THE AMERICAN LEGACY
LINCOLN NATIONAL
VARIABLE ANNUITY ACCOUNT H
INDIVIDUAL VARIABLE ANNUITY CONTRACTS ISSUED BY
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
1300 South Clinton Street, Fort Wayne, Indiana 46802
Telephone: 1-800-942-5500
The individual flexible premium deferred variable annuity contract described in
this Prospectus (Contract or Variable Annuity Contract) is designed and
offered by The Lincoln National Life Insurance Company (Lincoln Life).
The Contract can be used in both qualified and non-qualified plans. It is
offered for use in connection with the following retirement plans qualified
for special tax treatment under the Internal Revenue Code of 1986 as
amended (Code): (1) public school systems and certain tax-exempt
organizations [403(b)]; (2) qualified corporate employee pension
and profit-sharing trusts and qualified annuity plans; (3) corresponding
plans of self-employed individuals (H.R. 10 or Keogh); (4) individual
retirement annuities (IRA); (5) deferred compensation plans (457); and
(6) simplified employee pension plans. The Contract is also
offered for use in connection with plans established by persons who are
not entitled to participate in one of the aforementioned plans (non-
qualified plans).
Type of contract being offered--this Prospectus offers an individual flexible
premium deferred variable annuity contract.
The Contract provides for the accumulation of Contract Value and payment of
annuity benefits on a variable or fixed basis, or a combination variable and
fixed basis. Payment of annuity benefits commences at a future date no
later than the first day of the next month after the Annuitant's 85th
birthday as selected by the Contract Owner (the Annuity Commencement Date).
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the greater of the value of the Contract Owner's account or the
Guaranteed Minimum Death Benefit (GMDB) will be paid to
the Contract Owner's designated Beneficiary. (See "Death Benefit Prior
to Annuity Commencement Date.")
MINIMUM INITIAL PURCHASE PAYMENT: $1,500 for Non-Qualified Contract
or 403(b) transfers/rollovers
$ 300 for Qualified Contract
MINIMUM SUBSEQUENT PURCHASE PAYMENTS: $ 25 per payment, subject to a
$ 300 annual minimum
All investments (Purchase Payments) for benefits on a variable basis will be
allocated to Lincoln National Variable Annuity Account H (the Variable
Account), a unit investment trust, which is divided into seven separate
sub-accounts. The Variable Account will invest the Purchase
Payments (at net asset value) in shares of one or more specified Funds:
the Growth Fund, the International Fund, the Growth-Income Fund, the Asset
Allocation Fund, the High-Yield Bond Fund, the U.S. Government/AAA-Rated
Securities Fund, the Bond Fund, and the Cash Management Fund of American
Variable Insurance Series, referred to as "the Fund(s)," as
directed by the Contract Owner. The value of a Contract prior to the
Annuity Commencement Date, and the amount of the variable annuity payments
thereafter, will depend upon the investment results of the Fund(s) selected.
Investments in these Funds are neither insured nor guaranteed by the
U.S. Government or any other entity or person.
Purchase Payments for benefits on a fixed basis will be allocated to the
fixed portion of the Contract, part of the general account of Lincoln Life.
This Prospectus describes only the elements of the Contracts pertaining to
the Variable Account except where reference to the fixed portion of the
Contract is specifically made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE
VARIABLE ACCOUNT THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE
INVESTING. PLEASE READ IT CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
ADDITIONAL INFORMATION ABOUT THE VARIABLE ACCOUNT HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THAT STATEMENT OF
ADDITIONAL INFORMATION (SAI), DATED APRIL 1, 1994, HAS BEEN
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND WILL BE PROVIDED
ON REQUEST AND WITHOUT CHARGE.
FOR A COPY, COMPLETE AND MAIL THE ENCLOSED CARD, OR CALL
1-800-942-5500, EXTENSION 4912. A TABLE OF CONTENTS FOR THE SAI APPEARS
ON THE LAST PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS OF THE AMERICAN VARIABLE INSURANCE SERIES, WHICH SHOULD
ALSO BE READ CAREFULLY BEFORE INVESTING AND RETAINED FOR FUTURE
REFERENCE.
THIS PROSPECTUS IS DATED JANUARY 2, 1996
TABLE OF CONTENTS
PAGE PAGE
SPECIAL TERMS 3 FEDERAL TAX STATUS 27
EXPENSE TABLE 5 VOTING RIGHTS 29
SYNOPSIS 7 DISTRIBUTION OF CONTRACTS 30
CONDENSED FINANCIAL RETURN PRIVILEGE 30
INFORMATION 10 RESTRICTIONS UNDER THE TEXAS
INVESTMENT RESULTS 11 OPTIONAL RETIREMENT PROGRAM 31
FINANCIAL STATEMENTS STATE REGULATION 31
THE LINCOLN NATIONAL LIFE RECORDS AND REPORTS 31
INSURANCE COMPANY 12 LEGAL PROCEEDINGS 31
VARIABLE ACCOUNT 12 OTHER INFORMATION 31
INVESTMENTS OF THE TABLE OF CONTENTS OF THE
VARIABLE ACCOUNT 12 STATEMENT OF ADDITIONAL
CHARGES AND OTHER INFORMATION (SAI) 32
DEDUCTIONS 15
THE CONTRACTS 18
ANNUITY PAYMENTS 25
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT OR VARIABLE ACCOUNT: The segregated investment account in which The
Lincoln National Life Insurance Company sets aside and invests the assets
attributable to the Variable Annuity Contract offered by this Prospectus.
ACCUMULATION UNIT: A unit of measurement used to calculate the Contract Value
prior to the Annuity Commencement Date. See "Allocation of Purchase Payments"
below.
ADVISER OR INVESTMENT ADVISER: Capital Research and Management Company, which
provides investment management services to the Series. See "Investment
Adviser" below.
ANNUITANT: The person on whose life or life expectancy the payments are based.
ANNUITY COMMENCEMENT DATE: The date which the Contract Owner has designated
for commencement of annuity payments.
ANNUITY OPTION: An optional form of payment of the annuity provided for
under the Contract. See "Annuity Payments" below.
ANNUITY UNIT: A unit of measurement used after the Annuity Commencement Date to
calculate the amount of annuity payments. See "Annuity Payments" below.
BENEFICIARY: The person designated by the Contract Owner to receive the Death
Benefit, if any, payable upon death of the Annuitant.
CASH SURRENDER VALUE: Upon surrender, the Contract Value less any applicable
charges, fees and taxes.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT: The agreement between Lincoln Life and the Contract Owner providing
a variable annuity for an Annuitant who is named in the Contract (also referred
to in this Prospectus as the Variable Annuity Contract).
CONTRACT OWNER: The Annuitant (or other designated person), except in cases
where a Contract is issued to the trustee of a trust or to a custodian of a
qualified pension or profit-sharing plan under Section 401(a) of the Code or
of an Individual Retirement Annuity under Section 408 of the Code, or where
a Contract is issued in connection with a deferred compensation plan
pursuant to Section 457 of the Code. In cases where the Contract is issued
to such a trustee or custodian, as defined above, the Contract Owner is the
trustee or custodian.
CONTRACT VALUE: The sum of the values of all the Accumulation Units and all
monies held in the general account attributable to a Contract at a given time.
CONTRACT YEAR: Each year commencing with the date of issue of the Contract
and with each Contract anniversary thereafter.
DEATH BENEFIT: The amount payable to the Contract Owner's designated
Beneficiary upon death of the Annuitant prior to the Annuity Commencement
Date. See "Death Benefit Prior to Annuity Commencement Date" below.
DEPOSITOR: The Lincoln National Life Insurance Company.
HOME OFFICE: The principal office of Lincoln Life, located at 1300 South
Clinton Street, Fort Wayne, Indiana 46802.
FUND(S): The underlying investment options available in the American Variable
Insurance Series.
Lincoln Life: The Lincoln National Life Insurance Company.
PURCHASE PAYMENTS: Amounts paid to purchase an annuity by or on behalf of an
Annuitant.
SERIES: American Variable Insurance Series (the "Series"), the fund in which
Purchase Payments are invested.
SUB-ACCOUNT: That portion of the Variable Account which pertains to
investments in Accumulation Units of a particular Fund.
VALUATION DATE: Each day that the New York Stock Exchange is open for
business. See "The Contracts--Valuation Date" below.
VALUATION PERIOD: The period commencing at the close of business on a
particular Valuation Date and ending at the close of business on the next
succeeding Valuation Date.
EXPENSE TABLE
CONTRACT OWNER TRANSACTION EXPENSES:
Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): 6%
(Note: This charge may be waived in certain cases. See "Contingent Deferred
Sales Charges" below.)
Reduced Contingent Deferred Sales Charges Over Time
The contingent deferred sales charge percentage listed above is the MAXIMUM
percentage charged as a percentage of Purchase Payments withdrawn. The
later a redemption occurs, the lower the contingent deferred sales charge with
respect to those withdrawals. (See the table under "Contingent Deferred
Sales Charges," below.)
___________________________________________________________________________
ANNUAL CONTRACT FEE: $35*
*This is a single charge assessed against Contract Value on the last
Valuation Date of each Contract Year and upon full surrender, it is NOT a
separate charge for each sub-account.
___________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VARIABLE ACCOUNT H ANNUAL EXPENSES
(as a percentage of average
account value for each
sub-account): GA* IA GIA AAA HBA G/A CMA BA
Mortality and Expense Risk Fees 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Account Fees and Expenses .10 .10 .10 .10 .10 .10 .10 .10
TOTAL ACCOUNT H ANNUAL EXPENSES 1.35% 1.35% 1.35% 1.35% 1.35% 1.35% 1.35% 1.35%
*The symbols shown represent these sub-accounts: GA=Growth Sub-Account;
IA=International Sub-Account; GIA=Growth-Income Sub-Account; AAA=Asset
Allocation Sub-Account; HBA=High-Yield Bond Sub-Account; G/A=U.S.
Government/AAA-Rated Sub-Account; CMA=Cash Management Sub-Account; BA=Bond
Fund
</TABLE>
_________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL EXPENSES OF THE FUNDS
(as a percentage of each Fund's
average net assets): GF* IF GIF AAF HBF GAF CMF BF
Management Fees .46% .69% .44% .50% .51% .51% .46% .60%
Other Expenses .03% .11% .03% .03% .03% .03% .03% .05%
.49% .80% .47% .53% .54% .54% .49% .65%
*The symbols shown represent these Funds: GF=Growth Fund; IF=International
Fund; GIF=Growth-Income Fund; AAF=Asset Allocation Fund; HBF=High-Yield Bond
Fund; GAF=U.S. Government/AAA-Rated Securities Fund; CMF=Cash Management Fund;
BF=Bond Fund.
</TABLE>
EXAMPLES (reflecting expenses both of the Variable Account and of the Funds):
A. If you surrender your contract at the end of the applicable time period,
you would pay the following expenses(1) on a $1,000 investment, assuming 5%
annual return(2) on assets:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS(4)
GF(3) $79 $108 $129 $215
IF 82 117 145 247
GIF 79 107 128 213
AAF 79 109 131 219
HBF 79 109 132 220
GAF 79 109 132 220
CMF 79 108 129 215
BF(5) 80 113 -- --
</TABLE>
B. If you do not surrender your contract (or if you annuitize), you would pay
the following expenses(1) on a $1,000 investment, assuming 5% annual return(2)
on assets:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS(4)
GF(3) $19 $58 $ 99 $215
IF(4) 22 67 115 247
GIF 18 57 98 213
AAF(4) 19 59 101 219
HBF 19 59 102 220
GAF 19 59 102 220
CMF 19 58 99 215
BF(5) 20 63 -- --
</TABLE>
(1) These expenses, calculated as mandated by the Securities and Exchange
Commission, reflect the Annual Contract Fee as the ratio of the total
contract fees collected in the most recent fiscal year to the total
average net assets of the Account.
(2) Use of this assumed return is mandated by the Securities and Exchange
Commission and is not intended to be an illustration of past or future
investment results.
(3) Key: GF=Growth Fund; IF=International Fund; GIF=Growth-Income Fund;
AAF=Asset Allocation Fund; HBF=High-Yield Bond Fund;
GAF=U.S. Government/AAA-Rated Securities Fund; CMF=Cash Management Fund;
BF=Bond Fund
(4) The average expenses paid over a 10-year period would be approximately
$22-$25 per year per Contract.
(5) These expenses are estimated amounts for the fiscal year ended
November 30, 1995.
All of the figures provided under the sub-heading "Annual Expenses of the Funds"
and part of the data used to produce the figures in the "Examples" were
supplied by the underlying portfolio company (American Variable
Insurance Series) through the Variable Account's principal
underwriter, American Funds Distributors, Inc.
This table is provided to assist the Contract Owner in understanding the
various costs and expenses that he or she will bear directly or indirectly.
The table reflects expenses both of the Variable Account and of the eight
Funds. For more complete descriptions of the various costs
and expenses involved, see "Charges and Other Deductions" in this Prospectus,
and "Fund Organization and Management" in the Prospectus for the Funds.
Premium taxes may also be applicable, although they do not appear in the
table. THE "Examples" SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN. This table is unaudited.
SYNOPSIS
WHAT TYPE OF CONTRACT AM I BUYING?--It is an annuity contract issued by Lincoln
Life. It may provide for a fixed annuity and/or a variable annuity. This
Prospectus is intended to provide disclosure only about the variable portion
of the Contract. (See "The Contracts," below.)
WHAT IS THE VARIABLE ACCOUNT?--It is a segregated asset account established
under Indiana insurance law, and registered with the Securities and
Exchange Commission as a unit investment trust. The assets in the Variable
Account are allocated to one or more Sub-Accounts, according to the
investment preference of the Contract Owner, and those assets are not
chargeable with liabilities arising out of any other business which Lincoln Life
may conduct. (See "Variable Account," below.)
WHAT ARE MY INVESTMENT CHOICES?--Through its various Sub-Accounts, the Variable
Account uses your Purchase Payments to purchase Series shares, at your
direction, in one or more of the following investment funds of the American
Variable Insurance Series (Series): Growth Fund, International Fund,
Growth-Income Fund, Asset Allocation Fund, High-Yield Bond Fund, U.S.
Government/AAA-Rated Securities Fund, Bond Fund, and Cash Management
Fund. In turn, each fund holds a portfolio of securities consistent with
its own particular investment policy. (See "Investments of the Variable
Account--Description of the Series," below.)
WHO INVESTS MY MONEY?--The investment adviser for the Series is Capital
Research and Management Company (CRMC), Los Angeles, California. CRMC is a
long-established investment management organization, and is registered as an
investment adviser with the Securities and Exchange Commission.
(See "Investments of the Variable Account--Investment
Adviser," below.)
HOW DOES THE CONTRACT WORK?--Once your application is approved by Lincoln Life,
you will be issued an individual annuity Contract. During the Accumulation
Period, 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 annuity check 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," below.)
WHAT CHARGES ARE ASSOCIATED WITH THIS CONTRACT?--At the end of each
contract year and at time of surrender, Lincoln Life will deduct $35 from your
Contract Value as a maintenance charge.
Should you decide to withdraw Contract Value before your Purchase Payments have
been in your account for a certain minimum period, you will incur a
contingent deferred sales charge of anywhere from 1% to 6%, depending upon
how many years those payments have been on deposit. (Note: This sales
charge is not assessed upon annuitization, or upon the death or total
and permanent disability occurs subsequent to the Contract effective date
prior to the 65th birthday, of the annuitant.)
If your state assesses a premium tax with respect to your Contract, then at
the time the tax is incurred (or at such other time as Lincoln Life may
choose), Lincoln Life will deduct those amounts from Purchase Payments or
Contract Value, as applicable. (See "Charges and Other Deductions--
Deductions for Premium Taxes" below.)
Lincoln assesses a charge of .10% against the daily net asset value of the
Variable Account as a whole - including that portion of the Account
attributable to your Purchase Payments. In addition, an annual charge
of .80% of net asset value is made for the mortality risk guarantees
given in the Contract, and .45% is made for administrative expense risks
assumed by Lincoln Life. (For a complete discussion of the charges
associated with the Contract, see "Charges and Other Deductions," below.)
American Variable Insurance Series pays a fee to its investment adviser, CRMC,
based upon the average daily net asset value of each fund in the Series.
(See "Investments of the Variable Account--Investment Adviser," below.)
In addition, there are other expenses associated with the daily
operation of the Series. These are more fully described in the Prospectus
for the Series.
HOW MUCH MUST I PAY, AND HOW OFTEN?--Subject to the minimum and maximum
payments stated on the first page of this Prospectus, the amount and frequency
of payments is completely flexible. (See "The Contracts--Purchase Payments,"
below.)
HOW WILL MY ANNUITY PAYMENTS BE CALCULATED?--If you decide to annuitize, you
elect an annuity payment option. Once you have done so, your monthly payment
will be based upon a number of factors. For a Contract Owner participating in
the Variable Account, the changing values of the Series Funds in which you have
invested will be one such factor. (See "Annuity Payments," below.) Remember
that participants in the Variable Account take the risk of any drop, and
benefit from any gain, in the value of the securities in the Funds' portfolios.
WHAT HAPPENS IF I DIE BEFORE I ANNUITIZE?--If you are the Annuitant and also the
Contract Owner, then the Beneficiary whom you designate will receive either the
sum of all Purchase Payments minus prior withdrawals/partial surrenders, or
the then current value of the Contract, whichever is greater. Your
Beneficiary will have certain options for how the money is
to be paid out. A Contract Owner who is not also an Annuitant is subject to
certain special rules. (See "The Contracts--Death Benefit Prior to Annuity
Commencement Date/Death of Contract Owner," below.)
MAY I TRANSFER CONTRACT VALUE BETWEEN FUNDS IN THE SERIES?--Yes;
however, there are limits on how often you may do so. (See "The Contracts--
Transfers of Accumulation Units Between Sub-Accounts" and "Transfers on or
Following the Annuity Commencement Date," below.)
MAY I TRANSFER CONTRACT VALUE FROM THE FIXED TO THE VARIABLE SIDE
OF THE ACCOUNT, AND VICE-VERSA? Yes, subject once again to specific
restrictions in the Contract. (See "The Contracts--Transfers of
Accumulation Units to and From the General Account," below.)
MAY I SURRENDER THE CONTRACT OR MAKE A PARTIAL WITHDRAWAL?--Yes,
subject to any contract requirements and to any restrictions imposed under
certain retirement plans. (Contract Owners under a public school system or tax-
exempt institution qualifying under Section 403(b) of the Code are subject
to special restrictions upon surrender and withdrawal.) If you surrender
the Contract or make a partial withdrawal, certain charges may be assessed, as
discussed above and under "Charges and Other Deductions," below. In addition,
the IRS may assess a 10% premature withdrawal penalty tax. A surrender may be
subject to 20% withholding. (See "Federal Tax Status--Withholding, below.)
DO I GET A 'FREE LOOK' AT THIS CONTRACT?--Yes. If within 10 days (or a longer
period, if required by law) of the date you first receive the Contract you
return it, postage pre-paid, to the Home Office of Lincoln Life, it will be
cancelled. However, except in a very few states, you assume the risk of a
market drop with respect to Purchase Payments which you
allocated to the variable side of the Contract. (See "Return Privilege,"
below.)
<TABLE>
<CAPTION>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
CONDENSED FINANCIAL INFORMATION
(For an accumulation unit outstanding throughout the period)
This information comes from financial statements for the various sub-accounts.
It should be read together with the financial statements and related notes for
the Variable Account, which appear in the Statement of Additional Information.
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
1989* 1990 1991 1992 1993 1994
GROWTH SUB-ACCOUNT
Accumulation Unit Value
--Beginning of Period $1.000 $1.009 $ .952 $1.252 $1.369 $1.571
--End of Period 1.009 .952 1.252 1.369 1.571 1.558
Number of Accumulation Units
--End of Period (000's) 48,888 198,367 486,812 752,797 980,310 1,133,151
GROWTH-INCOME SUB-ACCOUNT
Accumulation Unit Value
--Beginning of Period $1.000 $1.021 $ .982 $1.202 $1.280 $1.418
--End of Period 1.021 .982 1.202 1.280 1.418 1.428
Number of Accumulation Units
--End of Period (000's) 88,723 340,270 703,495 1,122,418 1,500,824 1,680,732
INTERNATIONAL SUB-ACCOUNT**
Accumulation Unit Value
--Beginning of Period N/A $1.000 .947 $1.044 $1.021 $1.354
--End of Period N/A .947 1.044 1.021 1.354 1.361
Number of Accumulation Units
--End of Period (000's) N/A 78,763 200,309 360,734 697,520 984,460
ASSET ALLOCATION SUB-ACCOUNT
Accumulation Unit Value
--Beginning of Period $1.000 $1.022 $ .998 $1.200 $1.284 $1.399
--End of Period 1.022 .998 1.200 1.284 1.399 1.377
Number of Accumulation Units
--End of Period (000's) 41,276 110,929 174,468 285,119 410,464 448,248
HIGH-YIELD BOND SUB-ACCOUNT
Accumulation Unit Value
--Beginning of Period $1.000 $1.006 $1.031 $1.287 $1.429 $1.641
--End of Period 1.006 1.031 1.287 1.429 1.641 1.513
Number of Accumulation Units
--End of Period (000's) 5,671 17,624 47,739 101,884 191,433 216,546
U.S. GOVERNMENT/AAA-RATED SUB-ACCOUNT
Accumulation Unit Value
--Beginning of Period $1.000 $1.018 $1.089 $1.246 $1.323 $1.451
--End of Period 1.018 1.089 1.246 1.323 1.451 1.369
Number of Accumulation Units
--End of Period (000's) 13,695 59,506 139,710 212,716 282,851 282,879
CASH MANAGEMENT SUB-ACCOUNT
Accumulation Unit Value
--Beginning of Period $1.000 $1.029 $1.095 $1.140 $1.161 $1.177
--End of Period 1.029 1.095 1.140 1.161 1.177 1.206
Number of Accumulation Units
--End of Period (000's) 23,046 96,578 106,259 133,763 106,323 141,512
</TABLE>
*The Variable Account commenced operations on August 1, 1989. Therefore, the
figures for 1989 represent experience of less than one year.
**The International Sub-Account commenced operations on May 1, 1990.
Therefore, the figures for 1990 represent experience of less than one year.
INVESTMENT RESULTS
The Variable Account may from time to time 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 contingent deferred sales charges and contract fees. Results
calculated without contingent deferred sales charges or contract fees
will be higher. Total returns include the reinvestment of all distributions,
which are reflected in changes in unit value. See the SAI for
further information.
FINANCIAL STATEMENTS
The financial statements for the Variable Account and for Lincoln Life are
located in the SAI. See the cover page of this Prospectus for information
on how to obtain a copy.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
The Lincoln National Life Insurance Company (Lincoln Life), P.O. Box 2348,
1300 South Clinton Street, Fort Wayne, Indiana 46802, is a stock life
insurance company organized in 1905 under the laws of the State of Indiana,
is wholly owned by Lincoln National Corporation, a publicly-held holding
company organized under Indiana law. Lincoln National Corporation,
through subsidiaries, engages primarily in the issuance of annuities, life
insurance, property-casualty insurance, and reinsurance. The obligations
under the Contracts are those of Lincoln Life.
VARIABLE ACCOUNT
The Variable Account was established by Lincoln Life (its Depositor) under
Indiana law on February 7, 1989. The Variable Account has been
registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act
of 1940 (the 1940 Act). Such registration does not involve supervision of
the management of the Variable Account or Lincoln Life by the Securities
and Exchange Commission. The Variable Account is a segregated investment
account, and as such meets the definition of "separate account" under the
federal securities laws. Thus, the Variable Account is not chargeable with
liabilities arising out of any other business that Lincoln Life may
conduct. Income, gains, and losses, whether or not realized, from assets
allocated to the Variable Account, are, in accordance
with the applicable Contracts, credited to or charged against the
Variable Account without regard to other income, gains, or losses of the
Depositor. The investment results of the Variable Account will fluctuate,
and are not guaranteed. The Contract's value and the amount of variable
annuity payments depend on the investment results of the underlying Series'
Fund(s). Thus, THE CONTRACT OWNER BEARS THE FULL INVESTMENT RISK FOR ALL
AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNT.
INVESTMENTS OF THE VARIABLE ACCOUNT
Purchase Payments to be invested in the Variable Account will be allocated among
one or more sub-accounts, each of which invests solely in shares of one of the
Series' Funds, according to the instructions contained in the Contract
Owner's application. Contract Owners may change their allocation of Purchase
Payments without penalty or other charge, subject to restrictions set forth
in this Prospectus. Shares of the Funds will be sold at net asset value (no
sales charge) to the Variable Account for the purpose of funding the
Contracts, and the Series is required to redeem the shares of all
Funds at net asset value at Lincoln Life's request.
INVESTMENT ADVISER
The Series has retained, as its investment adviser, Capital Research and
Management Company, 333 South Hope Street, Los Angeles, California 90071,
one of the nation's largest and oldest investment management organizations.
As compensation for its services to the Series, the Investment Adviser
receives from the Series a fee, accrued daily and paid monthly, based on the
net assets of each Fund, as described in the prospectus for the Series.
DESCRIPTION OF THE SERIES
The Series was organized as a Massachusetts business trust in 1983 and is
registered as a diversified, open-end management investment company under the
1940 Act. The Series consists of eight Funds: the Growth Fund, the
International Fund, the Growth-Income Fund, the Asset Allocation Fund,
the High-Yield Bond Fund, the U.S. Government/AAA-Rated Securities Fund,
the Bond Fund, and the Cash Management Fund. The Series' Board of Trustees may
at any time establish additional Funds, which may or may not be available
to the Variable Account. The Series offers its shares to insurance
company separate accounts only. Fund assets are segregated
and a shareholder's interest is limited to those Funds in which the
shareholder owns shares.
The eight Funds have, and are subject to, certain investment policies and
restrictions which may not be changed without a majority vote of shareholders
of the respective Funds. A summary of the investment objectives of each
Fund of the Series is given below. More detailed information
may be found in the current Prospectus for the American Variable Insurance
Series, which must accompany or precede this Prospectus and which should be
read carefully. THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE
THEIR STATED OBJECTIVES.
GROWTH FUND--The Growth Fund seeks to provide growth of capital. Whatever
current income is generated by the Fund is likely to be incidental to the
objective of capital growth. Ordinarily, accomplishment of the Fund's
objective of capital growth will be sought by investing
primarily in common stocks or securities with common stock characteristics.
INTERNATIONAL FUND--The International Fund seeks long-term growth of capital by
investing primarily in securities of issuers domiciled outside the United
States.
GROWTH-INCOME FUND--The Growth-Income Fund seeks growth of capital and
income. In the selection of securities for investment, the possibilities of
appreciation and potential dividends are given more weight than current
yield. Ordinarily, the assets of the Growth-Income Fund consist
principally of a diversified group of common stocks, but other types of
securities may be held when deemed advisable including preferred stocks
and corporate bonds, including convertible bonds.
ASSET ALLOCATION FUND--The Asset Allocation Fund seeks total return
(including income and capital gains) and preservation of capital over the
long-term by investing in a diversified portfolio of securities that can
include common stocks and other equity-type securities (such as
convertible bonds and preferred stocks), bond and other intermediate and long-
term fixed-income securities, and money market instruments (debt securities
maturing in one year or less).
HIGH-YIELD BOND FUND--The High-Yield Bond Fund is a fully managed,
diversified bond portfolio. It seeks high current income and secondarily
seeks capital appreciation. The High-Yield Bond Fund will generally be
invested substantially in intermediate-and long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities.
BOND FUND--The Bond Fund seeks a high level of current income as is consistent
with the preservation of capital by investing in a broad variety of fixed
income securities including: marketable corporate debt securities, loan
participations, U.S. Government Securities, mortgage-related securities,
other asset-backed securities and cash or money market instruments.
Please note: As of the date of this Prospectus, the Bond Fund is not yet
available in all states. Please consult your investment dealer for current
information about the Bond Fund's availability.
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND--The U.S. Government/AAA-Rated
Securities Fund seeks a high level of current income consistent with prudent
investment risk and preservation of capital by investing primarily in a
combination of securities guaranteed by the U.S. Government and other
debt securities rated AAA or Aaa.
CASH MANAGEMENT FUND--The Cash Management Fund seeks high current yield while
preserving capital by investing in a diversified selection of money market
instruments.
SALE OF FUND SHARES BY THE SERIES
Lincoln Life will purchase shares of the Funds at net asset value and allocate
them to the appropriate sub-accounts of the Variable Account. Lincoln Life
will redeem sufficient shares of the appropriate Fund to pay annuity
payments, Death Benefits or surrender or withdrawal proceeds, or for other
purposes contemplated by the Contract. In addition, if a Contract Owner
elects to transfer all or part of his/her investment in one Fund to another
Fund, Lincoln Life may redeem shares held in the first Fund and purchase
shares of the other Fund.
Shares of the Funds are not sold directly to the general public. They are sold
only to Lincoln Life, and may be sold to other insurance companies, for
investment of the assets of the sub-accounts established by those
insurance companies to fund variable annuity and variable life insurance
contracts.
When the Series sells shares in any of its Funds both to variable annuity and to
variable life insurance separate accounts, it is said to engage in "mixed
funding." When the Series sells shares in any of its Funds to separate
accounts of unaffiliated life insurance companies, it is said to
engage in "shared funding."
The Series currently engages in mixed and shared funding. Therefore, due to
differences in redemption rates or tax treatment, or other considerations,
the interests of various Contract Owners participating in a Fund could
conflict. The Series' Board of Trustees will monitor for the
existence of any material conflicts, and determine what action, if any, should
be taken. (See the Prospectus for the Series.)
REINVESTMENT
All dividend and capital gain distributions of the Funds will be automatically
reinvested in shares of the distributing Funds at their net asset
value on the record date.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Lincoln Life reserves the right, subject to compliance with the law as currently
applicable or subsequently changed, to make additions to, deletions from, or
substitutions for the Series and/or any Funds within the Series in which the
Variable Account participates. Thus, if shares of any of the above Funds
should no longer be available for investment, or if in the judgement of Lincoln
Life's management further investment in any Fund should become inappropriate in
view of the purposes of the Contract, then Lincoln Life may substitute
shares of another Series, or of other Funds, for shares already purchased,
or to be purchased in the future, under the Contract. No
substitution of securities in any Contract Owner's account may take place
without notice to Contract Owners and prior approval of the Securities and
Exchange Commission, in accordance with the 1940 Act.
CHARGES AND OTHER DEDUCTIONS
ADMINISTRATIVE AND MAINTENANCE CHARGE
Lincoln Life will deduct a Contract maintenance charge of $35 per Contract Year.
This charge will be deducted from the Contract Value on the last Valuation
Date of each Contract Year to compensate Lincoln Life for administrative
services provided to Contract Owners. In addition, the Contract maintenance
charge will be deducted from the Contract Value as of the Valuation
Date immediately following receipt of a written request by the Contract Owner
for surrender, irrespective of when during the Contract Year the surrender
occurs. Lincoln Life also deducts from the Variable Account an amount,
computed daily, which is equal to an annual rate of .10% of the daily net
asset value of the Variable Account, to compensate it for its administrative
services. Lincoln Life does not intend to profit from these charges.
Among the administrative services which Lincoln Life provides to Contract
Owners are: processing applications for and issuing the Contracts; processing
purchases and redemptions of Fund shares as required (including automatic
withdrawal services); maintaining records; administering annuity payments;
furnishing accounting and valuation services (including the
calculation and monitoring of daily sub-account values); reconciling and
depositing cash receipts; providing Contract confirmations; providing toll-free
inquiry services; and furnishing telephonic fund transfer services.
CONTINGENT DEFERRED SALES CHARGES
No Contingent Deferred Sales Charge applies to a surrender or withdrawal of
Purchase Payments that have been invested at least eight full Contract years.
A Contingent Deferred Sales Charge does apply (except as described below) to
surrenders or withdrawals of other Purchase Payments
that have been invested for the periods indicated as follows:
NUMBER OF COMPLETE CONTRACT CONTINGENT DEFERRED SALES
YEARS THAT PURCHASE PAYMENTS CHARGE AS A PERCENTAGE OF THE
HAVE BEEN INVESTED SURRENDERED OR WITHDRAWN
PURCHASE PAYMENTS
Less than 2 years 6%
At least 2 years but less than 3 years 5%
At least 3 years but less than 4 years 4%
At least 4 years but less than 5 years 3%
At least 5 years but less than 6 years 2%
At least 6 years but less than 7 years 1%
At least 7 years 0%
A Contingent Deferred Sales Charge does not apply to (1) the first withdrawal
of Contract Value during a Contract Year to the extent such withdrawal does
not exceed 10% of the Purchase Payments (this 10% withdrawal exception does
not apply to a surrender of a Contract), (2) automatic withdrawals not in
excess of 10% of the Purchase Payments during a Contract Year
made by Contract Owners who are at least age 59 1/2, (3) a surrender of a
Contract as a result of the "permanent and total disability" [as defined in
section 22(e)(3) of the Code], subsequent to the effective date of the
Contract and prior to the 65th birthday of the annuitant, (4) a surrender
of a Contract or withdrawal of Contract Value of a Contract issued to
employees and registered representatives of any member of the selling
group and their spouses and minor children; or to officers, directors,
trustees or bona-fide full-time employees of Lincoln National Corporation or
The Capital Group, Inc. or their affiliated or managed companies (based upon
the Contract Owner's status at the time the Contract was purchased), and
(5) a surrender of the Contract as a result of the death of the Annuitant.
(These charges are not waived in connection with withdrawals or a surrender
of the Contract as a result of the death of a Contract Owner who is
not the annuitant.) The contingent deferred sales charge is calculated
separately for each Contract Year's Purchase Payments to which a charge
applies. Lincoln Life assumes that Purchase Payments are withdrawn on a
"first in-first out (FIFO) basis," and that all Purchase Payments are
withdrawn before any earnings are withdrawn. The Contingent Deferred
Sales Charges associated with surrender or withdrawal are paid to Lincoln
Life to compensate it for the loss it experiences on Contract distribution
costs when Contract Owners surrender or withdraw before
distribution costs have been recovered.
Participants in the Texas Optional Retirement Program should refer to
"Restrictions Under the Texas Optional Retirement Program" below.
The administrative and contingent deferred sales charges described above may
be reduced or eliminated for any particular Contract but only to the extent
that Lincoln Life estimates that it will incur lower administrative and/or
distribution expenses or perform fewer administrative or sales
services than those originally contemplated in establishing the level of those
charges. Lower administrative and distribution expenses may be the result of
economies associated with (1) the use of mass enrollment procedures,
(2) the performance of administrative or sales functions by an
employer, (3) the use by an employer of automated techniques in submitting
deposits or information related to deposits on behalf of its employees or
(4) any other circumstances which reduce administrative or distribution
expenses. The exact amount for administrative and contingent deferred
sales charges applicable to a particular Contract will be stated in that
Contract.
DEDUCTIONS FROM THE VARIABLE ACCOUNT FOR ASSUMPTION
OF DISTRIBUTION, MORTALITY AND EXPENSE RISKS
Lincoln Life deducts from the Variable Account an amount, computed daily,
which is equal to an annual rate of 1.25% of the daily net asset value of
the Variable Account, to compensate Lincoln Life for its assumption of
certain risks described below. This charge is allocable .80% to Lincoln
Life's assumption of mortality risks and .45% to its assumption of
administrative expense risks. The level of this charge is guaranteed and
will not change.
Lincoln Life's assumption of mortality risks guarantees that the variable
annuity payments made to Contract Owners will not be affected by the
mortality experience (life span) of persons receiving such payments or of
the general population. Lincoln Life assumes this mortality risk by virtue of
annuity rates incorporated in the Contract which cannot be changed.
Lincoln Life also assumes the mortality risk inherent in the Death
Benefit prior to the Annuity Commencement Date.
Lincoln Life's expense risk is that the amounts derived from the
administration charges will be insufficient to cover administration
expenses. Lincoln Life anticipates that the charges for
administrative expenses, which cannot be increased by Lincoln Life, will
cover administrative costs; however, Lincoln Life assumes the risk that
those charges will be insufficient to cover those costs. (See "Maintenance
and Administrative Charge" above, for information about the
administrative services provided.) As stated in that section, Lincoln Life
does not intend to profit from those charges. If the charges prove to be
insufficient, the excess costs will be borne by Lincoln Life.
Lincoln Life expects to profit from the daily deduction for mortality and
expense risks. Any such profit, as well as any other profit realized by
Lincoln Life and held in the general account (which supports insurance and
annuity obligations), would be available for any proper corporate purpose,
including, but not limited to, payment of sales and distribution expenses.
(Based on its actuarial determination, Lincoln Life does not anticipate that
the contingent deferred sales charge will cover all sales expenses
which Lincoln Life will incur in connection with the Contract.)
DEDUCTIONS FOR PREMIUM TAXES
Any premium tax or other tax (herein collectively referred to as premium
taxes) levied by any governmental entity as a result of the existence of
the Contracts or the Variable Account may be deducted from Contract
Values when incurred (or at such other time as Lincoln Life may choose).
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 acts. Such premium taxes
will depend on the insurance tax laws of the relevant state. The
tax 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 Series.
THE CONTRACTS
PURCHASE OF CONTRACTS
A person wishing to purchase a Contract must apply for it through an
authorized sales representative of Lincoln Life. The completed application
is then forwarded to Lincoln Life for acceptance or rejection. If the
application is accepted, a Contract is prepared and executed by
duly authorized officers of Lincoln Life, and then delivered to the
Contract Owner. See "Distribution of Contracts" below. Lincoln Life
reserves the right to reject applications in its sole discretion.
An initial Purchase Payment will be priced not later than two business days
after receipt of an order to purchase, if the application and all
information necessary for processing the purchase
order are complete upon receipt. Lincoln Life may retain the Purchase
Payment for up to five business days while attempting to complete an
incomplete application. If the application cannot be made complete within
five days, the applicant will be informed of the reasons for the delay and
the Purchase Payment will be returned immediately unless the applicant
specifically consents to Lincoln Life retaining the Purchase Payment until
the application is made complete. Thereafter, the Purchase Payment
must be priced within two business days.
WHO CAN INVEST
Any individual of legal age in the states where the Contracts may be
lawfully sold who is eligible to participate in any of the qualified or
nonqualified plans for which the Contracts are designed,
who fits Lincoln Life's underwriting guidelines and where the annuitant does
not have an attained age of more than 85, may apply for a Contract.
PURCHASE PAYMENTS
Purchase Payments are payable to Lincoln Life at the frequency and in the
amount selected by the Contract Owner in the Application. The minimum
initial Purchase Payment is $1,500 for Non-Qualified Contracts and Section
403(b) transfers/rollovers; and $300 for Qualified Contracts.
The minimum annual amount for subsequent Purchase Payments is $300 for
Non-Qualified and Qualified Contracts, with a minimum of $25 per payment.
Purchase Payments in the aggregate may not exceed $1,000,000 for each
Contract issued. In the event that a Contract Owner ceases
to make Purchase Payments, the Contract will remain in force as a paid-up
Contract as long as the total Contract Value is at least $300, and payments
may be resumed at any time until the earliest of the Annuity Commencement
Date, surrender of the Contract, or death of the Annuitant.
VALUATION DATE
Accumulation and Annuity Units will be valued once daily at the close of
trading (currently 4:00 p.m., New York time) on each day the New York
Stock Exchange is open (Valuation Date). On any date other than a
Valuation Date, the Accumulation and Annuity Unit value will be the same
as that on the next following Valuation Date.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are normally allocated to sub-accounts within the Variable
Account, each of which invests in one of the designated Funds of the Series,
according to the instructions of the Contract Owner. The minimum amount of
any Purchase Payment which can be allocated to any one sub-account is $20
under the Contract. Upon allocation to the appropriate sub-account,
Purchase Payments are converted into Accumulation Units. The number of
Accumulation Units credited is determined by dividing the amount allocated
to each sub-account by the value of an Accumulation Unit for that sub-
account on the Valuation Date on which the Purchase Payment is
received, if received prior to 4:00 p.m., E.S.T. on that date, and by the
value computed on the next Valuation Date, if received at or after 4:00 p.m.
EST. The number of Accumulation Units so determined shall not be changed by
any subsequent change in the value of an Accumulation Unit,
but the dollar value of an Accumulation Unit will vary in amount depending upon
the investment experience, expenses, and other deductions of the underlying
Fund.
VALUATION OF ACCUMULATION UNITS
Accumulation Units for each sub-account are valued separately. Initially,
the value of each Accumulation Unit was arbitrarily set at $1.00.
Thereafter, the value of an Accumulation Unit in any sub-account on any
Valuation Date equals the value of an Accumulation Unit in that
sub-account as of the immediately preceding Valuation Date, multiplied by
the "net investment factor" of that sub-account for the current Valuation
Period. In order to arrive at the net investment factor, a "gross
investment rate" is first determined for each Fund Valuation Period.
Such rate is equal to: (a) the investment income of the Fund for the Valuation
Period (plus capital gains and minus capital losses for the period, whether
realized or unrealized) minus (b) a daily charge against net assets for
investment advisory services and other expenses accrued by the Fund
for each day of the Valuation Period, divided by (c) the net asset value of
the Fund as of the beginning of the Valuation Period. The gross
investment rate may be positive or negative.
The net investment rate with respect to each sub-account is then determined.
Such rate is equal to the gross investment rate for the Fund minus a daily
charge at an annual rate of 1.35% for each day of the Valuation Period.
TRANSFERS OF ACCUMULATION UNITS BETWEEN SUB-ACCOUNTS
Prior to the Annuity Commencement Date, a Contract Owner may transfer all or
a portion of his/her investment in one sub-account to another sub-account.
A transfer will result in the purchase of Accumulation Units in one sub-
account, and the redemption of Accumulation Units in the other sub-account.
Such a transfer will be accomplished at relative Accumulation Unit values
as of the Valuation Date immediately following receipt of the transfer request.
A transfer between sub-accounts cannot be elected more than six times every
Contract Year. Lincoln Life reserves the right to waive this six-time limit.
The minimum amount which may be transferred between sub-accounts is $300 or
the amount in the sub-account, if less. If a transfer from a sub-account
would leave the Contract Owner with less than $300 in the sub-account,
Lincoln Life may transfer the total amount credited to such sub-account.
A transfer may be made by writing to Lincoln Life's Home Office or, if a
telephone exchange authorization form is on file with Lincoln Life,
by toll-free telephone call.
TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE GENERAL ACCOUNT
Prior to the Annuity Commencement Date, a Contract Owner may transfer all or any
part of the Contract Value from the sub-account(s) to the fixed side (general
account) of the Contract. Such transfers cannot be elected more than six
times every Contract Year. Lincoln Life reserves the right to waive this
six-time limit. The minimum amount which can be transferred to the general
account is $300 or the amount in the sub-account, if less. However, if a
transfer from a sub-account would leave the Contract Owner with less than $300
in the sub-account, Lincoln Life may transfer the total amount to the
general account.
A Contract Owner may also transfer all or part of the Contract Value from the
general account to any of the sub-accounts, subject to the following
restrictions: (a) no more than 25% of the value of the general account may
be transferred to the sub-accounts in any twelve month period; and (b)
the minimum amount which can be transferred is $300 or the amount in the
general account, if less; and (c) this transfer cannot be made during the
first 30 days after the issue date of the Contract and cannot be elected
more than six times every Contract Year. Lincoln Life reserves
the right to waive any of these restrictions.
A Contract Owner who contemplates the transfer of Contract Value should
consider the risk inherent when he or she shifts from one sub-account to
another or to the general account. In general, frequent transfers based on
short-term expectations will tend to accentuate the danger that a transfer
will be made at an inopportune time.
TRANSFERS ON OR FOLLOWING THE ANNUITY COMMENCEMENT DATE
On or after the Annuity Commencement Date, a Contract Owner may direct a
transfer of assets from one sub-account to another sub-account or to the
general account. Such transfer will be limited to three times per Contract
Year. On or after the annuity commencement date, no assets
may be transferred from the general account to the sub-accounts.
DEATH BENEFIT PRIOR TO ANNUITY COMMENCEMENT DATE
The Contract Owner may designate a Beneficiary during the life of the Annuitant
and change the Beneficiary by filing a written request with Lincoln Life at
its Home Office. Each change of Beneficiary revokes any previous
designation. Lincoln Life reserves the right to require presentation of
the Contract for endorsement of a change of Beneficiary.
If the Annuitant dies prior to the Annuity Commencement Date, a Death Benefit
equal to the greater of: (a) the Guaranteed Minimum Death Benefit (GMDB);
or (b) the current value of the Contract, will be paid to the Beneficiary
designated by the Contract Owner upon receipt of: (1) proof, satisfactory
to Lincoln Life, of the death of the Annuitant; (2) written authorization for
payment; and (3) receipt by Lincoln Life of all required claim forms, fully
completed.
The GMDB is equal to the sum of all Purchase Payments plus any Attributable
Gain (AG), minus any Withdrawals, partial annuitizations, and premium taxes
incurred. Lincoln Life determines the AG separately for each Contract Year
on its seventh anniversary (once its surrender charge period
has expired). The AG consiss of the earnings on a Contract Year's Net Purchase
Payment(s) [Purchase Payment(s) minus any Withdrawals and partial
annuitizations, applied on a First-in-First-Out basis] as of the Valuation
Date just before its seventh anniversary. This amount
will then be included in the GMDB calculation.
If Contract conditions are met, the GMDB will be increased automatically by
Lincoln Life according to the prescribed formula based upon the Contract's
internal rate of return. For this to occur the Annuitant, as of the seventh
anniversary of each eligible Contract Year, must still be
living anad must be less than 81 years of age. For more information about
GMDB calculations, please refer to the SAI.
The value of the Death Benefit will be determined as of the date on which the
death claim is approved for payment. At any time during a 60-day period
commencing with the date of death of the Annuitant, the Beneficiary may
elect to receive payment either in the form of a single sum settlement or an
Annuity Option. If a single sum settlement is requested, the proceeds will be
mailed within eight days of receipt of such election and due proof of death
in accordance with any applicable laws and regulations governing payment of
Death Benefits. Any single sum payment may be postponed as permitted by
the 1940 Act. If an election has not been made by the end of
such 60-day period, a single sum settlement will be made to the Beneficiary.
If an Annuity Option is elected, the Annuity Commencement Date shall be
the date specified in the election but not later than 60 days after receipt
by Lincoln Life of notification of death. Payment will be made in
accordance with any applicable laws and regulations governing payment of
Death Benefits.
Unless otherwise provided in the Beneficiary designation, one of the following
procedures will take place on the death of a Beneficiary: (1) If any
Beneficiary dies before the Annuitant, that Beneficiary's interest will
pass to any other Beneficiaries named according to their respective
interests; (2) If no Beneficiary survives the Annuitant, the proceeds will be
paid to the Contract Owner if living; otherwise to the Contract Owner's
estate.
DEATH OF CONTRACT OWNER
If the owner of a Non-Qualified Contract dies before annuity payments have
begun, then in accordance with the provisions of the Code, the Cash
Surrender Value (proceeds) of the Contract will be paid as follows:
(1) Upon the death of a non-annuitant owner, the proceeds shall be paid to
any surviving joint or contingent owner(s); (2) If no joint or contingent
owner has been named, then the proceeds shall be paid to the Annuitant named
in the Contract.
If the decedent owner or joint owner is also the Annuitant, then the death
will be treated as death of the Annuitant subject to the provisions of this
Contract regarding death of Annuitant. If the recipient of the proceeds is
the surviving spouse of the Contract Owner, the Contract may be
continued in the name of such spouse as Contract Owner.
Any distribution must be paid within 5 years of the death of the Contract
Owner unless the Beneficiary begins receiving, within one year of the
Contract Owner's death, the distribution in the form of a life annuity or
an annuity for a period certain not exceeding the Beneficiary's life
expectancy.
JOINT/CONTINGENT OWNERSHIP
If a joint owner is named in the application such joint owners shall be
treated as having equal undivided interests in the Contract. Either owner,
independent of the other, may exercise any ownership rights in this Contract.
A contingent owner cannot exercise any ownership rights in this Contract
while the Contract Owner is alive.
SURRENDERS AND WITHDRAWALS
No surrender of the Contract or withdrawal of Contract Value may be made
subsequent to the Annuity Commencement Date. With respect to such Contracts,
Lincoln Life will, upon the written request of the Contract Owner prior to
the Annuity Commencement Date, allow the surrender of the Contract in its
entirety or the withdrawal of a portion of the Contract Value. [Note:
Special restrictions on surrenders and withdrawals now apply if your Contract
was purchased as part of a retirement plan of a public school system or tax-
exempt institution under Section 403(b) of the Code. Beginning January 1,
1989, in order for a Contract to retain its tax-qualified status, the Code
prohibits the withdrawal of post-1988 contributions pursuant to a
salary reduction agreement and earnings thereon, from a 403(b) contract
except in the event the participant: 1) attains age 59 1/2; 2) separates
from service; 3) dies; 4) becomes totally and permanently disabled; or
5) experiences financial hardship (in which event the income attributable
to such contributions may not be withdrawn). Pre-1989 contributions and
earnings through December 31, 1988, are not subject to the above
restrictions. Funds transferred to the Contract from a 403(b)(7)
custodial account will be subject to these restrictions.]
The amount available upon surrender or withdrawal is the Cash Surrender Value
of the Contract at the end of the Valuation Period during which the
written request for surrender is received at the Home Office of Lincoln Life.
Unless a request for withdrawal shall specify otherwise, withdrawals will
be made from all sub-accounts within the Variable Account and from the general
account in the same proportion that the amount of withdrawal bears to the total
Contract Value. The minimum amount which can be withdrawn is $300, and the
remaining Contract Value must be at least $300. Where permitted by the
Contract, surrender or withdrawal payments will be mailed within eight days
after Lincoln Life receives a written request at its Home Office.
However, the payment may be postponed as permitted by the 1940 Act.
There are certain charges associated with surrender of a Contract or
withdrawal of Contract Value prior to the Annuity Commencement Date.
See "Charges and Other Deductions" above.
The tax consequences of surrender or withdrawal of Contract Value are discussed
later. See "Federal Tax Status" below. If the total Contract Value is less
than $300, and if no Purchase Payments have been made for at least two years,
Lincoln Life may surrender the Contract.
REINVESTMENT PRIVILEGE
The Contract Owner may elect to make a reinvestment purchase with any part
of the proceeds of a total or partial liquidation of the Contract and Lincoln
Life will recredit the surrender or withdrawal charges previously
deducted. Such election must be made within 30 days of the date of such
liquidation and the repurchase must be of a Contract covered by this
Prospectus. A representation must be made that the proceeds being used to
make the purchase have retained their tax favored status under an arrangement
for which the Contracts offered by this Prospectus are designed. The number
of Accumulation Units which will be credited upon reinvesting the funds will
be based on the value of the Accumulation Unit(s) the next time such
valuation is computed following receipt of the proceeds and request for
reinvestment at the Home Office of Lincoln Life. This reinvestment privilege
may be utilized only once with respect to any Contract Owner. For tax
reporting purposes, a liquidation and subsequent reinvestment purchase will be
treated by Lincoln Life as separate transactions. Prior to a
liquidation or subsequent reinvestment purchase, a tax adviser should be
consulted by the Contract Owner.
AMENDMENT OF CONTRACT
Lincoln Life reserves the right to amend the Contracts to meet the requirements
of the 1940 Act or other applicable federal or state laws or regulation.
Any changes, modifications or waivers must be in writing and Contract
Owners notified.
COMMISSIONS
The maximum commission which will be paid to dealers is equal to 4.7% (or
5.6% during certain special promotional periods) of each Purchase Payment;
plus an annual continuing commission equal to .25% of the value of Contract
Purchase Payments invested for at least one year; plus an annual
persistency bonus equal to .50% of each Contract Year's increased GMDB,
paid over a period of seven years. From time to time, additional sales
incentives (up to .25% of purchase payments) may be provided to dealers
maintaining certain sales volume leveles. In addition, the equivalent of
4.7% of Contract Value can be paid to dealers upon annuitization. These
commissions are not deducted from Purchase Payments or Contract Value; they
are paid by Lincoln Life.
OWNERSHIP
The Contract Owner has all rights under the Contract. Under Indiana law,
the assets of the Variable Account are held for the exclusive benefit of
the Contract Owners and their designated Beneficiaries and are not
chargeable with liabilities arising out of any other business that Lincoln
Life may conduct. Qualified Contracts may not be assigned or transferred
except as provided by the Employee Retirement Income Security Act of 1974
and upon written notification to Lincoln Life. Lincoln Life assumes
no responsibility for the validity or effect of any assignment. Contract
Owners should consult their tax advisers regarding the tax consequences
of an assignment.
CONTRACT OWNER INQUIRIES
The obligations to purchasers under the Contracts are the obligation of
Lincoln Life. Inquiries from Contract Owners should be directed to
Lincoln Life at 1-800-942-5500.
ANNUITY PAYMENTS
A Contract Owner may select, prior to issuance of the Contract, an Annuity
Commencement Date of any time permitted by law and not later than the
Annuitant's 85th birthday, except that the Contracts issued in connection
with qualified employee pension and profit-sharing trusts (described in
Section 401(a) and tax-exempt under Section 501(a) of the Code) and
qualified annuity plans (described in Section 403(a) of the Code), including
H.R. 10 trusts and plans covering self-employed individuals and their
employees, provide for annuity payments to commence at the date and under
the option specified in the plan.
The Contract provides the optional forms of payment of annuities (Annuity
Options) described below, each of which is payable on a variable basis, as
well as such other Annuity Options as Lincoln Life may choose to make
available in the future. The Contract also provides for fixed annuity
payments or annuity payments that are on a combination fixed and variable
basis. The Contract provides that all or part of the Contract Value may be
used to purchase an annuity.
The Contract Owner may postpone or accelerate the Annuity Commencement Date,
change his/her selection of any Annuity Option, or alter the allocation of
his/her investment among sub-accounts up to 30 days prior to the date
annuity payments are to commence, upon written notice to Lincoln Life at its
Home Office. THE CONTRACT OWNER MUST GIVE LINCOLN LIFE AT LEAST 30 DAYS
NOTICE BEFORE EFFECTING THE COMMENCEMENT OF ANNUITY PAYMENTS. If proceeds
become available to a Beneficiary, the Beneficiary may choose or change any
payment option if proceeds are available to the Beneficiary in one sum.
If a Contract Owner does not elect otherwise, the Contract automatically
provides for a life annuity (on a fixed, variable or combination fixed and
variable basis, in proportion to the account allocations at time of
annuitization) with 120 monthly payments certain, except in those cases in which
a joint and survivor annuity payout is required by law. Under any option
providing for guaranteed payments, the number of such payments which
remain unpaid at the date of the Annuitant's death will be paid to the
Contract Owner's Beneficiary as such payments become due.
The Contract contains no provision under which an Annuitant or a Beneficiary
may surrender his/her Contract or make a partial withdrawal and receive a
lum-sum settlement in lieu thereof once annuity payments have commenced. See
"Surrenders and Withdrawals" above. Options are only available to the extent
they are consistent with the requirements of Code Section 72(s), if
applicable.
OPTION NO. 1: LIFE ANNUITY.
This option provides an annuity payable periodically during the lifetime
of the Annuitant and terminating with the last payment preceding the death of
the Annuitant. This option offers the maximum level of periodic payments
since there is no guarantee of a minimum number of payments or provision for a
Death Benefit for Beneficiaries. It would be possible under this option for
the Annuitant to receive no annuity payment if he or she dies prior to the due
date of the first annuity payment, one annuity payment if the Annuitant died
before the second annuity payment date, etc.
OPTION NO. 2: LIFE INCOME WITH PAYMENTS GUARANTEED FOR DESIGNATED PERIOD.
This option provides for periodic payments during a designated period and
thereafter throughout the lifetime of the payee. The designated period may
be selected by the Annuitant.
OPTION NO. 3: JOINT AND SURVIVOR ANNUITY. This option provides an annuity
payable periodically during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of
the survivor.
OPTION NO. 4: JOINT AND TWO-THIRDS TO SURVIVOR ANNUITY. This option
provides an annuity payable periodically during the joint lifetime of the
Annuitant and designated second person, with two-thirds of the amount
payable during the remaining lifetime of the survivor.
OPTION NO. 5: UNIT REFUND LIFE ANNUITY. This options provides an annuity
payable periodically during the lifetime of the Annuitant with the guarantee
that upon death a payment will be made of the value of the number of Annuity
Units equal to the excess, if any, of: (a) the total amount applied under
this option divided by the Annuity Unit value for the date annuity payments
commence over (b) the Annuity Units represented by each payment to the
Annuitant multiplied by the number of payments paid prior to death. See
"Variable Annuity Payments" below. The value of the number of Annuity Units
is computed on the date the Home Office receives written notice of the
Annuitant's death provided that if notice is not received prior to the close of
trading at the New York Stock Exchange on such date computation shall be made
on the first Valuation Date thereafter.
Other options may be made available, as agreed upon by Lincoln Life. The
mortality and expense risk charge and the charge for administrative
services will be assessed on all annuity options, including those that
do not have a life contingency and thus no mortality risk.
VARIABLE ANNUITY PAYMENTS
Variable annuity payments will be determined on the basis of: (1) the value of
the Contract prior to the Annuity Commencement Date; (2) the annuity tables
contained in the Contract; (3) the type of Annuity Option selected; and
(4) the investment results of the Funds selected. In order to determine
the amount of variable annuity payments, Lincoln Life makes the following
calculation: first, it determines the dollar amount of the first payment;
second, it credits the Annuitant with a fixed number of Annuity Units
based on the amount of the first payment and the Annuity Unit
Value for that Valuation Date; and third, it calculates the value of the
Annuity units each month thereafter. In making this calculation, Lincoln
Life assumes an investment return of 4% per year, as applied to the
applicable mortality table. The amount of each payment after the initial
payment will depend upon how the underlying Funds perform, relative to
the 4% assumed rate. There is a more complete explanation of this
calculation in the SAI.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments may be paid as monthly, quarterly, semi-annual or annual
installments as the Annuitant requests. However, if the payments from
any sub-account would be or become less than $50, Lincoln Life shall
have the right to change the frequency of payments to such intervals
as will result in payments of at least $50.
FEDERAL TAX STATUS
The following is a general discussion of the federal income tax rules applicable
to the Contracts as of the date of this Prospectus. Further information
is provided in the Statement of Additional Information (SAI).
NEITHER THESE DISCUSSIONS NOR THOSE IN THE SAI ARE INTENDED AS TAX ADVICE.
This Section does not discuss the federal tax consequences resulting from every
possible situation. Moreover, no attempt has been made to consider any
applicable state, local or foreign tax law, other than the imposition
of state premium taxes. See "Deductions for Premium Taxes" above.
Any person concerned about the tax implications with respect to the
Contracts should consult a competent tax adviser. The following discussion
is based upon Lincoln Life's understanding of the present federal tax laws
as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of the present
federal income tax laws or of their current interpretations by the Internal
Revenue Service.
TAXATION OF NON-QUALIFIED CONTRACTS
An annuity Contract Owner generally is not taxed on increases in the value
of a Contract until distribution occurs, either in the form of a lump sum
payment received by withdrawing all or part of the cash value (i.e.,
"surrenders") or as the annuity payments under the Annuity Option elected.
For this purpose, the assignment or pledge of, or the agreement to assign or
pledge, any portion of the value of a Contract will be treated as a
distribution. A transfer of ownership of a Contract, or designation of an
annuitant or other beneficiary who is not also the Contract Owner, may also
have tax consequences. The taxable portion of a distribution (in the form of
a lump sum payment or an annuity) is taxed as ordinary income. However,
for Purchase Payments made by a Contract Owner who is a non-natural
person (subject to limited exceptions) there will be tax on any increase
in the Contract's cash value over the "investment in the contract" during
the taxable year, even if no distribution occurs. The following discussion
applies to Contracts owned by natural persons.
In the case of a surrender under a Contract or withdrawal of Contract Value,
generally amounts received are first treated as taxable income to the extent
that the cash value of the Contract immediately before the surrender exceeds
the "investment in the Contract" at that time. Any additional amount
withdrawn is not taxable. The "investment in the Contract" generally equals
the portion, if any, of any premium paid by or on behalf of an individual
under a Contract which is not excluded from the individual's gross income.
Although the tax consequences may vary depending on the form of the annuity
selected under the Contract, the recipient of an annuity payment under
a Contract generally is taxed on the portion of such payment that exceeds
the "investment in the Contract." For variable annuity payments,
the taxable portion is determined by a formula that establishes a specific
dollar amount of each payment that is not taxed. The dollar amount is
determined by dividing the "investment in the Contract" by the total
number of expected periodic payments. For fixed annuity payments, there
generally is no tax on the portion of each payment that represents the same
ratio that the "investment in the Contract" bears to the total expected
value of payments for the term of the annuity; the remainder of each
payment is taxable. However, all distributions (whether fixed or
variable) will be fully taxable once the recipient is deemed to have
recovered the dollar amount of his "investment in the Contract."
There may be imposed a penalty tax on distributions, equal to 10% of the amount
treated as taxable income. In general, there is no penalty tax on
distributions (1) made on or after age 59 1/2, (2) made as a result of
death or disability, (3) received in substantially equal periodic payment
such as a life annuity (subject to special "recapture" rules if the series of
payments is subsequently modified), (4) under a "qualified funding asset"
in a structured settlement; (5) under an "immediate annuity contract" as
defined in the Code, or (6) under a contract purchased in
connection with the termination of certain retirement plans.
QUALIFIED CONTRACTS
The Contracts may be purchased in connection with the following types of tax-
favored retirement plans: (1) annuity contracts purchased for employees by
public school systems and Code Section 501(c)(3) organizations, qualified
under Section 403(b) of the Code (normally for transfers or
rollovers only); (2) pension and profit-sharing plans of self-employed
individuals ("H.R. 10" or "Keogh" plans) or corporations, qualified under
Section 401(a) or 403(a) of the Code; (3) individual retirement annuities
(IRA); (4) deferred compensation plans of state or local
governments and tax-exempt organizations (457); and (5) simplified
employee pension plans (SEP). The tax rules applicable to these plans,
including restrictions on contributions and benefits, taxation of
distributions, and any tax penalties, vary according to the type of plan and
its terms and conditions. Participants under such plans, as well as
Contract Owners, Annuitants and Beneficiaries, should be aware that the
rights of any person to any benefits under such plans may
be subject to the terms and conditions of the plans themselves, regardless of
the terms and conditions of the Contracts. Purchasers of Contracts for use
with any qualified plan, as well as plan participants and Beneficiaries,
should consult counsel and other competent advisers as to the
suitability of the Contracts to their specific needs, and as to applicable Code
limitations and tax consequences.
MULTIPLE CONTRACTS
All Non-Qualified Contracts entered into after October 21, 1988, and issued
by the same insurance company (or its affiliates) to the same Contract Owner
during any calendar year will be treated as a single Contract, for tax
purposes.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Recipients may be
provided the opportunity to elect not to have tax withheld from
distributions. Distributions from governmental or not-for-profit deferred
compensation plans are subject to the general wage withholding rules.
Under the Unemployment Compensation Amendments of 1992 ("UCA"), twenty (20%)
percent income tax withholding may apply to "eligible rollover distributions."
All taxable distributions from qualified plans and Section 403(b) annuities
are "eligible rollover distributions," except (1) annuities paid out over
life or life expectancy, (2) installments paid for a period spanning ten years
or more, and (3) required minimum distributions. The UCA imposes a mandatory
twenty (20%) percent income tax withholding on any eligible rollover
distribution that the holder does not elect to have paid in a direct
rollover to another qualified plan, Section 403(b) annuity, or individual
retirement account.
INVESTOR CONTROL
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investment. It is not known whether any such guidelines would have
a retroactive effect.
VOTING RIGHTS
To the extent required by law, Lincoln Life will vote the Series shares held in
the Variable Account at meetings of shareholders of the Series in accordance
with instructions received from Contract Owners having interests in the
Funds of the Series due to their investment in the sub-accounts of the
Variable Account. However, if the 1940 Act or any regulation thereunder
should be amended or if the present interpretation thereof should change,
and as a result Lincoln Life determines that it is permitted to vote the
Series shares in its own right, it may elect to do so.
The number of votes which a Contract Owner has the right to cast will be
determined by applying his/her percentage interest in a sub-account to the
total number of votes attributable to the sub-account. In determining the
number of votes, fractional shares will be recognized.
Fund shares held in a sub-account as to which no timely instructions are
received will be voted by Lincoln Life in proportion to the voting
instructions which are received with respect to all Contracts
participating in that sub-account. Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce the votes
eligible to be cast.
Each person having a voting interest in a sub-account will receive proxy
material, reports and other materials relating to the American Variable
Insurance Series. Since the Series engages in shared funding, other
persons or entities besides Lincoln Life Contract Owners may vote Series
shares. See "Sale of Fund Shares by the Series" above.
DISTRIBUTION OF CONTRACTS
American Funds Distributors, Inc. (AFD), 333 South Hope Street, Los Angeles,
CA 90071, is the distributor and Principal Underwriter of the Contracts.
The Contracts will be sold by properly licensed registered representatives
of independent broker-dealers which in turn have been licensed
by state insurance departments to represent Lincoln Life and which have
selling agreements with AFD. AFD is registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Lincoln Life will offer the Contracts in all
states where it is licensed to do business.
RETURN PRIVILEGE
Within 20 days (or a longer period, if required by law) after the Contract is
first received (the "free-look period"), it may be cancelled for any reason
by delivering or mailing it postage pre-paid, to the Home Office of Lincoln
Life at the address set out under The Lincoln National Life Insurance
Company, above. A Contract cancelled under this provision will be deemed void.
With respect to the fixed portion of a Contract, Lincoln Life will return
Purchase Payments. With respect to the Variable Account (except as provided
just below), Lincoln Life will return the Contract Value as of the date of
receipt of the cancellation, plus any contract maintenance and
administrative fees and any premium taxes which had been deducted, and no
contingent deferred sales charge will be made. A PURCHASER WHO PARTICIPATES
IN THE VARIABLE ACCOUNT IS SUBJECT TO THE RISK OF A MARKET LOSS DURING THE
FREE-LOOK PERIOD.
For Contracts written in those states whose laws require that Lincoln Life
assume this market risk, a Contract may be cancelled, subject to the
conditions set out above, except that Lincoln Life will return only
the Purchase Payment(s).
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Title 8, Section 830.105 of the Texas Government Code, consistent with prior
interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interest in a variable annuity contract issued under the ORP only upon
(1) termination of employment in all institutions of higher education as
defined in Texas law, (2) retirement, or (3) death. Accordingly, a
participant in ORP will be required to obtain a certificate of
termination from his/her employer before he/she can redeem his/her account.
STATE REGULATION
As a life insurance company organized and operated under Indian law, Lincoln
Life is subject to provisions governing such companies and to regulation by
the Indiana Commissioner of Insurance. Lincoln Life's books and accounts
are subject to review and examination by the Indiana Department of
Insurance (Department) at all times and a full examination of its operation
is normally conducted by the Department at least once every five years.
RECORDS AND REPORTS
Lincoln Life will maintain all records and accounts relating to the Variable
Account. As presently required by the 1940 Act and regulations
promulgated thereunder, Lincoln Life will mail to the
Contract Owners at the last known address of record at Lincoln Life's Home
Office, at least semi-annually, reports containing such information as may
be required under the 1940 Act or by any other applicable law or regulation.
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to
the Contracts offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and amendments thereto
and exhibits filed as a part thereof, to all of which reference is made for
further information concerning the Variable Account, Lincoln Life and the
Contracts offered hereby. Statements contained in this Prospectus as to the
content of Contracts and other legal instruments are summaries.
For a complete statement of the terms thereof reference is made to such
instruments as filed.
Lincoln National Variable Annuity Account E and Lincoln National Flexible
Premium Variable Life Accounts F, G, and J (all registered as investment
companies under the 1940 Act), and Lincoln National Flexible Premium
Group Variable Annuity Accounts 50 and 51 are all segregated investment
accounts of The Lincoln National Life Insurance Company (Lincoln Life)
which also invest in the American Variable Insurance Series. American Variable
Insurance Series also offers shares of the Funds to other segregated investment
accounts.
Table of Contents of the
Statement of Additional Information (SAI)
for Lincoln National Variable Annuity Account H
Item Page
General Information and History of Lincoln Life B-2
Special Terms B-2
Services B-2
Purchase of Securities Being Offered B-2
Underwriters B-2
Calculation of Investment Results B-3
Annuity Payments B-4
Federal Tax Status B-5
Automatic Increase in the Guaranteed Minimum
Death Benefit B-7
Advertising and Sales Literature B-7
Financial Statements B-9
NOTE: To obtain a copy of the Statement of Additional Information, see page one.
