
guarantees periodic payouts during a designated period, usually 10 or 20 years,
and then continues throughout the lifetime of the Annuitant. The designated
period is selected by the Contractowner.
JOINT LIFE ANNUITY. This option offers a periodic pay-
out during the joint lifetime of the Annuitant and a designated joint Annuitant.
The payouts continue during the lifetime of the survivor.
JOINT LIFE ANNUITY WITH GUARANTEED PERIOD. This option guarantees periodic
payouts during a designated period, usually 10 or 20 years, and continues during
the joint lifetime of the Annuitant and a designated joint Annuitant. The
payouts continue during the lifetime of the survivor. The designated period is
selected by the Contractowner.
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GENERAL INFORMATION
None of the options listed above currently provide withdrawal features
permitting the Contractowner to withdraw commuted values as a lump sum payment.
We may make available other options, with or without withdrawal features.
Options are only available to the extent they are consistent with the
requirements of the Contract as well as Sections 72(s) and 401(a)(9) of the
Code, if applicable. The annuity asset charge will be assessed on all variable
Annuity Payouts, including options that may be offered that do not have a life
contingency and therefore no mortality risk.
The Annuity Commencement Date is usually on or before the Annuitant's 85th
birthday. You may change the Annuity Commencement Date or change the Annuity
Payout Option up to the scheduled Annuity Commencement Date, through our
Internet Service Center or by written notice to the servicing office. You must
give us at least 14 days notice before the date on which you want payouts to
begin. If proceeds become available to a Beneficiary in a lump sum, the
Beneficiary may choose any Annuity Payout Option.
Unless you select another option, the Contract automatically provides for a life
annuity with Annuity Payouts guaranteed for 10 years (on a variable basis, in
proportion to the Subaccount allocations at the time of annuitization) except
when a joint life payout is required by law. Under any option providing for
payouts for a guaranteed period, the number of payouts which remain unpaid at
the date of the Annuitant's death (or surviving Annuitant's death in case of
joint life annuity) will be paid to the Contractowner if living, otherwise to
your Beneficiary as payouts become due.
VARIABLE ANNUITY PAYOUTS
Variable Annuity Payouts will be determined using:
1. The Contract Value on the Annuity Commencement Date;
2. The annuity tables contained in the Contract;
3. The Annuity Payout Option selected; and
4. The investment performance of the funds selected.
We determine the amount of Annuity Payouts by:
1. Determining the dollar amount of the first periodic payout; then
2. Crediting the Contract with a fixed number of Annuity Units equal to the
first periodic payout divided by the Annuity Unit value; and
3. Calculating the value of the Annuity Units each period thereafter.
We assume an investment return of 5% per year, as applied to the applicable
mortality table. The amount of each payout after the initial payout will depend
upon how the underlying funds perform, relative to the 5% assumed rate. The SAI
contains a more complete explanation of this calculation.
FEDERAL TAX STATUS
INTRODUCTION
The Federal income tax treatment of the Contract is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax rules
that may affect you and the Contract. This discussion also does not address
other Federal tax consequences, or state or local tax consequences, associated
with the Contract. As a result, you should always consult a tax advisor about
the application of tax rules to your individual situation.
TAXATION OF NONQUALIFIED ANNUITIES
This part of the discussion describes some of the Federal income tax rules
applicable to nonqualified annuities. A nonqualified annuity is a Contract not
issued in connection with a qualified retirement plan receiving special tax
treatment under the Code, such as an IRA or a section 403(b) plan.
TAX DEFERRAL ON EARNINGS
The Federal income tax law generally does not tax any increase in the Contract
Value until you receive a Contract distribution. However, for this general rule
to apply, certain requirements must be satisfied:
- - An individual must own the Contract or the tax law must treat the contact as
owned by an individual.
- - The investments of the VAA must be "adequately diversified" in accordance with
IRS regulations.
- - The right to choose particular investments for the Contract must be limited.
- - The Annuity Commencement Date must not occur near the end of the Annuitant's
life expectancy.
CONTRACTS NOT OWNED BY AN INDIVIDUAL
If the Contract is owned by an entity (rather than an individual) the Code
generally does not treat it as an annuity contract for Federal income tax
purposes. This means that the entity owning the Contract pays tax currently on
the excess of the Contract Value over the Purchase Payments for the Contract.
Examples of contracts where the owner pays current tax on the Contract's
earnings are contracts issued to a corporation or a trust. Exceptions to this
rule exist. For example, the Code treats a contract as owned by an individual if
the named owner is a trust or other entity that holds the contract as an agent
for an individual. However, this exception does not apply in the case of any
employer that owns a contract to provide deferred compensation for its
employees.
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INVESTMENTS IN THE VAA MUST BE DIVERSIFIED
For the Contract to be treated as an annuity for Federal income tax purposes,
the investments of the VAA must be "adequately diversified." IRS regulations
define standards for determining whether the investments of the VAA are
adequately diversified. If the VAA fails to comply with these diversification
standards, you could be required to pay tax currently on the excess of the
Contract Value over the total amount paid into the Contract. Although we do not
control the investments of the underlying investment options, we expect that the
underlying investment options will comply with the IRS regulations so that the
VAA will be considered "adequately diversified."
RESTRICTIONS
Federal income tax law limits your rights to choose particular investments for
the Contract. Because the Internal Revenue Service has not issued guidance
specifying those limits, the limits are uncertain and your right to allocate
contract values among the Subaccounts may exceed those limits. If so, the
Contractowner would be treated as the owner of the assets of the VAA and thus
subject to current taxation on the income and gains from those assets. We do not
know what limits may be set by the Internal Revenue Service in any guidance that
it may issue and whether any such limits will apply to existing contracts. We
reserve the right to modify the Contract without Contractowner's consent to try
to prevent the tax law from considering them as the owner of the assets of the
VAA.
AGE AT WHICH ANNUITY PAYOUTS BEGIN
Federal income tax rules do not expressly identify a particular age by which
Annuity Payouts must begin. However, those rules do require that an annuity
contract provide for amortization, through Annuity Payouts, of the Contract's
Purchase Payments and earnings. If Annuity Payouts under the Contract begin or
are scheduled to begin on a date past the Annuitant's 85th birthday, it is
possible that the tax law will not treat the Contract as an annuity for Federal
income tax purposes. In that event, Contractowner would be currently taxable on
the excess of the Contract Value over the amounts paid into the Contract.
TAX TREATMENT OF PAYMENTS
We make no guarantees regarding the tax treatment of any contract or of any
transaction involving a contract. However, the rest of this discussion assumes
that the Contract will be treated as an annuity for Federal income tax purposes
and that the tax law will not tax any increase in the Contract Value until there
is a distribution from the Contract.
TAXATION OF WITHDRAWALS AND SURRENDERS
The Contractowner will pay tax on withdrawals to the extent their Contract Value
exceeds Purchase Payments in the Contract. This income (and all other income
from the Contract) is considered ordinary income. A higher rate of tax is paid
on ordinary income than on capital gains. A Contractowner will pay tax on a
surrender to the extent the amount received exceeds Purchase Payments. In
certain circumstances Purchase Payments are reduced by amounts received from the
Contract that were not included in income.
TAXATION OF ANNUITY PAYOUTS
The Code imposes tax on a portion of each Annuity Payout (at ordinary income tax
rates) and treats a portion as a nontaxable return of Purchase Payments in the
Contract. We will notify you annually of the taxable amount of your Annuity
Payout. Once you have recovered the total amount of the Purchase Payment in the
Contract, you will pay tax on the full amount of your Annuity Payouts. If
Annuity Payouts end because of the Annuitant's death and before the total amount
of the Purchase Payments in the Contract has been received, the amount not
received generally will be deductible.
TAXATION OF DEATH BENEFITS
We may distribute amounts from the Contract because of the death of a
Contractowner. The tax treatment of these amounts depends on whether the
Contractowner or the Annuitant dies before or after the Annuity Commencement
Date.
- - Death prior to the Annuity Commencement Date--
- If the Beneficiary receives Death Benefits under an Annuity Payout Option,
they are taxed in the same manner as Annuity Payouts.
- If the Beneficiary does not receive Death Benefits under an Annuity Payout
Option, they are taxed in the same manner as a withdrawal.
- - Death after the Annuity Commencement Date--
- If Death Benefits are received in accordance with the existing Annuity
Payout Option, they are excludible from income if they do not exceed the
Purchase Payments not yet distributed from the Contract. All Annuity
Payouts in excess of the Purchase Payments not previously received are
includible in income.
- If Death Benefits are received in a lump sum, the tax law imposes tax on
the amount of Death Benefits which exceeds the amount of Purchase Payments
not previously received.
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PENALTY TAXES PAYABLE ON WITHDRAWALS, SURRENDERS, OR ANNUITY PAYOUTS
The Code may impose a 10% penalty tax on any distribution from the Contract
which Contractowner must include in gross income. The 10% penalty tax does not
apply if one of several exceptions exists. These exceptions include withdrawals,
surrenders, or Annuity Payouts that:
- - you receive on or after you reach age 59 1/2,
- - you receive because you became disabled (as defined in the tax law),
- - a Beneficiary receives on or after your death, or
- - you receive as a series of substantially equal periodic payments for your life
(or life expectancy).
SPECIAL RULES IF YOU OWN MORE THAN ONE ANNUITY CONTRACT
In certain circumstances, we must combine some or all of the nonqualified
annuity contracts you own in order to determine the amount of an Annuity Payout,
a surrender, or a withdrawal that you must include in income. For example, if
you purchase two or more deferred annuity contracts from the same life insurance
company (or its affiliates) during any calendar year, the Code treats all such
contracts as one Contract. Treating two or more contracts as one Contract could
affect the amount of a surrender, a withdrawal or an Annuity Payout that you
must include in income and the amount that might be subject to the penalty tax
described above.
GIFTING A CONTRACT
If you transfer ownership of the Contract to a person other than the your
spouse, and receive a payment less than the Contract Value, you will pay tax on
the Contract Value to the extent it exceeds your Purchase Payments not
previously received. The new owner's Purchase Payments in the Contract would
then be increased to reflect the amount included in your income.
LOSS OF INTEREST DEDUCTION
After June 8, 1997, if the Contract is issued to a taxpayer that is not an
individual, or if the Contract is held for the benefit of an entity, the entity
will lose a portion of its deduction for otherwise deductible interest expenses.
This disallowance does not apply if you pay tax on the annual increase in the
Contract Value. Entities that are considering purchasing the Contract, or
entities that will benefit from someone else's ownership of the Contract, should
consult a tax advisor.
QUALIFIED RETIREMENT PLANS
We also designed the Contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the Code. Contracts
issued to or in connection with a qualified retirement plan are called
"qualified contracts." We issue contracts for use with different types of
qualified plans. The Federal income tax rules applicable to those plans are
complex and varied. As a result, this Prospectus does not attempt to provide
more than general information about use of the Contract with the various types
of qualified plans. Persons planning to use the Contract in connection with a
qualified plan should obtain advice from a competent tax advisor.
TYPES OF QUALIFIED CONTRACTS AND TERMS OF CONTRACTS
Currently, we issue contracts in connection with the following types of
qualified plans:
- - Individual Retirement Accounts and Annuities ("Traditional IRAs")
- - Roth IRAs
We may issue the Contract for use with other types of qualified plans in the
future.
We will amend contracts to be used with a qualified plan as generally necessary
to conform to tax law requirements for the type of plan. However, the rights of
a person to any qualified plan benefits may be subject to the plan's terms and
conditions, regardless of the Contract's terms and conditions. In addition, we
are not bound by the terms and conditions of qualified plans to the extent such
terms and conditions contradict the Contract, unless we consent.
TAX TREATMENT OF QUALIFIED CONTRACTS
The Federal income tax rules applicable to qualified plans and qualified
contracts vary with the type of plan and contract. For example,
- - Federal tax rules limit the amount of Purchase Payments that can be made, and
the tax deduction or exclusion that may be allowed for the Purchase Payments.
These limits vary depending on the type of qualified plan and the
Contractowner's specific circumstances, for example, your compensation.
- - Under most qualified plans, for example, 403(b) plans and Traditional IRAs,
the Contractowner must begin receiving payments from the Contract in certain
minimum amounts by a certain age, typically age 70 1/2. However, these
"minimum distribution rules" do not apply to a Roth IRA.
- - Loans are allowed under certain types of qualified plans, but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some
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section 403(b) plans, but prohibit loans under Traditional and Roth IRAs. If
allowed, loans are subject to a variety of limitations, including restrictions
as to the loan amount, the loan's duration, and the manner of repayment. Your
contract or plan may not permit loans.
TAX TREATMENT OF PAYMENTS
Federal income tax rules generally include distributions from a qualified
contract in your income as ordinary income. These taxable distributions will
include Purchase Payments that were deductible or excludible from income. Thus,
under many qualified contracts the total amount received is included in income
since a deduction or exclusion from income was taken for Purchase Payments.
There are exceptions. For example, you do not include amounts received from a
Roth IRA in income if certain conditions are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the qualified
plan.
FEDERAL PENALTY TAXES PAYABLE ON DISTRIBUTIONS
The Code may impose a 10% penalty tax on the amount received from the qualified
contract that must be included in income. The Code does not impose the penalty
tax if one of several exceptions applies. The exceptions vary depending on the
type of qualified contract purchased. For example, in the case of an IRA,
exceptions provide that the penalty tax does not apply to a withdrawal,
surrender, or Annuity Payout:
- - received on or after you reach age 59 1/2,
- - received on or after your death or because of your disability (as defined in
the tax law),
- - received as a series of substantially equal periodic payments for the your
life (or life expectancy), or
- - received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
TRANSFERS AND DIRECT ROLLOVERS
In many circumstances, money may be moved between qualified contracts and
qualified plans by means of a rollover or a transfer. Special rules apply to
such rollovers and transfers. If the applicable rules are not followed, you may
suffer adverse Federal income tax consequences, including paying taxes you might
not otherwise have had to be pay. A qualified advisor should always be consulted
before you move or attempt to move funds between any qualified plan or contract
and another qualified plan or contract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section 401(a) plans, section 403(a) or (b) plans, HR 10
plans, and contracts used in connection with these types of plans. (The direct
rollover rules do not apply to distributions from IRAs or section 457 plans.)
The direct rollover rules require that we withhold Federal income tax equal to
20% of the eligible rollover distribution from the distribution amount, unless
you elect to have the amount directly transferred to certain qualified plans or
contracts. Before we send a rollover distribution, we will provide you with a
notice explaining these requirements and how the 20% withholding can be avoided
by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under the Contract unless the Contractowner notifies us at or
before the time of the distribution that tax is not to be withheld. In certain
circumstances, Federal income tax rules may require us to withhold tax. At the
time a withdrawal, surrender, or Annuity Payout is requested, we will give you
an explanation of the withholding requirements.
TAX STATUS OF LINCOLN LIFE
Under existing Federal income tax laws, Lincoln Life does not pay tax on
investment income and realized capital gains of the VAA. Lincoln Life does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the VAA. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the VAA, we may impose a charge against
the VAA to pay the taxes.
CHANGES IN THE LAW
The above discussion is based on the Code, IRS regulations, and interpretations
existing on the date of this Prospectus. However, Congress, the IRS, and the
courts may modify these authorities, sometimes retroactively.
VOTING RIGHTS
As required by law, we will vote the funds shares held in the VAA at meetings of
the shareholders of the various funds. The voting will be done according to the
instructions of Contractowners who have interests in any Subaccounts which
invest in the funds. If the Investment Company Act of 1940 or any regulation
under it should be amended or if present interpretations should change, and if
as a result we determine that we
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are permitted to vote the funds shares in our own right, we may elect to do so.
The number of votes which you have the right to cast will be determined by
applying your percentage interest in a Subaccount to the total number of votes
attributable to the Subaccount. In determining the number of votes, fractional
shares will be recognized. After the Annuity Commencement Date, the votes
attributable to a Contract will decrease.
With regard to the Lincoln National funds, Equity 500 Index Fund, Small Cap
Index Fund, VP International, Baron Capital Asset Fund, AMT Partners Portfolio,
AMT MidCap Growth Portfolio and Worldwide Growth Portfolio: those shares held in
a Subaccount for which no timely instructions are received will be voted by us
in proportion to the voting instructions which are received for all Contracts
participating in that Subaccount. Voting instructions to abstain on any item to
be voted on will be applied on a pro-rata basis to reduce the number of votes
eligible to be cast. Since all the funds except the Lincoln National funds
engage in shared funding, other persons or entities besides Lincoln Life may
vote these shares.
Whenever a shareholders meeting is called, each person having a voting interest
in a Subaccount will be sent proxy voting material, reports and other materials
relating to the Decatur Total Return Series, Global Bond Series and Trend Series
(Delaware funds). Since the Delaware funds engages in shared funding, other
persons or entities besides Lincoln Life may vote funds shares.
DISTRIBUTION OF THE CONTRACTS
We are the distributors of the Contracts. They will be sold through the Internet
Service Center we maintain for this purpose. We are registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer and are a member of
the National Association of Securities Dealers (NASD).
RETURN PRIVILEGE
Within the free-look period after you receive the Contract, you may cancel it
for any reason through our Internet Service Center or by delivering or mailing
it, postage prepaid, to Lincoln Financial Direct at P.O. Box 691, Leesburg, VA
20178. A Contract canceled under this provision will be void and your Contract
Value will be returned. No Surrender Charge will be assessed.
The Purchase Payments will be invested in the Lincoln National Money Market Fund
during the free-look period.
STATE REGULATION
As a life insurance company organized and operated under Indiana law, we are
subject to provisions governing life insurers and to regulation by the Indiana
Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Indiana
Insurance Department at all times. That Department conducts a full examination
of our operations at least every five years.
RECORDS AND REPORTS
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
have entered into an agreement with the Delaware Service Company, 2005 Market
Street, Philadelphia, PA 19203, to provide accounting services to the VAA. We
will electronically mail to you, at your last known e-mail address, at least
semiannually after the first Contract Year, reports containing information
required by the 1940 Act or any other applicable law or regulation.
OTHER INFORMATION
A registration statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the Contracts being offered here. This prospectus is
only a part of that registration statement and, therefore, does not contain all
the information in the registration statement, its amendments and exhibits.
Please refer to the complete registration statement for further information
about the VAA, Lincoln Life and the Contracts offered. Statements in this
prospectus about the content of Contracts and other legal instruments are
summaries. For the complete text of those Contracts and instruments, please
refer to those documents as filed with the SEC.
Lincoln National Flexible Premium Variable Life Accounts D, G, K, M, R and S
(all registered as investment companies under the 1940 Act, the "variable life
accounts") are authorized to invest assets in the following Lincoln National and
Delaware funds: Bond, Growth and Income, Managed, Money Market and Special
Opportunities (for Account D); Growth and Income and Special Opportunities (for
Account G); Bond, Global Asset Allocation, Money Market and Social Awareness
Funds (for Accounts M, R and S); and all Lincoln National and Delaware funds for
Account K.
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Through the VAA and the Variable Life Accounts, Lincoln Life is the sole
shareholder in the Lincoln National funds. However, Lincoln Life is not the sole
shareholder of the other funds. Collectively, the VAA and the Variable Life
Accounts may be referred to in the prospectus and in the SAI as the "variable
accounts".
Due to differences in redemption rates, tax treatment or other considerations,
the interests of Contractowners under the Variable Life Accounts could conflict
with those of Contractowners under the VAA. In those cases where assets from
variable life and variable annuity separate accounts are invested in the same
fund (in other words, where mixed funding occurs), the Boards of Directors of
the funds involved will monitor for any material conflicts and determine what
action, if any, should be taken. If it becomes necessary for any separate
account to replace shares of any fund with another investment, that fund may
have to liquidate securities on a disadvantageous basis. Refer to the prospectus
for each fund for more information about mixed funding. In the future, we may
purchase shares in the funds for one or more unregistered segregated investment
accounts.
ADVERTISEMENTS/SALES LITERATURE
In marketing the variable annuity Contracts, we may refer to certain ratings
assigned to us under the Rating System of the A.M. Best Co., Oldwick, New
Jersey. The objective of Best's Rating System is to evaluate the various factors
affecting the overall performance of an insurance company in order to provide
Best's opinion about that company's relative financial strength and ability to
meet its contractual obligations. The procedure includes both a quantitative and
qualitative review of the insurance company. In marketing the Contracts and the
underlying funds, we may at times use data published by other nationally-known
independent statistical services. These service organizations provide relative
measures of such factors as an insurer's claims paying ability, the features of
particular Contracts, and the comparative investment performance of the funds
with other portfolios having similar objectives. A few such services are: Duff &
Phelps, the Lipper Group, Moody's, Morningstar, Standard and Poor's and VARDS.
There is more information about each of these services under ADVERTISING AND
SALES LITERATURE in the SAI. Marketing materials may employ illustrations of
compound interest and dollar-cost averaging, discuss automatic withdrawal
services, and describe our customer base, assets, and our relative size in the
industry. They may also discuss other features of Lincoln Life, the VAA, the
funds and their investment management.
PREPARING FOR THE YEAR 2000
Many existing computer programs use only two digits in the date field to
identify the year. If left uncorrected, these programs, which were designed and
developed without considering the impact of the upcoming change in the century,
could fail to operate or could produce erroneous results when processing data
after December 31, 1999. For example, for a bond with a stated maturity date of
July 1, 2000, a computer program could read and store the maturity date as July
1, 1900. This problem is known by many names, such as the "Year 2000 Problem",
"Y2K", and the "Millenium Bug".
The Year 2000 problem affects virtually all computer programs worldwide. It can
cause a computer system to suddenly stop operating. It can also result in a
computer corrupting vital company records, and the problem could go undetected
for a long time. For our products, if left unchecked it could cause such
problems as purchase payment collection and deposit errors; claim payment
difficulties; accounting errors; erroneous unit values; and difficulties or
delays in processing transfers, surrenders and withdrawals. In a worst case
scenario, this could result in a material disruption to the operations both of
Lincoln Life and of Delaware Service Company Inc., ("Delaware"), the provider of
the accounting and valuation services for the VAA.
However, both companies are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC projects aggregate
expenditures in excess of $92 million for its Y2K efforts through the year 2000.
Both Lincoln Life and Delaware have dedicated Year 2000 teams and steering
committees that are answerable in their counterparts in LNC.
In light of the potential problems discussed above, Lincoln Life as part of its
Year 2000 updating process, has assumed responsibility for correcting all
high-priority Information Technology (IT) systems which service the VAA.
Delaware is responsible for updating all its high-priority IT systems to support
these vital services. The Year 2000 effort, for both IT and non-IT systems, is
organized into four phases:
- - awareness-raising and inventory of all assets (including third-party agent and
vendor relationships)
- - assessment and high-level planning and strategy
- - remediation of affected systems and equipment; and
- - testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their high-priority IT systems
remediated and tested to demonstrate readiness on June 30, 1999. During the
third and fourth quarters of 1999, additional testing of the environment will
continue. Both companies are currently on schedule to have their high-priority
non-IT systems, (elevators, heating and ventilation, security systems, etc.)
remediated and tested on October 31, 1999.
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The work on Year 2000 issues has not suffered significant delays; however, some
uncertainty remains. Specific factors that give rise to this uncertainty include
(but are certainly not limited to) a possible loss of technical resources to
perform the work; failure to identify all susceptible systems, and
non-compliance by third parties whose systems and operations impact Lincoln
Life. In a report dated February 26, 1999, entitled, INVESTIGATING THE IMPACT OF
THE YEAR 2000 TECHNOLOGY PROBLEM, S. Pct. 106-10, the U.S. Senate Special
Committee on the Year 2000 Technology Problem expressed its concern that
"Financial Services items...are particularly vulnerable to...the risk that a
material customer or business partner will fail, as a result of the computer
problems to meet its obligations."
One important source of uncertainty is the extent to which the key trading
partners of Lincoln Life and of Delaware will be successful in their own
remediation and testing efforts. Lincoln Life and Delaware have been monitoring
the progress of their trading partners; however, the efforts of these partners
are beyond our control.
Lincoln Life and Delaware expect to have completed their necessary remediation
and testing efforts prior to December 31, 1999. However, given the nature and
complexity of the problem, there can be no guarantee by either company that
there will not be significant computer problems after December 31, 1999.
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 they include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for equitable relief. After consultation with legal counsel
and a review of available facts, it is management's opinion that the ultimate
liability, if any, under these suits will not have a material adverse effect on
the financial position of Lincoln Life.
Lincoln Life is presently defending three lawsuits in which Plaintiffs seek to
represent national classes of policyholders in connection with alleged fraud,
breach of contract and other claims relating to the sale of interest-sensitive
universal and participating whole life insurance policies. As of the date of
this prospectus, the courts have not certified a class in any of the suits.
Plaintiffs seek unspecified damages and penalties for themselves and on behalf
of the putative class. Although the relief sought in these cases is substantial,
the cases are in the preliminary stages of litigation, and it is premature to
make assessments about potential loss, if any. Management is defending these
suits vigorously. The amount of liability, if any, which may ultimately arise as
a result of these suits cannot be reasonably determined at this time.
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STATEMENT OF ADDITIONAL
INFORMATION TABLE OF
CONTENTS FOR THE VAA
ITEM
- --------------------------------------------------
General information and history of Lincoln Life
Special terms
Services
Purchase of securities being offered
Calculation of performance data
For a free copy of the SAI please see page one of this prospectus.
ITEM
- --------------------------------------------------
Annuity payouts
Federal tax status
Determination of accumulation and annuity unit value
Advertising and sales literature
Financial statements
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