-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ska3cwhsQsq7EzDyBpF0Z1oZa1u/MDwTCWGNrSeyt5eUtU4S1wscqIZ/mkqq1abh FnoS5QEzpH3jTO3NAqQzLg== 0001047469-97-006008.txt : 19971126 0001047469-97-006008.hdr.sgml : 19971126 ACCESSION NUMBER: 0001047469-97-006008 CONFORMED SUBMISSION TYPE: N-4 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971125 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN LIFE VARIBALE ANNUITY ACCOUNT N CENTRAL INDEX KEY: 0001048606 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 350472300 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-4 SEC ACT: SEC FILE NUMBER: 333-40937 FILM NUMBER: 97727599 FILING VALUES: FORM TYPE: N-4 SEC ACT: SEC FILE NUMBER: 811-08517 FILM NUMBER: 97727600 BUSINESS ADDRESS: STREET 1: 1300 SOUTH CLINTON STREET STREET 2: PO BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46801 BUSINESS PHONE: 2194552000 MAIL ADDRESS: STREET 1: PO BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46801 N-4 1 N-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997 1933 Act Registration No. 333- 1940 Act Registration No. 811- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO. / / and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. / / LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N (EXACT NAME OF REGISTRANT) THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) 1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Indiana 46802 (ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE (219) 455-2000 COPY TO: Jack D. Hunter, Esquire Kimberly J. Smith, Esquire 200 East Berry Street Sutherland, Asbill & Brennan LLP P.O. Box 1110 1275 Pennsylvania Ave., N.W. Fort Wayne, Indiana 46802 Washington, D.C. 20004 (NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the effective date of the Registration Statement. Title of Securities: Interests in a separate account under individual flexible payment deferred variable annuity contracts. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), SHALL DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS REFERENCE SHEET PURSUANT TO RULE 481 SHOWING LOCATION IN PART A (PROSPECTUS) AND PART B (STATEMENT OF ADDITIONAL INFORMATION) OF REGISTRATION STATEMENT OF INFORMATION REQUIRED BY FORM N-4 PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION - ----------------------------------------------------- -------------------------------------------------------- 1. Cover Page...................................... Cover Page 2. Definitions..................................... Definitions 3. Synopsis........................................ Highlights; Fees and Expenses 4. Condensed Financial Information................. Condensed Financial Information 5. General......................................... (a) Depositor................................... Lincoln Life and the Variable Account (b) Registrant.................................. Lincoln Life and the Variable Account (c) Portfolio Company The Funds (d) Fund Prospectus The Funds (e) Voting Rights............................... The Funds -- Voting Rights 6. Deductions and Expenses (a) General..................................... Charges and Deductions (b) Sales Load %................................ Charges and Deductions -- Contingent Deferred Sales Charge (Sales Load) (c) Special Purchase Plan....................... N/A (d) Commissions................................. Distribution of the Contracts (e) Fund Expenses............................... Fees and Expenses -- Fund Portfolio Annual Expenses (f) Organizational Expenses..................... N/A 7. Contracts (a) Persons with Rights......................... Other Contract Features (Ownership, Assignment, Beneficiary, Change of Beneficiary, Annuitant, Surrenders and Partial Withdrawals, Death of Owner, Death of Annuitant); Annuity Provisions; Voting Rights (b) (i) Allocation of Premium Payments.......... Premium Payments and Contract Value -- Allocation of Premium Payments (ii) Transfers.................................. Transfer of Contract Values Between Sub-Accounts (iii) Exchanges................................. N/A (c) Changes..................................... Modification; Substitution of Securities; Change in Operation of Variable Account (d) Inquiries................................... Cover Page; Highlights 8. Annuity Period.................................. Annuity Provisions 9. Death Benefit................................... Death of the Owner; Death of the Annuitant 10. Purchase and Contract Values (a) Purchases................................... Premium Payments (b) Valuation................................... Contract Value; Accumulation Unit; (c) Daily Calculation........................... Accumulation Unit; Allocation of Premium Payments (d) Underwriter................................. Distribution of the Contracts 11. Redemptions (a) By Owners................................... Surrenders By Annuitant.................................... Annuity Provisions -- Variable Options (b) Texas ORP................................... N/A (c) Check Delay................................. Delay of Payments and Transfers (d) Lapse....................................... Premium Payments (e) Free Look................................... Highlights 12. Taxes........................................... Tax Matters 13. Legal Proceedings............................... Legal Proceedings
i
ITEM OF FORM N-4 PROSPECTUS CAPTION - ----------------------------------------------------- -------------------------------------------------------- 14. Table of Contents for the Statement of Additional Information......................... Table of Contents of the Statement of Additional Information
PART B
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION - ----------------------------------------------------- -------------------------------------------------------- 15. Cover Page...................................... Cover Page 16. Table of Contents............................... Table of Contents 17. General Information and History................. a) N/A b) N/A c) (Prospectus) Lincoln Life and the Variable Account; the Fixed Account 18. Services (a) Fees and Expenses of Registrant............. N/A (b) Management Contracts........................ N/A (c) Custodian................................... Custody of Assets Independent Accountant.......................... Experts (d) Assets of Registrant........................ N/A (e) Affiliated Person........................... N/A (f) Principal Underwriter....................... Distribution of the Contracts 19. Purchase of Securities Being Offered............ Distribution of the Contracts Offering Sales Load............................. Distribution of the Contracts; (Prospectus) Charges and Deductions -- Contingent Deferred Sales Charge (Sales Load) 20. Underwriters.................................... Distribution of the Contracts; (Prospectus) Distribution of the Contracts 21. Calculation of Performance Data................. Investment Experience; Historical Performance Data 22. Annuity Payments................................ (Prospectus) Annuity Provisions 23. Financial Statements............................ Financial Statements
PART C -- OTHER INFORMATION
ITEM OF FORM N-4 PART C CAPTION - ----------------------------------------------------- -------------------------------------------------------- 24. Financial Statements and Exhibits............... Financial Statements and Exhibits (a) Financial Statements........................ Financial Statements (b) Exhibits.................................... Exhibits 25. Directors and Officers of the Depositor......... Directors and Officers of the Depositor 26. Persons Controlled By or Under Common Control with the Depositor or Registrant............... Persons Controlled By or Under Common Control with the Depositor or Registrant 27. Number of Owners................................ Number of Owners 28. Indemnification................................. Indemnification 29. Principal Underwriters.......................... Principal Underwriter 30. Location of Accounts and Records................ Location of Accounts and Records 31. Management Services............................. Management Services 32. Undertakings.................................... Undertakings Signature Page.................................. Signatures
ii THE LINCOLN NATIONAL LIFE INSURANCE COMPANY LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N HOME OFFICE: ADMINISTRATIVE OFFICE: 1300 S. CLINTON STREET FORT WAYNE, IN 46802 - -------------------------------------------------------------------------------- FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS - -------------------------------------------------------------------------------- The Flexible Payment Deferred Variable Annuity Contracts (the "Contracts") described in this prospectus provide for accumulation of Contract Values and eventual payment of monthly annuity payments on a fixed or variable basis. The Contracts are designed to aid individuals in long term planning for retirement or other long term purposes. The Contracts are available for retirement plans which do not qualify for the special federal tax advantages available under the Internal Revenue Code ("Non-Qualified Plans") and for retirement plans which do qualify for the federal tax advantages available under the Internal Revenue Code ("Qualified Plans"). (See "Tax Matters -- Qualified Plans.") Premium payments for the Contracts will be allocated to a segregated investment account of The Lincoln National Life Insurance Company ("Lincoln Life"), designated Lincoln Life Variable Annuity Account N (the "Variable Account"), or to the Fixed Account, or some combination of them, as selected by the owner of the Contract. The following funding options are available under a Contract: Through the Variable Account, Lincoln Life offers twenty-one diversified open-end management investment companies (commonly called mutual funds), each with a different investment objective: Alger American Fund -- Alger American Small Capitalization Portfolio, Alger American Leveraged AllCap Portfolio, Alger American MidCap Growth Portfolio and Alger American Growth Portfolio; Lincoln National Money Market Fund; Fidelity Variable Insurance Products Fund -- Equity-Income Portfolio, High Income Portfolio and Overseas Portfolio; Fidelity Variable Insurance Products Fund II -- Investment Grade Bond Portfolio and Contra Fund Portfolio; Fidelity Variable Insurance Products Fund III -- Growth Opportunities Portfolio; MFS-Registered Trademark- Variable Insurance Trust -- MFS Total Return Series, MFS Utilities Series, MFS Emerging Growth Series, MFS Research Series and MFS Growth With Income Series; Neuberger & Berman Advisers Management Trust -- Limited Maturity Bond Portfolio and Partners Portfolio; OCC Accumulation Trust -- Global Equity Portfolio, Managed Portfolio and Small Cap Portfolio. The fixed interest option offered under a Contract is the Fixed Account. Premium payments or transfers allocated to the Fixed Account, and 3% interest per year thereon, are guaranteed, and additional interest may be credited, with certain withdrawals subject to a Market Value Adjustment and withdrawal charges. Unless specifically mentioned, this prospectus only describes the variable investment options. This entire prospectus, and those of the Funds, should be read carefully before investing to understand the Contracts being offered. The "Statement of Additional Information" dated , 1998, has been filed with the Securities and Exchange Commission and is incorporated by reference to this Prospectus. It is available at no charge by calling or writing Lincoln Life's Administrative Office as shown above, provides further information. Its Table of Contents is at the end of this prospectus. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE CONTRACTS OFFERED BY THIS PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS DATED: , 1998 TABLE OF CONTENTS
CONTENTS PAGE DEFINITIONS.................................... 3 HIGHLIGHTS..................................... 5 FEES AND EXPENSES.............................. 7 CONDENSED FINANCIAL INFORMATION................ 11 LINCOLN LIFE AND THE VARIABLE ACCOUNT.......... 11 THE FUNDS...................................... 12 General...................................... 15 Substitution of Securities................... 15 Voting Rights................................ 15 PREMIUM PAYMENTS AND CONTRACT VALUE............ 16 Premium Payments............................. 16 Allocation of Premium Payments............... 16 Optional Variable Account Sub-Account Allocation Programs......................... 17 Dollar Cost Averaging...................... 17 Automatic Rebalancing...................... 18 Contract Value............................... 18 Accumulation Unit............................ 18 CHARGES AND DEDUCTIONS......................... 19 Contingent Deferred Sales Charge (Sales Load)....................................... 19 Mortality and Expense Risk Charge............ 20 Administrative Expense Charge................ 20 Account Fee.................................. 20 Premium Tax Equivalents...................... 21 Income Taxes................................. 21 Fund Expenses................................ 21 Transfer Fee................................. 21 DEATH BENEFITS................................. 21 Death Benefits Provided by the Contract...... 21 Amount of Death Benefit...................... 22 Election and Effective Date of Election...... 22 Death of the Annuitant before the Annuity Date........................................ 23 Death of the Annuitant after the Annuity Date........................................ 23 OTHER CONTRACT FEATURES........................ 23 Ownership.................................... 23 Assignment................................... 24 Beneficiary.................................. 24 Change of Beneficiary........................ 24 Annuitant.................................... 24 Transfer of Contract Values between Sub- Accounts.................................... 24 Procedures for Telephone Transfers........... 25 CONTENTS PAGE Surrenders and Partial Withdrawals........... 26 Delay of Payments and Transfers.............. 26 Change in Operation of Variable Account...... 27 Modification................................. 27 Discontinuance............................... 27 ANNUITY PROVISIONS............................. 27 Annuity Date; Change in Annuity Date and Annuity Option.............................. 27 Penalty-Free Annuitization................... 28 Annuity Options.............................. 28 Fixed Options................................ 28 Variable Options............................. 29 Evidence of Survival......................... 30 Endorsement of Annuity Payments.............. 30 THE FIXED ACCOUNT.............................. 30 Market Value Adjustment...................... 32 DISTRIBUTION OF THE CONTRACTS.................. 33 PERFORMANCE DATA............................... 33 Money Market Sub-Account..................... 33 Other Variable Account Sub-Accounts.......... 34 Performance Ranking or Rating................ 34 TAX MATTERS.................................... 35 General...................................... 35 Diversification.............................. 35 Distribution Requirements.................... 36 Multiple Contracts........................... 37 Tax Treatment of Assignments................. 37 Withholding.................................. 37 Section 1035 Exchanges....................... 37 Tax Treatment of Withdrawals -- Non-Qualified Contracts................................... 37 Qualified Plans.............................. 38 Section 403(b) Plans......................... 38 Individual Retirement Annuities.............. 39 Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans........................... 39 Deferred Compensation Plans.................. 39 Tax Treatment of Withdrawals -- Qualified Contracts................................... 39 FINANCIAL STATEMENTS........................... 40 LEGAL PROCEEDINGS.............................. 40 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................ 41
2 DEFINITIONS ACCUMULATION PERIOD: The period from the Effective Date to the Annuity Date, the date on which the Death Benefit becomes payable or the date on which the Contract is surrendered or annuitized, whichever is earliest. ACCUMULATION UNIT: A measuring unit used to calculate the value of the Owner's interest in each funding option used in the variable portion of the Contract prior to the Annuity Date. ADMINISTRATIVE OFFICE: The administrative office of Lincoln National Life Insurance Company, located at . ANNUITANT: A person designated by the Owner in writing upon whose continuation of life any series of payments for a definite period or involving life contingencies depends. If the Annuitant dies before the Annuity Date, the Owner becomes the Annuitant until naming a new Annuitant. ANNUITY ACCOUNT VALUE: The value of the Contract at any point in time. ANNUITY DATE: The date on which annuity payments commence. ANNUITY OPTION: The arrangement under which annuity payments are made. ANNUITY PERIOD: The period starting on the Annuity Date. ANNUITY UNIT: A measuring unit used to calculate the portion of annuity payments attributable to each funding option used in the fixed and variable portion of the Contract on and after the Annuity Date. BENEFICIARY: The person entitled to the Death Benefit, who must also be the "Designated Beneficiary", for purposes of Section 72(s) of the Code, upon the Owner's death. CERTIFICATE: The document which evidences the participation of an Owner in a group contract. CODE: The Internal Revenue Code of 1986, as amended. CONTRACT: The Variable Annuity Contract described in this prospectus (or the certificate evidencing the Owner's participation in a group contract). CONTRACT ANNIVERSARY, CONTRACT YEAR, EFFECTIVE DATE: The Contract's Effective Date is the date it is issued. It is also the date on which the first Contract Year, a 12-month period, begins. Subsequent Contract Years begin on each Contract Anniversary, which is the anniversary of the Effective Date. CONTRACT MONTH: The period from one Monthly Anniversary Date to the next. CONTRACT OWNER (OR OWNER): The person(s) initially designated in the application or order to purchase or otherwise, unless later changed, as having all ownership rights under the Contract; is the Certificate Owner under a group contract. FIXED ACCOUNT: Those Sub-Accounts associated with Guaranteed Periods and Guaranteed Rates. Fixed Account Assets are maintained in Lincoln Life's General Account and not allocated to the Variable Account. FIXED ANNUITY: An annuity with payments which do not vary as to dollar amount. FUND(S): One or more of Alger American Fund -- Alger American Small Capitalization Portfolio, Alger American Leveraged AllCap Portfolio, Alger American MidCap Growth Portfolio and Alger American Growth Portfolio; Lincoln National Money Market Fund; Fidelity Variable Insurance Products Fund -- Fund Equity-Income Portfolio, High Income 3 Portfolio and Overseas Portfolio; Fidelity Variable Insurance Products Fund II -- Investment Grade Bond Portfolio and Contra Fund Portfolio; Fidelity Variable Insurance Products Fund III -- Growth Opportunities Portfolio; MFS-Registered Trademark- Variable Insurance Trust -- MFS Total Return Series, MFS Utilities Series, MFS Emerging Growth Series, MFS Research Series and MFS Growth with Income Series; Neuberger & Berman Advisers Management Trust -- Limited Maturity Bond Portfolio and Partners Portfolio; OCC Accumulation Trust -- Global Equity Portfolio, Managed Portfolio and Small Cap Portfolio. Each is an open-end management investment company (mutual fund) whose shares are available to fund the benefits provided by the Contract. GUARANTEED INTEREST RATE: The rate of interest credited by Lincoln Life on a compound annual basis during a Guaranteed Period. GUARANTEED PERIOD: The period for which interest, at either an initial or subsequent Guaranteed Interest Rate, will be credited to any amounts which an Owner allocates to a Fixed Account Sub-Account. In most states in which these Contracts are issued, this period may be one, five or ten years, as elected by the Owner. GUARANTEED PERIOD AMOUNT: Any portion of a Purchaser's Annuity Account Value allocated to a specific Guaranteed Period with a specified Expiration Date (including credited interest thereon). INDEX RATE: An index rate based on the Treasury Constant Maturity Series published by the Federal Reserve Board. IN WRITING: In a written form satisfactory to Lincoln Life and received by Lincoln Life at its Administrative Office. LINCOLN LIFE: Lincoln National Life Insurance Company. MONTHLY ANNIVERSARY DATE: The monthly anniversary of the Effective Date, as shown on the specifications page of the Contract. NON-QUALIFIED CONTRACTS: A Contract used in connection with a retirement plan which does not receive favorable federal income tax treatment under Code Section 401, 403, 408, or 457. The owner of a Non-Qualified Contract must be a natural person or an agent for a natural person in order for the Contract to receive favorable income tax treatment as an annuity. PAYEE: A recipient of payments under the Contract. PREMIUM PAYMENT: Any amount paid to Lincoln Life cleared in good funds as consideration for the benefits provided by the Contract. Includes the initial Premium Payment and subsequent Premium Payments. QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which receives favorable federal income tax treatment under Code Section 401, 403, 408 or 457. SHARES: Shares of a Fund. SUB-ACCOUNT: That portion of the Fixed Account associated with specific Guaranteed Period(s) and Guaranteed Interest Rate(s) and that portion of the Variable Account which invests in shares of a specific Fund. SURRENDER (OR WITHDRAWAL): When a lump sum amount representing all or part of the Annuity Account Value (minus any applicable withdrawal charges, contract fees and premium tax equivalents and adjusted by any Market Value Adjustment) is paid to the Owner. After a full surrender, all of the Owner's rights under the Contract are terminated. In this prospectus, the terms "surrender" and "withdrawal" are used interchangeably. 4 SURRENDER DATE: The date Lincoln Life processes the Owner's election to surrender the Contract or to receive a partial withdrawal. VALUATION DATE: Every day on which Accumulation Units are valued, which is each day on which the New York Stock Exchange ("NYSE") is open for business, except any day on which trading on the NYSE is restricted, or on which an emergency exists, as determined by the Securities and Exchange Commission ("Commission"), so that valuation or disposal of securities is not practicable. VALUATION PERIOD: The period of time beginning on the day following the Valuation Date and ending at the close of business on the next Valuation Date. A Valuation Period may be more than one day in length. VARIABLE ACCOUNT: Lincoln Life Variable Annuity Account N, a separate account of Lincoln Life under Indiana law, in which the assets of the Sub-Account(s) funded through shares of one or more of the Funds are maintained. Assets of the Variable Account attributable to the Contracts are not chargeable with the general liabilities of Lincoln Life. VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of the value of each variable portion of the Owner's Annuity Account Value during the Accumulation Period. VARIABLE ANNUITY UNIT: A unit of measure used in the calculation of the value of each variable portion of the Owner's Annuity Account Value during the Annuity Period, to determine the amount of each variable annuity payment. HIGHLIGHTS Premium Payments attributable to the variable portion of the Contracts will be allocated to a segregated asset account of Lincoln Life which has been designated Lincoln Life Variable Annuity Account N (the "Variable Account"). The Variable Account invests in shares of one or more of the Funds available to fund the Contract as selected by the Owner. Contract Owners bear the investment risk for all amounts allocated to the Variable Account. The Contract's provisions may vary in some states. Inquiries about the Contracts may be made to Lincoln Life's Administrative Office. Procedures for purchasing a Contract are described at "Premium Payments and Contract Value -- Premium Payments." The Contract may be returned within 10 days after it is received, longer in some states. It can be mailed or delivered to either Lincoln Life or the agent who sold it. Return of the Contract by mail is effective on being postmarked, properly addressed and postage prepaid. Lincoln Life will promptly refund the Contract Value in states where permitted. This may be more or less than the Premium Payment. In states where required, Lincoln Life will promptly refund the Premium Payment, less any partial surrenders. Lincoln Life has the right to allocate initial Premium Payments to the Money Market Sub-Account until the expiration of the right-to-examine period. If Lincoln Life does so allocate an initial Premium Payment, it will refund the greater of the Premium Payment, less any partial surrenders, or the Contract Value. It is Lincoln Life's current practice to directly allocate the initial Premium Payment to the Fund(s) designated in the application or order to purchase, unless state law requires a refund of Premium Payments rather than of Annuity Account Value. Procedures for making surrenders and partial withdrawals are described at "Other Contract Features -- Surrenders and Partial Withdrawals." A Contingent Deferred Sales Charge (sales load) may be deducted in the event of a full surrender or partial withdrawal. The Contingent Deferred Sales Charge is imposed on Premium Payments within seven (7) years after their being made. Contract Owners may, during each Contract Year, withdraw up to fifteen percent (15%) of Premium Payments made, or any 5 remaining portion thereof, ("the Fifteen Percent Free") without incurring a Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge will vary in amount, depending upon the Contract Year in which the Premium Payment being surrendered or withdrawn was made. For purposes of determining the applicability of the Contingent Deferred Sales Charge, surrenders and withdrawals are deemed to be on a first-in, first-out basis. The Contingent Deferred Sales Charge is found in the fee table (See "Charges and Deductions -- Contingent Deferred Sales Charge (Sales Load)"). The maximum Contingent Deferred Sales Charge is 7% of Premium Payments. There may also be a Market Value Adjustment on surrenders, withdrawals or transfers from the Fixed Account portion of the Contract. There is a Mortality and Expense Risk Charge which is equal, on an annual basis, to 1.25% of the average daily net assets of the Variable Account. This Charge compensates Lincoln Life for assuming the mortality and expense risks under the Contract (See "Charges and Deductions -- Mortality and Expense Risk Charge"). There is an Administrative Expense Charge which is equal, on an annual basis, to 0.15% of the average daily net assets of the Variable Account (See "Charges and Deductions -- Administrative Expense Charge"). There is an annual Account Fee of $35 which is waived if the Annuity Account Value equals or exceeds $100,000 at the end of the Contract Year (See "Charges and Deductions -- Account Fee"). Premium tax equivalents or other taxes payable to a state or other governmental entity will be charged against Annuity Account Value (See "Charges and Deductions -- Premium Tax Equivalents"). Under certain circumstances there may be assessed a $10 transfer fee when a Contract Owner transfers Annuity Account Values from one Sub-Account to another (See "Charges and Deductions -- Transfer Fee"). There is a ten percent (10%) federal income tax penalty applied to the income portion of any premature distribution from Non-Qualified Contracts. However, the penalty is not imposed on amounts distributed: (a) after the Payee reaches age 59 1/2; (b) after the death of the Contract Owner (or, if the Contract Owner is not a natural person, the Annuitant); (c) if the Payee is totally disabled (for this purpose, disability is as defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal periodic payments made not less frequently than annually for the life (or life expectancy) of the Payee or for the joint lives (or joint life expectancies) of the Payee and his or her beneficiary; (e) under an immediate annuity; or (f) which are allocable to Premium Payments made prior to August 14, 1982. For federal income tax purposes, distributions are deemed to be on a last-in, first-out basis. Different tax withdrawal penalties and restrictions apply to Qualified Contracts issued pursuant to plans qualified under Code Section 401, 403(b), 408 or 457. (See "Tax Matters -- Tax Treatment of Withdrawals -- Qualified Contracts.") For a further discussion of the taxation of the Contracts, see "Tax Matters." MARKET VALUE ADJUSTMENT. In certain situations, a surrender or transfer of amounts from the Fixed Account will be subject to a Market Value Adjustment. The Market Value Adjustment will reflect the relationship between a rate based on an index published by the Federal Reserve Board as to current yields on U.S. government securities of various maturities at the time a surrender or transfer is made ("Index Rate"), and the Index Rate at the time that the Premium Payments being surrendered or transferred were made. Generally, if the Index Rate at the time of surrender or transfer is lower than the Index 6 Rate at the time the Premium Payment was allocated, then the application of the Market Value Adjustment will result in a higher payment upon surrender or transfer. Similarly, if the Index Rate at the time of surrender or transfer is higher than the Index Rate at the time the Premium Payment was allocated, the application of the Market Value Adjustment will generally result in a lower payment upon surrender or transfer. It is not applied against a surrender or transfer taking place at the end of the Guaranteed Period. FEES AND EXPENSES CONTRACT OWNER TRANSACTION FEES Contingent Deferred Sales Charge (as a percentage of Premium Payments):
YEARS SINCE PAYMENT CHARGE ---------- ------ 0-1 7% 1-2 7% A Contract Owner may, during each Contract Year, withdraw up to 2-3 7% 15% of Premium Payments made, or any remaining portion 3-4 6% thereof, without incurring a Contingent Deferred Sales Charge. 4-5 6% 5-6 5% 6-7 4% 7+ 0
Transfer Fee........ $10 - Not imposed on the first twelve transfers during a Contract Year. Pre-scheduled automatic dollar cost averaging or automatic rebalancing transfers are not counted. Account Fee......... $35 per Contract Year - Waived if Annuity Account Value at the end of the Contract Year is $100,000 or more.
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value) Mortality and Expense Risk Charge......... 1.25% Administrative Expense Charge............. 0.15% --- Total Variable Account Annual Expenses.... 1.40%
7 EXPENSE DATA The purpose of the following Table is to help Purchasers and prospective purchasers understand the costs and expenses that are borne, directly and indirectly, by Purchasers assuming that all Premium Payments are allocated to the Variable Account. The table reflects expenses of the Variable Account as well as of the individual Funds underlying the Variable Sub-Accounts. FEE TABLE
ALGER AMERICAN FUND -------------------------------------------- ALGER ALGER ALGER ALGER AMERICAN AMERICAN AMERICAN AMERICAN LEVERAGED MIDCAP SMALL GROWTH ALLCAP GROWTH CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------- ----------- -------- -------- SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge....... 1.25% 1.25% 1.25% 1.25% Administrative Expense Charge........... 0.15% 0.15% 0.15% 0.15% Total Separate Account Annual Expenses............................... 1.40% 1.40% 1.40% 1.40% FUND PORTFOLIO ANNUAL EXPENSES Management Fees......................... % % % % Other Expenses.......................... % % % % Total Fund Portfolio Annual Expenses.... % %(1) % % FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS ----------------------------------------------------------------------------- VIP II VIP II INVESTMENT VIP III CONTRA VIP EQUITY GRADE VIP HIGH VIP GROWTH FUND INCOME BOND INCOME OVERSEAS OPPORTUNITIES PORTFOLIO PORTFOLIO PORTFOLIO FUND PORTFOLIO PORTFOLIO ----------- ----------- -------- -------- ----------- ------------- SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge....... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% Administrative Expense Charge........... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% Total Separate Account Annual Expenses............................... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% FUND PORTFOLIO ANNUAL EXPENSES Management Fees......................... % % % % % % Other Expenses.......................... % % % % % % Total Fund Portfolio Annual Expenses.... %(2) %(2) % % %(2) %(2)
- ------------------------------ (1) Included in Other Expenses of the Alger American Leveraged AllCap Portfolio is % of interest expense. (2) A portion of the brokerage commissions the certain funds pay was used to reduce funds expenses. In addition, certain funds have entered into arrangements with their custodian and transfer agent whereby interest earned on uninvested cash balances was used to reduce custodian and transfer agent expenses. Including these reductions, Total Fund Portfolio Annual Expenses would have been % for the VIP Equity-Income Portfolio, % for the VIP Overseas Portfolio, % for the VIP II Contrafund Portfolio and VIP III Growth Opportunities Portfolio. 8 The table does not reflect the deductions for the annual $35 Account Fee or premium tax equivalents. The information set forth should be considered together with the information provided in this Prospectus under the heading "Fees and Expenses", and in each Fund's Prospectus. All expenses are expressed as a percentage of average account value.
NEUBERGER&BERMAN ADVISERS MANAGEMENT MFS VARIABLE INSURANCE TRUST LINCOLN - --------------------------------------------------------- TRUST(5) FUNDS MFS --------------------- --------- OCC ACCUMULATION TRUST MFS MFS GROWTH LIMITED LN --------------------------------- TOTAL MFS EMERGING MFS WITH MATURITY MONEY GLOBAL RETURN UTILITIES GROWTH RESEARCH INCOME PARTNERS BOND MARKET EQUITY MANAGED SMALL CAP SERIES SERIES SERIES SERIES SERIES PORTFOLIO PORTFOLIO FUND PORTFOLIO PORTFOLIO PORTFOLIO - --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.30% % % % % % % %(6) % % % % %(4) %(4) %(4) %(4) %(4) % % % % % % %(3) %(3) %(3) %(3) %(3) % % % %(7) %(7) %(7)
- ------------------------------ (3) The Adviser has agreed to bear expenses for each Series, subject to reimbursement by each Series, such that each Series' "Other Expenses" shall not exceed 0.25% of the average daily net assets of the Series during the current fiscal year. Otherwise, "Other Expenses" for the Emerging Growth Series, Research Series, Growth With Income Series, Total Return Series and Utilities Series would be %, %, %, % and % respectively, and "Total Fund Portfolio Expenses" would be %, %, %, % and % respectively, for these Series. See "Information Concerning Shares of Each Series--Expenses." (4) Each Series has an expense offset arrangement which reduces the Series' custodian fee based upon the amount of cash maintained by the Series with its custodian and dividend disbursing agent, and may enter into other such arrangements and directed brokerage arrangements (which would also have the effect of reducing the Series' expenses). Any such fee reductions are not reflected under "Other Expenses". (5) Neuberger&Berman Advisers 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. (6) The figures reported here are "Investment Management and Administration Fees" which include the aggregate of the administration fees paid by the Portfolio and the management fees paid by its corresponding Series. Similarly, "Other Expenses" includes all other expenses of the Portfolio and its corresponding Series. (7) The annual expenses of OCC Accumulation Trust Portfolios (the "Portfolios") as of December 31, 1997 have been restated to reflect new management fee and expense limitation arrangements in effect as of [May 1, 1996.] Additionally, Other Expenses are shown gross of certain expense offsets afforded the Portfolios which effectively lowered overall custody expenses. Effective [May 1, 1996,] the expenses of the Portfolios were contractually limited by OpCap Advisors so that their respective annualized operating expenses (net of any expense offsets) do not exceed 1.25% of their respective average daily net assets. Furthermore, through [December 31, 1997,] the annualized operating expenses of the Managed and Small Cap Portfolios will be voluntarily limited by OpCap Advisors so that annualized operating expenses (net of any expense offsets) of these Portfolios do not exceed 1.00% of their respective average daily net assets. Without such contractual and voluntary expense limitations and without giving effect to any expense offsets, the Management Fees, Other Expenses and Total Portfolio Annual Expenses incurred for the fiscal year ended December 31, 1997 would have been: %, % and %, respectively, for the Global Equity Portfolio; %, % and %, respectively, for the Managed Portfolio; and %, % and %, respectively, for the Small Cap Portfolio. 9 EXAMPLES The Contract Owner would pay the following expenses on a $1,000 investment, assuming a 5% annual return on assets, and assuming all Premium Payments are allocated to the Variable Account:
1 YEAR 3 YEARS ----------- ----------- 1. IF THE CONTRACT IS SURRENDERED AT THE END OF THE APPLICABLE TIME PERIOD: Alger Small Capitalization Portfolio..................... Alger Leveraged AllCap Portfolio......................... Alger MidCap Growth Portfolio............................ Alger Growth Portfolio................................... Lincoln National Money Market Fund....................... Fidelity VIP Equity-Income Portfolio..................... Fidelity VIP High Income Portfolio....................... Fidelity VIP Overseas Portfolio.......................... Fidelity VIP II Investment Grade Bond Portfolio.......... Fidelity VIP II Contra Fund Portfolio.................... Fidelity VIP III Growth Opportunities Portfolio.......... MFS Total Return Series.................................. MFS Utilities Series..................................... MFS Emerging Growth Series............................... MFS Research Series...................................... MFS Growth With Income Series............................ AMT Limited Maturity Bond Portfolio...................... AMT Partners Portfolio................................... OCC Global Equity Portfolio.............................. OCC Managed Portfolio.................................... OCC Small Cap Portfolio.................................. 2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS ANNUITIZED: Alger Small Capitalization Portfolio..................... Alger Leveraged AllCap Portfolio......................... Alger MidCap Growth Portfolio............................ Alger Growth Portfolio................................... Lincoln National Money Market Fund....................... Fidelity VIP Equity-Income Portfolio..................... Fidelity VIP High Income Portfolio....................... Fidelity VIP Overseas Portfolio.......................... Fidelity VIP II Investment Grade Bond Portfolio.......... Fidelity VIP II Contra Fund Portfolio.................... Fidelity VIP III Growth Opportunities Portfolio.......... MFS Total Return Series.................................. MFS Utilities Series..................................... MFS Emerging Growth Series............................... MFS Research Series...................................... MFS Growth With Income Series............................ AMT Limited Maturity Bond Portfolio...................... AMT Partners Portfolio................................... OCC Global Equity Portfolio.............................. OCC Managed Portfolio.................................... OCC Small Cap Portfolio..................................
The preceding tables are intended to assist the Owner in understanding the costs and expenses borne, directly or indirectly, by Premium Payments allocated to the Variable Account. These include the expenses of the Funds, certain of which are subject to 10 expense reimbursement arrangements which may be subject to change. See the Funds' Prospectuses. In addition to the expenses listed above, charges for premium tax equivalents may be applicable. These examples reflect the annual $35 Account Fee as an annual charge of .07% of assets, based upon an anticipated average Annuity Account Value of $50,000. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CONDENSED FINANCIAL INFORMATION Because the Sub-Accounts which are available under the Contracts did not begin operation before the date of this Prospectus, financial information for the Sub-Accounts is not included in this prospectus or the Statement of Additional Information. LINCOLN LIFE AND THE VARIABLE ACCOUNT THE LINCOLN NATIONAL LIFE INSURANCE COMPANY. Lincoln Life is a stock life insurance company incorporated under the laws of Indiana on June 12, 1905. Lincoln Life is principally engaged in offering life insurance policies and annuity policies, and ranks among the largest United States stock life insurance companies in terms of assets and life insurance in force. Lincoln Life is also one of the leading life reinsurers in the United States. Lincoln Life is licensed in all states (except New York) and the District of Columbia, Guam, and the Virgin Islands. Lincoln Life is wholly owned by Lincoln National Corporation ("LNC"), a publicly held insurance holding company incorporated under Indiana law on January 5, 1968. The principal offices of both Lincoln Life and LNC are located at 1300 South Clinton Street, Fort Wayne, Indiana 46801. Through subsidiaries, LNC engages primarily in the issuance of life insurance and annuities, property-casualty insurance, and other financial services. Administrative services necessary for the operation of the Variable Account and the Contracts are currently provided by Lincoln Life. THE VARIABLE ACCOUNT. The Variable Account was established by Lincoln Life as a separate account on November 3, 1997 pursuant to a resolution of its Board of Directors. Under Indiana insurance law, the income, gains or losses of the Variable Account are credited to or charged against the assets of the Variable Account without regard to the other income, gains, or losses of Lincoln Life. These assets are held in relation to the Contracts described in this Prospectus, to the extent necessary to meet Lincoln Life's obligations thereunder. Although that portion of the assets maintained in the Variable Account equal to the reserves and other contract liabilities with respect to the Variable Account will not be charged with any liabilities arising out of any other business conducted by Lincoln Life, all obligations arising under the Contracts, including the promise to make annuity payments, are general corporate obligations of Lincoln Life. The Variable Account is registered with the Commission as a unit investment trust under the 1940 Act and meets the definition of a separate account under the federal securities laws. Registration with the Commission does not involve supervision of the management or investment practices or policies of the Variable Account or of Lincoln Life by the Commission. The assets of the Variable Account are divided into Sub-Accounts. Each Sub-Account invests exclusively in shares of a specific Fund. All amounts allocated to the Variable Account will be used to purchase Fund shares as designated by the Owner at their net asset value. Any and all distributions made by the Fund with respect to the shares held by the Variable Account will be reinvested to purchase additional shares at their net asset value. Deductions from the Variable Account for cash withdrawals, annuity 11 payments, death benefits, account fees, mortality and expense risk charges, administrative expense charges and any applicable taxes will, in effect, be made by redeeming the number of Fund shares at their net asset value equal in total value to the amount to be deducted. The Variable Account will purchase and redeem Fund shares on an aggregate basis and will be fully invested in Fund shares at all times. THE FUNDS Each of the twenty-one Sub-Accounts of the Variable Account is invested solely in shares of one of the twenty-one Funds available as funding vehicles under the Contracts. Each of the Funds is a series of one of eight Massachusetts or Delaware business trusts or a Maryland corporation, collectively referred to herein as the "Trusts", each of which is registered as an open-end, diversified management investment company under the 1940 Act. The Trusts and their investment advisers and distributors are: Alger American Fund ("Alger Trust"), managed by Fred Alger Management, Inc., 75 Maiden Lane, New York, NY 10038; and distributed by Fred Alger & Company, Incorporated, 30 Montgomery Street, Jersey City, NJ 07302; Lincoln National Money Market Fund, Inc., managed by Lincoln Investment Management, Inc. 200 East Berry St., Fort Wayne, IN 46802; Variable Insurance Products Fund ("Fidelity VIP"), Variable Insurance Products Fund II ("Fidelity VIP II") and Variable Insurance Products Fund III ("Fidelity VIP III"), managed by Fidelity Management & Research Company and distributed by Fidelity Distribution Corporation, 82 Devonshire Street, Boston, MA 02103; MFS-Registered Trademark- Variable Insurance Trust ("MFS Trust"), managed by Massachusetts Financial Services Company and distributed by MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116; Neuberger & Berman Advisers Management Trust ("AMT Trust"), managed and distributed by Neuberger & Berman Management Incorporated, 605 Third Avenue, 2nd Floor New York, NY 10158-0006; OCC Accumulation Trust ("OCC Trust") (formerly Quest for Value Accumulation Trust), managed by OpCap Advisors (formerly Quest for Value Advisors) and distributed by OCC Distributors (formerly Quest for Value Distributors), One World Financial Center, New York, NY 10281. Four Funds of ALGER Trust are available under the Contracts: Alger American Growth Portfolio; Alger American Leveraged AllCap Portfolio; Alger American MidCap Growth Portfolio; Alger American Small Capitalization Portfolio. One Lincoln National Money Market Fund is available under the Contracts. Three Funds of FIDELITY VIP are available under the Contracts: Equity-Income Portfolio ("Fidelity VIP Equity-Income Portfolio"); High Income Portfolio ("Fidelity VIP High Income Portfolio"); Overseas Portfolio ("Fidelity VIP Overseas Portfolio"). 12 Two Funds of FIDELITY VIP II are available under the Contracts: Contra Fund Portfolio ("Fidelity VIP II Contra Fund Portfolio"); Investment Grade Bond Portfolio ("Fidelity VIP II Investment Grade Bond Portfolio"). One Fund of FIDELITY VIP III is available under the Contracts: Growth Opportunities Portfolio ("Fidelity VIP III Growth Opportunities Portfolio"). Five Funds of MFS Trust are available under the Contracts: MFS Total Return Series; MFS Utilities Series; MFS Emerging Growth Series; MFS Research Series; MFS Growth with Income Series. Two Funds of AMT Trust are available under the Contracts: Limited Maturity Bond Portfolio; Partners Portfolio. Three Funds of OCC Trust are available under the Contracts: Global Equity Portfolio; Managed Portfolio; Small Cap Portfolio. The investment advisory fees charged the Funds by their advisers are shown in the Fee Table under Fees and Expenses in this Prospectus. There follows a brief description of the investment objective and program of each Fund, which are described more fully in the attached Fund prospectuses. There can be no assurance that any of the stated investment objectives will be achieved. ALGER AMERICAN GROWTH PORTFOLIO (Large Cap Stocks): Seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities, primarily of companies with total market capitalization of $1 billion or greater. ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO (Large Cap Stocks): Seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities, with the ability to engage in leveraging (up to one-third of assets) and options and futures transactions. ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (Mid Cap Stocks): Seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities, primarily of companies whose total market capitalization lies within the range of companies included in the S & P MidCap 400 Index. ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO (Small Cap Stocks): Seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities, primarily of companies whose total market capitalization lies within the range of companies included in the Russell 2000 Growth Index or the S&P SmallCap 600 Index. LINCOLN NATIONAL MONEY MARKET FUND (Money Market): Seeks maximum current income consistent with the preservation of capital. The Fund invests in short-term obligations issued by U.S. corporations; the U.S. Government; and federally-charted banks and U.S. branches of foreign banks. 13 FIDELITY VIP II CONTRAFUND PORTFOLIO (Large Cap Stocks) Seeks capital appreciation by investing primarily in equity securities of companies that are undervalued or out-of-favor. FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO (Fixed Income-Intermediate Term Bonds): Seeks as high a level of current income as is consistent with the preservation of capital by investing in a broad range of investment-grade fixed-income securities. FIDELITY VIP EQUITY-INCOME PORTFOLIO (Large Cap Stocks): Seeks reasonable income by investing primarily in income-producing equity securities, with some potential for capital appreciation, seeking a yield that exceeds the composite yield on the securities comprising the Standard and Poor's Composite Index of 500 Stocks. FIDELITY VIP HIGH INCOME PORTFOLIO (High Yield Bonds): Seeks high current income by investing mainly in high yielding debt securities, with an emphasis on lower quality securities. FIDELITY VIP OVERSEAS PORTFOLIO (International Equity): Seeks long term growth of capital by investing mainly in foreign securities. FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO (Large Cap Stocks): Seeks capital growth by investing primarily in common stocks and securities convertible into common stocks. MFS EMERGING GROWTH SERIES (Large Cap Stocks): Seeks long-term growth of capital by investing primarily in common stocks of companies management believes to be early in their life cycle but which have the potential to become major enterprises. MFS GROWTH WITH INCOME SERIES (Large Cap Stocks): Seeks reasonable current income and long-term growth of capital and income. MFS RESEARCH SERIES (Large Cap Stocks): Seeks to provide long-term growth of capital and future income. MFS TOTAL RETURN SERIES (Balanced or Total Return): Seeks primarily to obtain above-average income, (compared to a portfolio invested entirely in equity securities) consistent with the prudent employment of capital, and secondarily to provide a reasonable opportunity for growth of capital and income. MFS UTILITIES SERIES (Specialty): Seeks capital growth and current income (income above that available from a portfolio invested entirely in equity securities) by investing, under normal circumstances, at least 65% of its assets in equity and debt securities of utility companies. NEUBERGER&BERMAN AMT LIMITED MATURITY BOND PORTFOLIO (Short to Intermediate Term Bonds): Seeks the highest current income consistent with low risk to principal and liquidity; and secondarily, total return. NEUBERGER&BERMAN AMT PARTNERS PORTFOLIO (Large Cap Stocks): Seeks capital growth. Invests principally in common stocks of medium to large capitalization established companies, using the value-oriented investment approach. The Portfolio seeks capital growth through an investment approach that is designed to increase capital with reasonable risk. The portfolio manager seeks securities believed to be undervalued based on strong fundamentals such as low price-to-earnings ratios, consistent cash flow, and support from asset values. OCC GLOBAL EQUITY PORTFOLIO (International Stocks): Seeks long-term capital appreciation through a global investment strategy primarily involving equity securities. OCC MANAGED PORTFOLIO (Balanced or Total Return): Seeks growth of capital over time through investment in a portfolio of common stocks, bonds and cash equivalents, the percentage of which will vary based on management's assessments of relative investment values. 14 OCC SMALL CAP PORTFOLIO (Small Cap Stocks): Seeks capital appreciation through investments in a diversified portfolio of equity securities of companies with market capitalizations of under $1 billion. The Neuberger&Berman AMT Partners Portfolio, Neuberger&Berman Limited Maturity Bond Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP II Contra Fund Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP Overseas Portfolio, MFS Emerging Growth Series, MFS Research Series, MFS Total Return Series, MFS Utilities Series, OCC Global Equity Portfolio, OCC Managed Portfolio, and the OCC Small Cap Portfolio funds may invest in non-investment grade, high yield, high-risk debt securities (commonly referred to as "junk bonds"), as detailed in the individual Fund prospectuses. With respect to a Trust, the adviser and/or the distributor, or an affiliate thereof, may compensate Lincoln Life (or an affiliate) for administrative, distribution, or other services. It is anticipated that such compensation would be based on assets of the particular Trust attributable to the Contracts along with certain other variable contracts issued or administered by Lincoln Life (or an affiliate). GENERAL There is no assurance that the investment objective of any of the Funds will be met. Contract Owners bear the complete investment risk for Annuity Account Values allocated to a Variable Account Sub-Account. Each such Sub-Account involves inherent investment risk, and such risk varies significantly among the Sub-Accounts. Contract Owners should read each Fund's prospectus carefully and understand the Funds' relative degrees of risk before making or changing investment choices. Additional Funds may, from time to time, be made available as investments to underlie the Contracts. However, the right to make such selections will be limited by the terms and conditions imposed on such transactions by Lincoln Life (See "Premium Payments and Contract Value- Allocation of Premium Payments"). The Funds' shares are issued and redeemed only in connection with variable annuity contracts and variable life insurance policies issued through separate accounts of Lincoln Life and other life insurance companies. The Trusts do not foresee any disadvantage to Contract Owners arising out of the fact that shares may be made available to separate accounts which are used in connection with both variable annuity and variable life insurance products. Nevertheless, the Trusts' Boards intend to monitor events in order to identify any material irreconcilable conflicts which may possibly arise and to determine what action, if any, should be taken in response thereto. If such a conflict were to occur, one of the separate accounts might withdraw its investment in a Fund. This might force a Fund to sell portfolio securities at disadvantageous prices. SUBSTITUTION OF SECURITIES If the shares of any Fund should no longer be available for investment by the Variable Account or if, in the judgment of Lincoln Life, further investment in such shares should become inappropriate in view of the purpose of the Contracts or in view of legal regulatory or federal income tax restrictions, Lincoln Life may substitute shares of another Fund. No substitution of securities in any Sub-Account may take place without prior approval of the Commission and under such requirements as it may impose. VOTING RIGHTS In accordance with its view of present applicable law, Lincoln Life will vote the shares of each Fund held in the Variable Account at special meetings of the shareholders of the particular Trust in accordance with written instructions received from persons having the voting interest in the Variable Account. Lincoln Life will vote shares for which it has not received instructions, as well as shares attributable to it, in the same proportion as it 15 votes shares for which it has received instructions. The Trusts do not hold regular meetings of shareholders. Shareholder votes take place whenever state law or the 1940 Act so require, for example on certain elections of Board of Trustees, the initial approval of investment advisory contracts and changes in investment objectives and fundamental investment policies. The number of shares which a person has a right to vote will be determined as of a date to be chosen by Lincoln Life not more than sixty (60) days prior to the meeting of the particular Trust. Voting instructions will be solicited by written communication at least fourteen (14) days prior to the meeting. PREMIUM PAYMENTS AND CONTRACT VALUE PREMIUM PAYMENTS The Contracts may be purchased under a flexible premium payment plan. Premium Payments are payable in the frequency and in the amount selected by the Contract Owner. The initial Premium Payment is due on the Effective Date. It must be at least $2,000. Subsequent Premium Payments must be at least $100. These minimum amounts are not waived for Qualified Plans. Lincoln Life reserves the right to decline any application or order to purchase or Premium Payment. A Premium Payment in excess of $1 million requires preapproval by the Lincoln Life. Lincoln Life may, at its sole discretion, offer special premium payment programs and/or waive the minimum payment requirements. The Contract Owner may elect to increase, decrease or change the frequency of Premium Payments. If no Premium Payments have been made for three consecutive years and the Annuity Account Value decreases to less than $1,000 during that period, or if any partial withdrawal decreases the Annuity Account Value to less than $1,000, Lincoln Life reserves the right to cancel the Contract and pay the Owner an adjusted Annuity Account Value. Lincoln Life will provide the Owner at least 30 days advance notice of its intended action. During the notification period, the Owner may make an additional Premium Payment to meet the minimum value requirements and avoid cancellation of the Contract. ALLOCATION OF PREMIUM PAYMENTS Premium Payments are allocated to one or more of the appropriate Sub-Accounts within the Variable Account and Fixed Account as selected by the Contract Owner. For each Variable Account Sub-Account, the Premium Payments are converted into Accumulation Units. The number of Accumulation Units credited to the Contract is determined by dividing the Premium Payment allocated to the Sub-Account by the value of the Accumulation Unit for the Sub-Account. Lincoln Life will allocate the initial Premium Payment directly to the Sub-Account(s) selected by the Owner unless state law requires, during the right-to-examine period, a refund of Premium Payments rather than Annuity Account Value. In such cases, the initial Premium Payment will be allocated to the money market account until the right-to-examine period has expired. Transfers do not necessarily affect the allocation instructions for payments. Subsequent payments will be allocated as directed by the Owner; if no direction is given, the allocation will be that which has been most recently directed for payments by the Owner. The Owner may change the allocation of future payments without fee, penalty or other charge upon written notice to Lincoln Life's Administrative Office. A change will be effective for payments received on or after receipt of the notice of change. 16 Any Premium Payment at the time of any allocation may be allocated to a single or multiple sub-accounts in whole percentages (e.g., 12%). No allocation can be made which would result in a Variable Account Sub-Account of less than $50 or a Fixed Account Sub-Account value of less than $2,000. Further, at this time, no more than 18 Fixed Account and Variable Account Sub-Accounts may be opened during the life of the Contract. Lincoln Life may expand this number at a future date. Lincoln Life may, at its sole discretion, waive minimum premium allocation requirements or minimum Variable Account Sub-Account requirements. For initial Premium Payments, if the application for or order to purchase a Contract is in good order, Lincoln Life will apply the Premium Payment to the Variable Account and credit the Contract with Accumulation Units within two business days of receipt at the Accumulation Unit Value for the Valuation Period during which the Premium Payment is accepted unless state law requires, during the right-to-examine period, a refund of Premium Payments rather than Annuity Account Value. If the application or order to purchase for a Contract is not in good order, Lincoln Life will attempt to get it in good order or Lincoln Life will return the application or order to purchase and the Premium Payment within five business days. Lincoln Life will not retain a Premium Payment for more than five business days while processing an incomplete application or order to purchase unless it has been so authorized by the purchaser. For each subsequent Premium Payment, Lincoln Life will apply such payment to the Variable Account and credit the Contract with Accumulation Units at the Accumulation Unit Value for the Valuation Period during which each such payment was received in good order. OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS The Contract Owner may elect to enroll in either of the following programs. However, both programs cannot be in effect at the same time. DOLLAR COST AVERAGING Dollar Cost Averaging is a program which, if elected by the Contract Owner, systematically allocates specified dollar amounts from the Money Market Sub-Account or the One-Year Fixed Account Sub-Account to one or more of the Contract's Variable Account Sub-Accounts at regular intervals as selected by the Contract Owner. By allocating on a regularly scheduled basis as opposed to allocating the total amount at one particular time, an Owner may be less susceptible to the impact of market fluctuations. Dollar Cost Averaging may be selected by establishing a Money Market Sub-Account of at least $1,000 or a One-Year Fixed Account Sub-Account with a value of at least $2,000. The minimum amount per month to allocate is $50 (subject to the 18 Sub-Account limitation described under "Allocation of Premium Payments" above). Enrollment in this program may occur at any time by calling or writing Lincoln Life's Administrative Office or by providing the information requested on the Dollar Cost Averaging election form to Lincoln Life and ensuring that sufficient value is in the Money Market Sub-Account or the One-year Fixed Account Sub-Account. Transfers to any Fixed Account Sub-Account or from a Fixed Account Sub-Account other than the One-Year Fixed Account Sub-Account are not permitted under Dollar Cost Averaging. Lincoln Life may, at its sole discretion, waive Dollar Cost Averaging minimum deposit and transfer requirements. Dollar Cost Averaging will terminate when any of the following occurs: (1) the number of designated transfers has been completed; (2) the value of the Money Market Sub- 17 Account or the One-Year Fixed Sub-Account is insufficient to complete the next transfer; (3) the Owner requests termination by telephone or in writing and such request is received at least one week prior to the next scheduled transfer date to take effect that month; or (4) the Contract is surrendered. The Dollar Cost Averaging program is not available following the Annuity Date. There is no current charge for Dollar Cost Averaging but Lincoln Life reserves the right to charge for this program. Dollar Cost Averaging will not assure a profit or protect against a declining market. AUTOMATIC REBALANCING Automatic Rebalancing is an option which, if elected by the Contract Owner, periodically restores to a pre-determined level the percentage of Contract Value allocated to each Variable Account Sub-Account (e.g. 20% Money Market, 50% Growth, 30% Utilities). This pre-determined level will be the allocation initially selected when the Contract was purchased, unless subsequently changed. The Automatic Rebalancing allocation may be changed at any time by submitting a request to Lincoln Life. If Automatic Rebalancing is elected, all Net Premium Payments allocated to the Variable Account Sub-Accounts must be subject to Automatic Rebalancing. The Fixed Account Sub-Account is not available for Automatic Rebalancing. Automatic Rebalancing may take place on either a quarterly, semi-annual or annual basis, as selected by the Owner. Once the rebalancing option is activated, any Variable Account Sub-Account transfers executed outside of the rebalancing option will terminate the Automatic Rebalancing option. Any subsequent premium payment or withdrawal that modifies the net account balance within each Variable Account Sub-Account may also cause termination of the Automatic Rebalancing option. Any such termination will be confirmed to the Owner. The Owner may terminate the Automatic Rebalancing option or re-enroll at any time by calling or writing Lincoln Life's Administrative Office. The Automatic Rebalancing program is not available following the Annuity Date. There is no current charge for Automatic Rebalancing but Lincoln Life reserves the right to charge for this program. CONTRACT VALUE The value of the Contract is the sum of the values attributable to the Contract for each Fixed and Variable Sub-Account. The value of each Variable Sub-Account is determined by multiplying the number of Accumulation Units attributable to the Contract in the Sub-Account by the value of an Accumulation Unit for the Sub-Account. ACCUMULATION UNIT Premium Payments allocated to the Variable Account are converted into Accumulation Units. This is done by dividing each Premium Payment by the value of an Accumulation Unit for the Valuation Period during which the Premium Payment is allocated to the Variable Account. The Accumulation Unit value for each Sub-Account was or will be arbitrarily established at the inception of the Sub-Account. It may increase or decrease from Valuation Period to Valuation Period. The Accumulation Unit value for a Sub-Account for any later Valuation Period is determined as follows: (1)The total value of Fund shares held in the Sub-Account is calculated by multiplying the number of Fund shares owned by the Sub-Account at the beginning of the Valuation [Period] by the net asset value per share of the Fund at the end of the Valuation [Period], and adding any dividend or other distribution of the Fund if an ex-dividend date occurs during the Valuation Period; minus 18 (2)The liabilities of the Sub-Account at the end of the Valuation [Period]; such liabilities include daily charges imposed on the Sub-Account, and may include a charge or credit with respect to any taxes paid or reserved for by Lincoln Life that Lincoln Life determines result from the operations of the Variable Account; and (3)The result of (2) is divided by the number of Sub-Account units outstanding at the beginning of the Valuation [Period]. The daily charges imposed on a Sub-Account for any Valuation Period are equal to the daily mortality and expense risk charge and the daily administrative charge multiplied by the number of calendar days in the Valuation Period. CHARGES AND DEDUCTIONS Various charges and deductions are made from Annuity Account Values and the Variable Account. These charges and deductions are: CONTINGENT DEFERRED SALES CHARGE (SALES LOAD) Upon a partial withdrawal or full surrender, a Contingent Deferred Sales Charge (sales load) will be calculated and will be deducted from the Annuity Account Value. This Charge reimburses Lincoln Life for expenses incurred in connection with the promotion, sale and distribution of the Contracts. The Contingent Deferred Sales Charge applies only to those Premium Payments received within seven (7) years of the date of partial withdrawal or full surrender. In calculating the Contingent Deferred Sales Charge, Premium Payments are allocated to the amount surrendered or withdrawn on a first-in, first-out basis. After all Premium Payments have been deemed withdrawn, Lincoln Life will deem further withdrawals to be from net investment results. The amount of the Contingent Deferred Sales Charge is calculated by: (a) allocating Premium Payments to the amount withdrawn or surrendered; (b) multiplying each allocated Premium Payment that has been held under the Contract for the period shown below by the charge shown below:
YEARS SINCE PAYMENT CHARGE - ------------------ ------ 0-1 7% 1-2 7% 2-3 7% 3-4 6% 4-5 6% 5-6 5% 6-7 4% 7+ 0
and (c) adding the products of each multiplication in (b) above. The charge will not exceed 7% of the Premium Payments. Any applicable negative Market Value Adjustment and Account Fee will be deducted before application of the Contingent Deferred Sales Charge. The charge is not imposed on any death benefit paid or upon amounts applied to an annuity option. A Contract Owner may, during each Contract Year, withdraw up to fifteen percent (15%) of Premium Payments, or any remaining portion thereof, without incurring a Contingent Deferred Sales Charge. The earliest Premium Payments remaining in the Contract will be deemed withdrawn first under this Fifteen Percent Free provision. No Contingent Deferred Sales Charge will be deducted on withdrawals from Premium Payments which have been held under the Contract for more than seven (7) Contract Years or from annuity payments. Lincoln Life may also eliminate or reduce the Contingent Deferred Sales Charge under Lincoln Life procedures then in effect. 19 For a partial withdrawal, unless the Owner designates otherwise, the Contingent Deferred Sales Charge will be deducted proportionately from the Sub-Account(s) from which the withdrawal is to be made by cancelling Accumulation Units from each applicable Sub-Account in the ratio that the value of each Sub-Account bears to the total of the values of the Sub-Accounts from which the partial withdrawal is made. If the value(s) of such Sub-Account(s) are insufficient, remaining Contingent Deferred Sales Charges will be deducted on a pro rata basis from all Sub-Accounts in proportion to the then current account value(s) of such Sub-Accounts unless the Owner and Lincoln Life agree otherwise. Commissions of up to 7.00% will be paid to broker-dealers who sell the Contracts, and Lincoln Life will incur other promotional or distribution expenses associated with the marketing of the Contracts. To the extent that the Contingent Deferred Sales Charge is insufficient to cover the actual cost of distribution, Lincoln Life may use any of its corporate assets, including potential profit which may arise from the Mortality and Expense Risk Charge, to make up any difference. MORTALITY AND EXPENSE RISK CHARGE Lincoln Life deducts on each Valuation Date a Mortality and Expense Risk Charge which is equal, on an annual basis, to 1.25% of the average daily net assets of the Variable Account (consisting of approximately .75% for mortality risks and approximately .50% for expense risks). The mortality risks assumed by Lincoln Life arise from its contractual obligation to make annuity payments after the Annuity Date for the life of the Annuitant in accordance with annuity rates guaranteed in the Contract and to pay death benefits that may exceed the Annuity Account Value. The expense risk assumed by Lincoln Life is that all actual expenses involved in administering the Contracts, including Contract maintenance costs, administrative costs, mailing costs, data processing costs, legal fees, accounting fees, filing fees, and the costs of other services may exceed the amount recovered from the Account Fee and the Administrative Expense Charge, each of which is described below. If the Mortality and Expense Risk Charge is insufficient to cover the actual costs, the loss will be borne by Lincoln Life. Conversely, if the amount deducted proves more than sufficient, the excess will be a profit to Lincoln Life. Lincoln Life expects to profit from this charge. The Mortality and Expense Risk Charge is guaranteed by Lincoln Life and cannot be increased. ADMINISTRATIVE EXPENSE CHARGE Lincoln Life deducts on each Valuation Date an Administrative Expense Charge which is equal, on an annual basis, to 0.15% of the average daily net assets of the Variable Account. This charge is to reimburse Lincoln Life for a portion of its expenses in administering the Contracts. This charge is guaranteed by Lincoln Life and cannot be increased. ACCOUNT FEE Lincoln Life deducts an annual Account Fee of $35 from the Annuity Account Value on the last Valuation Date of each Contract Year. This charge, like the Administrative Expense Charge, is to reimburse Lincoln Life for its expenses in administering the Contracts. Prior to the Annuity Date, this charge is deducted by cancelling Accumulation Units from each applicable Sub-Account in the ratio that the value of each Sub-Account bears to the total Annuity Account Value. When the Contract is annuitized or surrendered for its full Surrender Value on other than a Contract Anniversary, the Account Fee will be prorated at the time of surrender or annuitization. On and after the Annuity Date, the 20 Account Fee will be collected proportionately from the Sub-Account(s) on which the Variable Annuity payment is based, prorated on a monthly basis and will result in a reduction of the annuity payments. The Account Fee will be waived for any Contract Year in which the Annuity Account Value equals or exceeds $100,000 as of the last Valuation Date of the Contract Year. PREMIUM TAX EQUIVALENTS Premium tax equivalents or other taxes payable to a state, municipality or other governmental entity will be charged against Annuity Account Value. Premium taxes currently imposed by certain states on the Contracts offered hereby range from 0% to 4.0% of Premiums paid. Some states assess premium taxes at the time Premium Payments are made; others assess premium taxes at the time annuity payments begin. Lincoln Life will, in its sole discretion, determine when taxes have resulted from: the investment experience of the Variable Account; receipt by Lincoln Life of the Premium Payment(s); or commencement of annuity payments. Lincoln Life may, at its sole discretion, pay taxes when due and deduct an equivalent amount reflecting investment experience from the Annuity Account Value at a later date. Payment at an earlier date does not waive any right Lincoln Life may have to deduct amounts at a later date. INCOME TAXES While Lincoln Life is not currently maintaining a provision for federal income taxes, Lincoln Life has reserved the right to establish a provision for income taxes if it determines, in its sole discretion, that it will incur a tax as a result of the operation of the Variable Account. Lincoln Life will deduct for any income taxes incurred by it as a result of the operation of the Variable Account whether or not there was a provision for taxes and whether or not it was sufficient. FUND EXPENSES There are other deductions from, and expenses paid out of, the assets of the Funds which are described in the accompanying Funds' prospectuses. TRANSFER FEE Prior to the Annuity Date, a Contract Owner may transfer all or a part of the Annuity Account Value in a Sub-Account to another Sub-Account without the imposition of any transfer fee or charge if there have been no more than twelve transfers made in the Contract Year. For additional transfers, Lincoln Life reserves the right to deduct a transfer fee of up to $10 per transfer. Prescheduled automatic Dollar Cost Averaging or Automatic Rebalancing transfers are not counted toward the twelve transfer limit. Lincoln Life reserves the right to charge a fee of up to $10 for each transfer after the Annuity Date. The transfer fee at any given time will not be set at a level greater than its cost and will contain no element of profit. DEATH BENEFITS DEATH BENEFITS PROVIDED BY THE CONTRACTS In the event of death of the Contract Owner (or the Annuitant, if the Owner is a non-natural person) prior to the Annuity Date, a death benefit is payable to the Beneficiary designated by the Owner upon due proof of death (a certified copy of the Death Certificate) of the Owner. If there is no designated Beneficiary, or contingent Beneficiary, Lincoln Life will, within seven (7) days of receipt of due proof of death of Owner, Beneficiary and contingent Beneficiary, pay the death benefit in one lump sum to the deceased Owner's estate. 21 If the death of any annuitant occurs on or after the Annuity Date, no death benefit will be payable under the Contract except as may be provided under the Annuity Option elected. AMOUNT OF DEATH BENEFIT The amount of the death benefit is determined as of the effective date or deemed effective date of the death benefit election (see "Election and Effective Date of Election"), and is equal to the greatest of -- (a) the Annuity Account Value for the Valuation Period during which the death benefit election is effective or deemed to become effective; (b) the sum of all the Premium Payments made under the Contract, less the sum of all partial withdrawals; or (c) the highest Annuity Account Value ever attained on a Contract Anniversary date occurring on or before the Owner's 80th birthday, with adjustments for any subsequent Premium Payments, partial withdrawals and charges made since such Contract Anniversary Date. On or after Owner's 90th birthday, the amount of the death benefit is the greater of (a) and (b) above. No Market Value Adjustment (see "Market Value Adjustment", page 33) or withdrawal charges are assessed against amounts which are applied toward payment of a death benefit. Upon a transfer of ownership, the death benefit becomes the greatest of -- (a) the Annuity Account Value for the Valuation Period during which the death benefit election is effective or deemed to become effective; (b) the sum of Premium Payments made less the sum of withdrawals made on or before the date of transfer, adjusted for any subsequent Premium Payments and partial withdrawals made under the Contract; or (c) the highest Annuity Account Value ever attained on a Contract Anniversary date subsequent to the date of transfer occurring on or before the new Owner's 80th birthday, with adjustments for any subsequent Premium Payments, partial withdrawals and charges made since such Contract Anniversary Date. On or after the then current Owner's 90th birthday, the amount of the death benefit is the greater of (a) and (b) above. ELECTION AND EFFECTIVE DATE OF ELECTION Unless specified in writing by the Owner the Beneficiary may, at any time before the end of the sixty (60) day period immediately following receipt of due proof of death by Lincoln Life, elect the death benefit to be paid as follows: 1. the payment of the entire death benefit on a specified date, which must be within five years of the date of the death of the Owner or Annuitant, whichever is applicable; or 2. payment over the lifetime of the designated Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary, with distribution beginning within one year of the date of death of the Owner or Annuitant, whichever is applicable (see "Annuity Provisions -- Annuity Options"); or 3. payment in accordance with one of the settlement options under the Contract (see "Annuity Provisions -- Annuity Options"); or 4. if the designated Beneficiary is the Owner's spouse, he/she can continue the Contract in his/her own name. 22 Payment amounts may vary with their frequency and duration (see "Annuity Provisions -- Annuity Options"). To the extent that the Beneficiary elects a variable payment option, the Beneficiary will bear the investment risk associated with the performance of the underlying Fund(s) in which the relevant Variable Sub-Account invest(s). Such election may be made by filing with Lincoln Life a statement in writing specifying the method by which the death benefit shall be paid and such election shall become effective on the later of (a) the date the election is received by Lincoln Life, and (b) the date due proof of death of the Owner is received by Lincoln Life. Payments will begin thirty (30) days after the effective date of the election. If no payment option is elected, a single sum settlement will be made by Lincoln Life within seven (7) days of the end of the sixty (60) day period following receipt of due proof of death of the Owner or Annuitant as applicable. If the Owner is a non-natural person, then for purposes of the death benefit, the Annuitant shall be treated as the Owner, except that in such case a change of annuitant would be treated as a death of the annuitant. DEATH OF THE ANNUITANT BEFORE THE ANNUITY DATE If the Annuitant dies prior to the Annuity Date and the Annuitant is different from the Contract Owner, the Contract Owner, if a natural person, may designate a new Annuitant. Unless and until one is designated, the Contract Owner will be the Annuitant. If the Contract Owner is not a natural person, then the death benefit, valued as described in "Amount of Death Benefit" but based on the Annuitant, is paid on due proof of the Annuitant's death. DEATH OF THE ANNUITANT AFTER THE ANNUITY DATE If the Annuitant dies after the Annuity Date, the death benefit, if any, will be as specified in the Annuity Option elected. Lincoln Life will require due proof of the Annuitant's death. Death benefits will be paid at least as rapidly as under the method of distribution in effect at the Annuitant's death. OTHER CONTRACT FEATURES OWNERSHIP The Contract Owner has all rights and may receive all benefits under the Contract. The Contract Owner may change the Contract Owner at any time. If the Contract Owner dies, a death benefit will be paid to the Beneficiary upon proof of the Contract Owner's death. If the Owner is a corporation, partnership or other non-natural person, the death benefit is paid upon receipt of due proof of the Annuitant's death. A change of Contract Owner will automatically revoke any prior designation of Contract Owner. A request for change must be: (1) made in writing; and (2) received by Lincoln Life at its Administrative Office. The change will become effective as of the date the written request is signed. A new designation of Contract Owner will not apply to any payment made or action taken by Lincoln Life prior to the time it was received. For non-qualified contracts, in accordance with Code Section 72(u), a deferred annuity contract held by a corporation or other entity that is not a natural person is not treated as an annuity contract for tax purposes. Income on the contract is treated as ordinary income received by the owner during the taxable year. But in accordance with Code Section 72(u), an annuity contract held by a trust or other entity as agent for a natural person is considered held by a natural person. 23 ASSIGNMENT The Contract Owner may assign the Contract at any time during his or her lifetime. Unless provided otherwise, an assignment will not affect the interest of any previously indicated Beneficiary. Lincoln Life will not be bound by any assignment until written notice is received by Lincoln Life at its Administrative Office. Lincoln Life is not responsible for the validity of any assignment. Lincoln Life will not be liable as to any payment or other settlement made by Lincoln Life before such assignment has been recorded at Lincoln Life's Administrative Office. If the Contract is issued pursuant to a Qualified Plan, it may not be assigned, pledged or otherwise transferred except as may be allowed under applicable law. BENEFICIARY The Beneficiary is named when the Contract is applied for and, unless changed, is entitled to receive any death benefits to be paid. Prior to the Annuity Date, death benefits are paid to the Beneficiary on the death of the Owner. CHANGE OF BENEFICIARY The Contract Owner may change a Beneficiary by filing a written request with Lincoln Life at its Administrative Office unless an irrevocable Beneficiary designation was previously filed. After the change is recorded, it will take effect as of the date the request was signed. If the request reaches the Lincoln Life's Administrative Office after the death of the Annuitant or Contract Owner, as applicable, but before any payment is made, the change will be valid. Lincoln Life will not be liable for any payment made or action taken before it records the change. ANNUITANT The Annuitant must be a natural person. The maximum age of the Annuitant on the date the Contract is issued is 90 years old. The Annuitant may be changed at any time prior to the Annuity Date unless the Contract is owned by a non-natural person. Joint Annuitants are allowed at the time of annuitization only, if Lincoln Life chooses to make a joint and survivor annuity payment option available in addition to the options provided in the Contract. The Annuitant has no rights or privileges prior to the Annuity Date. When an Annuity Option is elected, the amount payable as of the Annuity Date is based on the age and gender classification (in accordance with state law) of the Annuitant, as well as the Option selected and the Annuity Account Value. TRANSFER OF CONTRACT VALUES BETWEEN SUB-ACCOUNTS Prior to the Annuity Date, the Contract Owner may transfer all or part of the Annuity Account Value in a Sub-Account to another Sub-Account without the imposition of any fee or charge if there have been no more than twelve transfers made in the Contract Year. For additional transfers, Lincoln Life reserves the right to deduct a transfer fee of up to $10 (See "Charges and Deductions -- Transfer Fee"). This Contract is not designed for professional market timing organizations or other entities using programmed and frequent transfers. Repeated patterns of frequent transfers are disruptive to the operation of the Sub-Accounts, and should Lincoln Life become aware of such disruptive practices, Lincoln Life may refuse to permit more than 12 transfers in any year and may modify the transfer provisions of the Contract. 24 There may be limits on the amount that can be transferred from each Fixed Account Sub-Account during a Contract Year. After the Annuity Date, provided a variable annuity option was selected, the Contract Owner may make up to three transfers between Variable Sub-Accounts in any Contract Year. All transfers are subject to the following: a. The deduction of any transfer fee that may be imposed. The transfer fee will be deducted from the amount which is transferred if the entire amount in the Sub-Account is being transferred, otherwise from the Sub-Account from which the transfer is made. b. The minimum amount which may be transferred is the lesser of (i) $2,000 per Fixed Account Sub-Account or $50 per Variable Account Sub-Account; or (ii) the Contract Owner's entire interest in the Sub-Account. Lincoln Life, at its sole discretion may waive these minimum requirements. c. No partial transfer will be made if the Contract Owner's remaining Contract Value in Fixed Account Sub-Account will be less than $2,000 or in the Variable Sub-Account will be less than $50. d. Transfers involving Variable Account Sub-Accounts will reflect the purchase or cancellation of Variable Accumulation Units having an aggregate value equal to the dollar amount being transferred to or from a particular Variable Account Sub-Account. The purchase or cancellation of units shall be made using Variable Accumulation Unit Values of the applicable Variable Account Sub-Account at the end of the Valuation Period during which the transfer request is received in good order at Lincoln Life's Administrative Office. However, no transfer may be made effective within seven calendar days of the date on which the first annuity payment is due. Transfers are not permitted during the right-to-examine period. e. Any transfer request must clearly specify the amount which is to be transferred and the Sub-Accounts which are to be affected. f. Transfers of all or a portion of any Fixed Account Sub-Account values (other than transfers pursuant to the Dollar Cost Averaging program or at the end of a Guaranteed Period) are subject to any applicable Market Value Adjustment; g. Lincoln Life reserves the right to defer transfers from any Fixed Account Sub-Account for up to six months after date of receipt of the transfer request; h. Transfers involving the Variable Account Sub-Accounts are subject to such restrictions as may be imposed by the Funds; i. Lincoln Life reserves the right at any time and without prior notice to any party to terminate, suspend or modify the transfer privileges described above. j. After the Annuity Date, transfers may not take place between a Fixed Annuity Option and a Variable Annuity Option. k. Lincoln Life reserves the right to reject any premium allocation or transfer which would cause the Fixed Account Sub-Account values in aggregate to exceed then current Lincoln Life limits. Transfers between Sub-Accounts may be made by calling or writing Lincoln Life's Administrative Office. Transfer requests must be received prior to 4:00 Eastern Time in order to be effective that day. Transfers between any Sub-Accounts may be suspended or postponed during any period in which the New York Stock Exchange is closed or has suspended trading. PROCEDURES FOR TELEPHONE TRANSFERS Owners may effect telephone transfers by calling Lincoln Life's Administrative Office. 25 Lincoln Life will take the following procedures to confirm that instructions communicated by telephone are genuine. Before a service representative accepts any request, the caller will be asked for specific information to validate the request. All calls will be recorded. All transactions performed will be confirmed by Lincoln Life in writing. Lincoln Life is not liable for any loss, cost or expense for acting on telephone instructions which are believed to be genuine in accordance with these procedures. SURRENDERS AND PARTIAL WITHDRAWALS While the Contract is in force and before the Annuity Date, Lincoln Life will, upon written request to Lincoln Life by the Contract Owner, allow the surrender or partial withdrawal of all or a portion of the Contract for its Surrender Value. Surrenders or partial withdrawals will result in the cancellation of Accumulation Units from each applicable Sub-Account in the ratio that the value of each Sub-Account bears to the total Annuity Account Value, unless the Contract Owner specifies in writing in advance which units are to be cancelled. Lincoln Life will pay the amount of any surrender or partial withdrawal within seven (7) days of receipt of a valid request, unless the "Delay of Payments" provision is in effect. (See "Delay of Payments and Transfers") Certain tax withdrawal penalties and restrictions may apply to surrenders and partial withdrawals from Contracts. (See "Tax Matters.") Contract Owners should consult their own tax counsel or other tax adviser regarding any surrenders and partial withdrawals. The Surrender Value is the Annuity Account Value for the Valuation Period next following the Valuation Period during which the written request to Lincoln Life for surrender is received, reduced, in the case of full surrender, by the sum of: A. any applicable premium tax equivalents not previously deducted; B. any applicable Account Fee; and C. any applicable Contingent Deferred Sales Charge; and for partial withdrawals, by the sum of A and C above. DELAY OF PAYMENTS AND TRANSFERS Lincoln Life reserves the right to suspend or postpone payment of proceeds or transfers for any period when: 1. the New York Stock Exchange is closed (other than customary weekend and holiday closings); 2. trading on the New York Stock Exchange is restricted; 3. an emergency exists as a result of which disposal of securities held in the Variable Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Variable Account's net assets; or 4. during any other period when the Commission, by order, so permits for the protection of Contract Owners. The applicable rules and regulations of the Commission will govern as to whether the conditions described in 2. and 3. exist. Lincoln Life reserves the right to defer the payment or transfer of amounts withdrawn from any Fixed Account Sub-Account for a period not to exceed six months from the date written request for such withdrawal or transfer is received by Lincoln Life. If payment or transfer is deferred beyond thirty (30) days, Lincoln Life will pay interest of not less than 3% per year on amounts so deferred. In addition, payment of the amount of any withdrawal derived, all or in part, from any Premium Payment paid to Lincoln Life by check or draft may be postponed until Lincoln Life determines the check or draft has been honored. 26 CHANGE IN OPERATION OF VARIABLE ACCOUNT At Lincoln Life's election and subject to the approval of persons having voting rights under the Contracts, the Variable Account may be operated as a management company under the 1940 Act or any other form permitted by law; de-registered under the 1940 Act in the event registration is no longer required (deregistration of the Variable Account requires an order by the Commission); or combined with one or more other separate accounts. To the extent permitted by applicable law, Lincoln Life also may transfer the assets of the Variable Account associated with the Contracts to another account or accounts. In the event of any change in the operation of the Variable Account pursuant to this provision, Lincoln Life may make appropriate endorsement to the Contracts to reflect the change and take such other action as may be necessary and appropriate to effect the change. MODIFICATION Upon notice to the Owner (or the Payee(s) during the Annuity Period), the Contracts may be modified by Lincoln Life if such modification: (i) is necessary to make the Contracts or the Variable Account comply with, or take advantage of, any law or regulation issued by a governmental agency to which Lincoln Life or the Variable Account is subject; or (ii) is necessary to attempt to assure continued qualification of the Contracts under the Code or other federal or state laws relating to retirement annuities or annuity contracts; or (iii) is necessary to reflect a change in the operation of the Variable Account or its Sub-Account(s) (See "Change in Operation of Variable Account"); or (iv) provides additional Variable Account and/or fixed accumulation options. In the event of any such modification, Lincoln Life may make appropriate endorsement to the Contracts to reflect such modification. In addition, upon notice to the Owner, the Contracts may be modified by Lincoln Life to change the withdrawal charges, Account Fees, mortality and expense risk charges, administrative expense charges, the tables used in determining the amount of the first monthly fixed annuity payment, and the formula used to calculate the Market Value Adjustment, provided that such modification shall apply only to Contracts established after the effective date of such modification. In order to exercise its modification rights in these particular instances, Lincoln Life must notify the Owner of such modification in writing. All of the charges and the annuity tables which are provided in the Contracts prior to any such modification will remain in effect permanently, unless improved by Lincoln Life, with respect to Contracts established prior to the effective date of such modification. DISCONTINUANCE Lincoln Life reserves the right to limit or discontinue the offer and issuance of new Contracts. Such limitation or discontinuance shall have no effect on rights or benefits with respect to any Contracts issued prior to the effective date of such limitation or discontinuance. ANNUITY PROVISIONS ANNUITY DATE; CHANGE IN ANNUITY DATE AND ANNUITY OPTION The Contract Owner selects an Annuity Date at the time of application or order to purchase. The Contract Owner may, upon at least forty-five (45) days prior written notice to Lincoln Life, at any time prior to the Annuity Date, change the Annuity Date. The new Annuity Date must be at least 30 days after the effective date of the change. The Annuity Date must always be the first day of a calendar month. The Annuity Date may not be later than the month following the Annuitant's 90th birthday. 27 The Contract Owner may, upon at least forty-five (45) days prior written notice to Lincoln Life, at any time prior to the Annuity Date, select and/or change the Annuity Option. The first payment under the Annuity Option selected will be made on the first day of the month following the Annuity Date. PENALTY-FREE ANNUITIZATION At any time the Owner may request in writing payment of the then current Annuity Account Value in accordance with any one of the settlement options set forth in the Contract. In such event, no Contingent Deferred Sales Charge or Market Value Adjustment will be imposed at the time such settlement is made. Such annuitization will automatically result in a change in the Annuity Date to the date payments commence under the settlement option elected. ANNUITY OPTIONS Instead of having the proceeds paid in one sum, the Contract Owner may select one of the Annuity Options. These may be on a fixed or variable basis, or a combination thereof. However, if the amount to be applied under any settlement option is less than $5,000, or if the first payment payable in accordance with such option is less than $50, Lincoln Life reserves the right to pay the adjusted value in a single payment to the payee designated by the Owner. If the Annuity Option elected results in a payment less than the minimum payment amount determined by Lincoln Life, Lincoln Life reserves the right to change the frequency of payments to an interval that will provide the minimum payment amount. The Annuity Option must be selected at least 30 days prior to the Annuity Date. If no such selection is made, the adjusted Annuity Account Value will be applied under a life Annuity with 120 months guaranteed. In such situation, the adjusted Annuity Account Value on the Annuity Date will be applied to either a fixed option or a variable option in proportion to the Annuity Account Value in the Fixed Account or the Sub-Accounts, respectively, on the Annuity Date. Lincoln Life may, at the time of election of an Annuity Option, offer more favorable rates in lieu of those guaranteed. Lincoln Life also may make available other settlement options. Lincoln Life uses sex distinct or unisex annuity rate tables when determining appropriate annuity payments. FIXED OPTIONS Under a fixed option, once the selection has been made and payments have begun, the amount of the payments will not vary. The fixed options currently available are: FIRST OPTION -- LIFE ANNUITY. Lincoln Life will make equal monthly payments during the life of the Annuitant, ceasing with the last payment due prior to the death of the Annuitant. SECOND OPTION -- LIFE ANNUITY WITH CERTAIN PERIOD. Lincoln Life will make equal monthly payments during the life of the Annuitant, but at least for the minimum period shown in the annuity tables contained in the Contract. The amount of each monthly payment per $1,000 of proceeds is based on the age and gender classification (in accordance with state law) of the Annuitant when the first payment is made and on the minimum period chosen. THIRD OPTION -- LIFE ANNUITY WITH CASH REFUND. Lincoln Life will make equal monthly payments during the life of the Annuitant. Upon the death of the Annuitant, after payments have started, Lincoln Life will pay in one sum any excess of the amount of the proceeds applied under this Option over the total of all payments made under this Option. The amount of each monthly payment per $1,000 of proceeds is based on the age and gender (in accordance with state law) of the Annuitant when the first payment is made. 28 FOURTH OPTION -- ANNUITY CERTAIN. Lincoln Life will make equal monthly payments for a number of years selected, not less than five or more than thirty years. VARIABLE OPTIONS The actual dollar amount of variable annuity payments is dependent upon (i) the Annuity Account Value at the time of annuitization, (ii) the annuity table specified in the Contract, (iii) the Annuity Option selected, and (iv) the investment performance of the Sub-Account selected. Each annuity payment will be less if payments are to be made more frequently or for longer periods of time. The mortality and expense risk charge will be assessed on all variable annuity payments, including options that do not have a life contingency and therefore no mortality risk. The dollar amount of the first monthly variable annuity payment is determined by applying the available value (after deduction of any premium tax equivalents not previously deducted) to the table using the age and gender (in accordance with state law) of the Annuitant. The number of Annuity Units is then determined by dividing this dollar amount by the then current Annuity Unit value. Thereafter, the number of Annuity Units remains unchanged during the period of annuity payments. This determination is made separately for each Sub-Account of the Variable Account. The number of Annuity Units is determined for each Sub-Account and is based upon the available value in each Sub-Account as of the date annuity payments are to begin. The dollar amount determined for each Sub-Account will then be aggregated for purposes of making payments. The dollar amount of the second and later variable annuity payments is equal to the number of Annuity Units determined for each Sub-Account times the Annuity Unit value for that Sub-Account as of the due date of the payment. This amount may increase or decrease from month to month. The annuity tables contained in the Contract are based on a three percent (3%) assumed net investment rate. If the actual net investment rate exceeds three percent (3%), payments will increase. Conversely, if the actual rate is less than three percent (3%), annuity payments will decrease. The Annuitant receives the value of a fixed number of Annuity Units each month. The value of a fixed number of Annuity Units will reflect the investment performance of the Sub-Account selected and the amount of each annuity payment will vary accordingly. The Annuity Unit Value for a Sub-Account is determined by multiplying the Annuity Unit Value for that Sub-Account for the preceding Valuation Period by the Net Investment Factor for the current Valuation Period (calculated as described on pages 19 and 20 of this Prospectus) and multiplying the result by 0.999919020, the daily factor to neutralize the assumed net investment rate, discussed above, of 3% per annum which is built into the annuity rate table. It may increase or decrease from Valuation Period to Valuation Period. The variable options currently available are: OPTION I -- VARIABLE LIFE ANNUITY. Monthly annuity payments are paid during the life of an Annuitant, ceasing with the last annuity payment due prior to the Annuitant's death. OPTION II -- VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. Monthly annuity payments are paid during the life of an Annuitant, but at least for the minimum period selected, which may be five, ten, fifteen or twenty years; OPTION III -- VARIABLE ANNUITY CERTAIN. Monthly annuity payments are paid for a number of years selected, not less than five or more than thirty years. 29 After the Annuity Date, the payee may, by written request to Lincoln Life's Administrative Office, exchange Annuity Units of one Variable Sub-Account for Annuity Units of equivalent value in another Variable Sub-Account up to three times each Contract Year. EVIDENCE OF SURVIVAL Lincoln Life reserves the right to require evidence of the survival of any Payee at the time any payment payable to such Payee is due under the following Annuity Options: Life Annuity (fixed), Life Annuity with Certain Period (fixed), Cash Refund Life Annuity (fixed), Variable Life Annuity, and Variable Life Annuity with Certain Period. ENDORSEMENT OF ANNUITY PAYMENTS Lincoln Life will make each annuity payment at its Home Office by check. Each check must be personally endorsed by the Payee or Lincoln Life may require that proof of the Annuitant's survival be furnished. THE FIXED ACCOUNT THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF LINCOLN LIFE OTHER THAN THOSE ALLOCATED TO ANY SEPARATE ACCOUNT. THE FIXED ACCOUNT IS PART OF LINCOLN LIFE'S GENERAL ACCOUNT. BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), AND NEITHER THE FIXED ACCOUNT NOR LINCOLN LIFE'S GENERAL ACCOUNT HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT"). THEREFORE, NEITHER THE FIXED ACCOUNT NOR ANY INTEREST THEREIN IS GENERALLY SUBJECT TO REGULATION UNDER THE PROVISIONS OF THE 1933 ACT OR THE 1940 ACT. ACCORDINGLY, LINCOLN LIFE HAS BEEN ADVISED THAT THE STAFF OF THE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. The initial Premium Payment and any subsequent Premium Payment(s) will be allocated to Sub-Accounts available in connection with the Fixed Account to the extent elected by the Owner at the time such Premium Payment is made. In addition, all or part of the Owner's Annuity Account Value may be transferred among Sub-Accounts available under the Contract as described under "Transfer of Contract Values between Sub-Accounts." Instead of the Owner's assuming all of the investment risk as is the case for Premium Payments allocated to the Variable Account, Lincoln Life guarantees it will credit interest of at least 3% per year to amounts allocated to the Fixed Account. Assets supporting amounts allocated to Sub-Accounts within the Fixed Account become part of Lincoln Life's general account assets and are available to fund the claims of all creditors of Lincoln Life. All of Lincoln Life's general account assets will be available to fund benefits under the Contracts. The Owner does not participate in the investment performance of the assets of the Fixed Account or Lincoln Life's general account. Lincoln Life will invest the assets of the general account in those assets chosen by Lincoln Life and allowed by applicable state laws regarding the nature and quality of investments that may be made by life insurance companies and the percentage of their assets that may be committed to any particular type of investment. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks, real estate mortgages, real estate and certain other investments. If the Account Value within a Fixed Account Sub-Account is maintained for the duration of the Sub-Account's Guaranteed Period, Lincoln Life guarantees that it will credit interest to that amount at the guaranteed rate specified for the Sub-Account which may but need not be more than 3% per year. Any amount withdrawn from or transferred out 30 of the Sub-Account prior to the expiration of the Sub-Account's Guaranteed Period is subject to a Market Value Adjustment (see "Market Value Adjustment") and a Deferred Sales Charge, if applicable. Lincoln Life guarantees, however, that a Contract will be credited with interest at a rate of not less than 3% per year, compounded annually, on amounts allocated to any Fixed Account Sub-Account, regardless of any application of the Market Value Adjustment (that is, the Market Value Adjustment will not reduce the amount available for surrender, withdrawal or transfer to an amount less than the initial amount allocated or transferred to the Fixed Account Sub-Account plus interest of 3% per year). Lincoln Life reserves the right to defer the payment or transfer of amounts withdrawn from the Fixed Account for a period not to exceed six (6) months from the date a proper request for surrender, withdrawal or transfer is received by Lincoln Life. FIXED ACCUMULATION VALUE. The fixed accumulation value of an Annuity Account, if any, for any Valuation Period is equal to the sum of the values of all Fixed Account Sub-Accounts which are part of the Annuity Account for such Valuation Period. GUARANTEED PERIODS. The Owner may elect to allocate Premium Payments to one or more Sub-Accounts within the Fixed Account. Currently, each Sub-Account maintains a Guaranteed Period with a duration of one, five or ten years. Every Premium Payment allocated to a Fixed Account Sub-Account starts a new Sub-Account with its own duration and Guaranteed Interest Rate. The duration of the Guaranteed Period will affect the Guaranteed Interest Rate of the Sub-Account. Initial Premium Payments and subsequent Premium Payments, or portions thereof, and transferred amounts allocated to a Fixed Account Sub-Account, less any amounts subsequently withdrawn, will earn interest at the Guaranteed Interest Rate during the particular Sub-Account's Guaranteed Period unless prematurely withdrawn prior to the end of the Guaranteed Period. Initial Sub-Account Guaranteed Periods begin on the date a Premium Payment is accepted or, in the case of a transfer, on the effective date of the transfer, and end on the date after the number of calendar years in the Sub-Account's Guaranteed Period elected from the date on which the amount was allocated to the Sub-Account (the "Expiration Date"). Any portion of Annuity Account Value allocated to a specific Sub-Account with a specified Expiration Date (including interest earned thereon) will be referred to herein as a "Guaranteed Period Amount." Interest will be credited daily at a rate equivalent to the compound annual rate determined on the first day of the Sub-Account Guaranteed Period. As a result of renewals and transfers of portions of the Annuity Account Value described under "Transfer of Contract Values between Sub-Accounts" above, which will begin new Sub-Account Guaranteed Periods, amounts allocated to Sub-Accounts of the same duration may have different Expiration Dates. Thus each Guaranteed Period Amount will be treated separately for purposes of determining any applicable Market Value Adjustment (see "Market Value Adjustment"). Lincoln Life will notify the Owner in writing at least 60 days prior to the Expiration Date for any Guaranteed Period Amount. A new Sub-Account Guaranteed Period of the same duration as the previous Sub-Account Guaranteed Period will commence automatically at the end of the previous Guaranteed Period unless Lincoln Life receives, following such notification but prior to the end of such Guaranteed Period, a written election by the Owner to transfer the Guaranteed Period Amount to a different Fixed Account Sub-Account or to a Variable Account Sub-Account from among those being offered by Lincoln Life at such time. Transfers of any Guaranteed Period Amount which become effective upon the expiration of the applicable Guaranteed Period are not subject to the twelve transfers per Contract Year limitations or the additional Fixed Sub-Account transfer restrictions (see "Transfer of Contract Values between Sub-Accounts"). GUARANTEED INTEREST RATES. Lincoln Life periodically will establish an applicable Guaranteed Interest Rate for each of the Sub-Account Guaranteed Periods within the Fixed Account. Current Guaranteed Interest Rates may be changed by Lincoln Life 31 frequently or infrequently depending on interest rates on investments available to Lincoln Life and other factors as described below, but once established, rates will be guaranteed for the entire duration of the respective Sub-Account's Guaranteed Period. However, any amount withdrawn from the Sub-Account may be subject to any applicable withdrawal charges, Account Fees, Market Value Adjustment, premium taxes or other fees. Amounts transferred out of a Fixed Account Sub-Account prior to the end of the Guaranteed Period will be subject to the Market Value Adjustment. The Guaranteed Interest Rate will not be less than 3% per year compounded annually, regardless of any application of the Market Value Adjustment. Lincoln Life has no specific formula for determining the rate of interest that it will declare as a Guaranteed Interest Rate, as these rates will be reflective of interest rates available on the types of debt instruments in which Lincoln Life intends to invest amounts allocated to the Fixed Account (see "The Fixed Account"). In addition, Lincoln Life's management may consider other factors in determining Guaranteed Interest Rates for a particular Sub-Account including: regulatory and tax requirements; sales commissions and administrative expenses borne by Lincoln Life; general economic trends; and competitive factors. THERE IS NO OBLIGATION TO DECLARE A RATE IN EXCESS OF 3% PER YEAR; THE OWNER ASSUMES THE RISK THAT DECLARED RATES WILL NOT EXCEED 3% PER YEAR. LINCOLN LIFE HAS COMPLETE DISCRETION TO DECLARE ANY RATE, SO LONG AS THAT RATE IS AT LEAST 3% PER YEAR. MARKET VALUE ADJUSTMENT Any surrender or transfer of a Fixed Account Guaranteed Period Amount, other than a surrender or transfer pursuant to an election which becomes effective upon the Expiration Date of the Guaranteed Period, will be subject to a Market Value Adjustment ("MVA"). The MVA will be applied to the amount being surrendered or transferred after deduction of any applicable Annuity Account Fee and before deduction of any applicable surrender charge. The MVA generally reflects the relationship between the Index Rate (based upon the Treasury Constant Maturity Series published by the Federal Reserve) in effect at the time a Premium Payment is allocated to a Sub-Account's Guaranteed Period under the Contract and the Index Rate in effect at the time of the Premium Payment's surrender or transfer. It also reflects the time remaining in the Sub-Account's Guaranteed Period. Generally, if the Index Rate at the time of surrender or transfer is lower than the Index Rate at the time the Premium Payment was allocated, then the application of the MVA will result in a higher payment upon surrender or transfer. Similarly, if the Index Rate at the time of surrender or transfer is higher than the Index Rate at the time the Premium Payment was allocated, the application of the MVA will generally result in a lower payment upon surrender or transfer. 32 The MVA is computed by applying the following formula: (1+A)to the power N ------------------ (1+B)to the power N where: A = an Index Rate (based on the Treasury Constant Maturity Series published by the Federal Reserve) for a security with time to maturity equal to the Sub-Account's Guaranteed Period, determined at the beginning of the Guaranteed Period. B = an Index Rate (based on the Treasury Constant Maturity Series published by the Federal Reserve) for a security with time to maturity equal to the Sub-Account's Guaranteed Period, determined at the time of surrender or transfer, plus a 0.50% adjustment (unless otherwise limited by applicable state law). If Index Rates "A" and "B" are within .25% of each other when the index rate factor is determined, no such percentage adjustment to "B" will be made, unless otherwise required by state law. This adjustment builds into the formula a factor representing direct and indirect costs to Lincoln Life associated with liquidating general account assets in order to satisfy surrender requests. This adjustment of 0.50% has been added to the denominator of the formula because it is anticipated that a substantial portion of applicable general account portfolio assets will be in relatively illiquid securities. Thus, in addition to direct transaction costs, if such securities must be sold (E.G., because of surrenders), the market price may be lower. Accordingly, even if interest rates decline, there will not be a positive adjustment until this factor is overcome, and then any adjustment will be lower than otherwise, to compensate for this factor. Similarly, if interest rates rise, any negative adjustment will be greater than otherwise, to compensate for this factor. If interest rates stay the same, this factor will result in a small but negative Market Value Adjustment. N = The number of years remaining in the Guaranteed Period (E.G. 1 year and 73 days = 1 + (73 divided by 365) = 1.2 years) Straight-Line interpolation is used for periods to maturity not quoted. See the Statement of Additional information for examples of the application of the Market Value Adjustment. DISTRIBUTION OF THE CONTRACTS Lincoln Life is the distributor of the Contracts. The Contracts will be sold by our registered representatives who have been licensed by state insurance departments. The Contracts may also be sold by independent broker-dealers who have been licensed by state insurance departments to represent us and who have selling agreements with us. Lincoln Life is registered with the Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers (NASD). We will offer the Contracts in all states where we are licensed to do business and in which the Contracts are approved. PERFORMANCE DATA MONEY MARKET SUB-ACCOUNT From time to time, the Money Market Sub-Account may advertise its "yield" and "effective yield." Both yield figures will be based on historical earnings and are not intended to indicate future performance. The "yield" of the Money Market Sub-Account refers to the income generated by Annuity Account Values in the Money Market Sub-Account over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the 33 investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the Annuity Account Values in the Money Market Sub-Account. The "effective yield" is calculated similarly but, when annualized, the income earned by Annuity Account Values in the Money Market Sub-Account is assumed to be reinvested. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. The computation of the yield calculation includes a deduction for the Mortality and Expense Risk Charge, the Administrative Expense Charge, and the Account Fee. OTHER VARIABLE ACCOUNT SUB-ACCOUNTS From time to time, the other Variable Account Sub-Accounts may publish their current yields and total returns in advertisements and communications to Contract Owners. The current yield for each Variable Account Sub-Account will be calculated by dividing the annualization of the dividend and interest income earned by the underlying Fund during a recent 30-day period by the maximum Accumulation Unit value at the end of such period. Total return information will include the underlying Fund's average annual compounded rate of return over the most recent four calendar quarters and the period from the underlying Fund's inception of operations, based upon the value of the Accumulation Units acquired through a hypothetical $1,000 investment at the Accumulation Unit value at the beginning of the specified period and upon the value of the Accumulation Unit at the end of such period, assuming reinvestment of all distributions and the deduction of the Mortality and Expense Risk Charge, the Administrative Expense Charge and the Annuity Account Fee. Each Variable Account Sub-Account may also advertise aggregate and average total return information over different periods of time. In each case, the yield and total return figures will reflect all recurring charges against the Variable Account Sub-Account's income, including the deduction for the Mortality and Expense Risk Charge, the Administrative Expense Charge and the Account Fee for the applicable time period. Contract Owners should note that the investment results of each Sub-Account will fluctuate over time, and any presentation of a Variable Account Sub-Account's current yield or total return for any prior period should not be considered as a representation of what an investment may earn or what a Contract Owner's yield or total return may be in any future period. See "Historical Performance Data" in the Statement of Additional Information. PERFORMANCE RANKING OR RATING The performance of each or all of the Sub-Accounts of the Variable Account may sometimes be published and compared to the performance of other variable annuity issuers in general or to the performance of particular types of variable annuities investing in funds, or series of funds with investment objectives similar to each of the Sub-Accounts of the Variable Account. Lipper Analytical Services, Inc. ("Lipper") Morningstar Variable Annuity/Life Performance Report of Morningstar, Inc. ("Morningstar") and the Variable Annuity Research and Data Service ("VARDS-Registered Trademark-") are independent services which monitor and rank or rate the performance of variable annuity issuers in each of the major categories of investment objectives on an industry-wide basis. Generally, these services may not be used, and such comparisons may not be made, in advertising or sales literature for variable annuities. Lipper's rankings include variable life issuers as well as variable annuity issuers. VARDS-Registered Trademark- rankings compare only variable annuity issuers. Morningstar ratings include funds used by both variable life and variable annuity issuers. The performance analyses prepared by Lipper and VARDS-Registered Trademark- rank such issuers on the basis of total return, 34 assuming reinvestment of distributions, but do not take sales charges, redemption fees or certain expense deductions at the separate account level into consideration. In addition, VARDS-Registered Trademark- prepares risk-adjusted rankings, which consider the effects of market risk on total return performance. This type of ranking may address the question as to which funds provide the highest total return with the least amount of risk. Morningstar assigns ratings of zero to five stars to the mutual funds taking into account primarily historical performance and risk factors. TAX MATTERS NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON LINCOLN LIFE'S UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. LINCOLN LIFE CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE. OWNERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY OF SUCH CHANGES. LINCOLN LIFE DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS. OWNERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. GENERAL Section 72 of the Code governs taxation of annuities in general. A Contract Owner is not taxed on increases in the value of a Contract until distribution occurs, either in the form of a lump sum payment or as annuity payments under the Settlement Option elected. For a lump sum payment received as a total surrender (total redemption), the recipient is taxed on the portion of the payment that exceeds the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is generally the Premium Payments, while for Qualified Contracts there may be no cost basis. The taxable portion of the lump sum payment is taxed at ordinary income tax rates. For annuity payments, the taxable portion is determined by a formula which establishes the ratio that the cost basis of the Contract bears to the total value of annuity payments for the term of the Contract. The taxable portion is taxed at ordinary income rates. For certain types of Qualified Plans there may be no cost basis in the Contract within the meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries under the Contracts should seek competent financial advice about the tax consequences of any distributions. Lincoln Life is taxed as a life insurance company under Subchapter L of the Code. For federal income tax purposes, the Variable Account is not a separate entity from Lincoln Life, and its operations form a part of Lincoln Life. Accordingly, the Variable Account will not be taxed separately as a "regulated investment company" under Subchapter M of the Code. Lincoln Life does not expect to incur any federal income tax liability with respect to investment income and net capital gains arising from the activities of the Variable Account retained as part of the reserves under the Contract. Based on this expectation, it is anticipated that no charges will be made against the Variable Account for federal income taxes. If, in future years, any federal income taxes or other economic burden are incurred by Lincoln Life with respect to the Variable Account or the Contracts, Lincoln Life may make a charge for any such amounts that are attributable to the Variable Account. DIVERSIFICATION Section 817(h) of the Code imposes certain diversification standards on the underlying assets of variable annuity contracts. The Code provides that a variable annuity contract will not be treated as an annuity contract for any period (and any subsequent period) for which the investments are not adequately diversified in accordance with regulations prescribed by the United States Treasury Department ("Treasury Department"). 35 Disqualification of the Contract as an annuity contract would result in imposition of federal income tax to the Contract Owner with respect to earnings allocable to the Contract prior to the receipt of payments under the Contract. The Code contains a safe harbor provision which provides that annuity contracts such as the Contracts meet the diversification requirements if, as of the end of each quarter, the underlying assets meet the diversification standards for a regulated investment company and no more than fifty-five percent (55%) of the total assets consist of cash, cash items, U.S. government securities and securities of other regulated investment companies. The Treasury Department issued regulations (Treas. Reg. 1.817-5) which established diversification requirements for the investment portfolios underlying variable contracts such as the Contracts. The regulations amplify the diversification requirements for variable contracts set forth in the Code and provide an alternative to the safe harbor provision described above. Under the regulations, an investment portfolio will be deemed adequately diversified if: (1) no more than 55% of the value of the total assets of the portfolio is represented by any one investment; (2) no more than 70% of the value of the total assets of the portfolio is represented by any two investments; (3) no more than 80% of the value of the total assets of the portfolio is represented by any three investments; and (4) no more than 90% of the value of the total assets of the portfolio is represented by any four investments. The Code provides that for purposes of determining whether or not the diversification standards imposed on the underlying assets of variable contracts by Section 817(h) of the Code have been met, "each United States government agency or instrumentality shall be treated as a separate issuer." Lincoln Life intends, and the Trusts have undertaken, that all Funds underlying the Contracts will be managed in such a manner as to comply with these diversification requirements. The Treasury Department has indicated that guidelines may be forthcoming under which a variable annuity contract will not be treated as an annuity contract for tax purposes if the owner of the contract has excessive control over the investments underlying the contract (i.e., by being able to transfer values among sub-accounts with only limited restrictions). The issuance of such guidelines may require Lincoln Life to impose limitations on a Contract Owner's right to control the investment. It is not known whether any such guidelines would have a retroactive effect. DISTRIBUTION REQUIREMENTS Section 72(s) of the Code requires that in order to be treated as an annuity contract for Federal income tax purposes, any Nonqualified Contract must provide that (a) if any Owner dies on or after the Annuity Date but prior to the time the entire interest in the Contract has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used when the Owner died; and (b) if any Owner dies prior to the Annuity Date, the entire interest in the Contract will be distributed within five years after such death. These requirements will be considered satisfied as to any portion of the Owner's interest which is payable to or for the benefit of a "designated beneficiary" and which is distributed over the life of such "designated beneficiary" or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of the Owner's death. The Owner's "designated beneficiary" is the person designated by such Owner as a Beneficiary and to whom ownership of the Contract passes by reason of death and must be a natural person. However, if the Owner's "designated beneficiary" is the surviving spouse of the Owner, the Contract may be continued with the surviving spouse as the new Owner. 36 The Contracts contain provisions which are intended to comply with the requirements of Section 72(s) of the Code, although no regulations interpreting these requirements have yet been issued. Lincoln Life intends to review such provisions and modify them if necessary to try to assure that they comply with the Section 72(s) requirements when clarified by regulation or otherwise. Similar rules may apply to a Qualified Contract. MULTIPLE CONTRACTS The Code provides that multiple non-qualified annuity contracts which are issued during a calendar year to the same contract owner by one company or its affiliates are treated as one annuity contract for purposes of determining the tax consequences of any distribution. Such treatment may result in adverse tax consequences, including more rapid taxation of the distributed amounts from such combination of contracts. Contract Owners should consult a tax adviser prior to purchasing more than one nonqualified annuity contract in any single calendar year. TAX TREATMENT OF ASSIGNMENTS An assignment or pledge of a Contract may be a taxable event. Contract Owners should therefore consult competent tax advisers should they wish to assign their Contracts. WITHHOLDING Withholding of federal income taxes on the taxable portion of all distributions may be required unless the recipient elects not to have any such amounts withheld and properly notifies Lincoln Life of that election. Different rules may apply to United States citizens or expatriates living abroad. Withholding is mandatory for certain distributions from Qualified Contracts. In addition, some states have enacted legislation requiring withholding. SECTION 1035 EXCHANGES Code Section 1035 generally provides that no gain or loss shall be recognized on the exchange of one annuity contract for another. If the surrendered contract was issued prior to August 14, 1982, the tax rules that formerly provided that the surrender was taxable only to the extent the amount received exceeds the owner's investment in the contract will continue to apply to amounts allocable to investment in the contract before August 14, 1982. Special rules and procedures apply to Code Section 1035 transactions. Prospective purchasers wishing to take advantage of Code Section 1035 should consult their tax advisers. TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS Section 72 of the Code governs the treatment of distributions from annuity contracts. It provides that if the Annuity Account Value exceeds the aggregate Premium Payments made, any amount withdrawn will be treated as coming first from the earnings and then, only after the income portion is exhausted, as coming from the principal. Withdrawn earnings are includable in gross income. It further provides that a ten percent (10%) penalty will apply to the income portion of any premature distribution. However, the penalty is not imposed on amounts received: (a) after the Payee reaches age 59 1/2; (b) after the death of the Contract Owner (or, if the Contract Owner is a non-natural person, the Annuitant); (c) if the Payee is totally disabled (for this purpose disability is as defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal periodic payments made not less frequently than annually for the life (or life expectancy) 37 of the Payee or for the joint lives (or joint life expectancies) of the Payee and his/her beneficiary; (e) under an immediate annuity; or (f) which are allocable to Premium Payments made prior to August 14, 1982. The above information does not apply, except where noted, to Qualified Contracts. However, separate tax withdrawal penalties and restrictions may apply to such Qualified Contracts. (See "Tax Treatment of Withdrawals -- Qualified Contracts.") QUALIFIED PLANS The Contracts offered by this Prospectus are designed to be suitable for use under various types of Qualified Plans. Because of the minimum purchase payment requirements, these Contracts may not be appropriate for some periodic payment retirement plans. Taxation of participants in each Qualified Plan varies with the type of plan and terms and conditions of each specific plan. Contract Owners, Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan may be subject to the terms and conditions of the plan regardless of the terms and conditions of the Contracts issued pursuant to the plan. Although Lincoln Life provides administration for the Contract, it does not provide administrative support for Qualified Plans. Following are general descriptions of the types of Qualified Plans with which the Contracts may be used. Such descriptions are not exhaustive and are for general informational purposes only. The tax rules regarding Qualified Plans are very complex and will have differing applications, depending on individual facts and circumstances. Each purchaser should obtain competent tax advice prior to purchasing a Contract issued in connection with a Qualified Plan. Special favorable tax treatment may be available for certain types of contributions and distributions (including special rules for certain lump sum distributions). Adverse tax consequences may result from contributions in excess of specified limits, distributions prior to age 59 1/2 (subject to certain exceptions), distributions that do not conform to specified minimum distribution rules, aggregate distributions in excess of a specified annual amount, and in certain other circumstances. Therefore, Lincoln Life makes no attempt to provide more than general information about use of the Contract with the various types of qualified plans. Purchasers and participants under qualified plans as well as Annuitants, Payees and Beneficiaries are cautioned that the rights of any person to any benefits under qualified plans may be subject to the terms and conditions of the plan themselves, regardless of the terms and conditions of the Contract issued in connection therewith. SECTION 403(b) Plans Under Section 403(b) of the Code, payments made by public school systems and certain tax exempt organizations to purchase annuity policies for their employees are excludable from the gross income of the employee, subject to certain limitations. However, such payments may be subject to FICA (Social Security) taxes. Additionally, in accordance with the requirements of the Code, Section 403(b) annuities generally may not permit distribution of (i) elective contributions made in years beginning after December 31, 1988, and (ii) earnings on those contributions and (iii) earnings on amounts attributed to elective contributions held as of the end of the last year beginning before January 1, 1989. Distributions of such amounts will be allowed only upon the death of the employee, on or after attainment of age 59 1/2, separation from service, disability, or financial hardship, except that income attributable to elective contributions may not be distributed in the case of hardship. 38 INDIVIDUAL RETIREMENT ANNUITIES Sections 219 and 408 of the Code permit individuals or their employers to contribute to an individual retirement program known as an "Individual Retirement Annuity" or an "IRA". Individual Retirement Annuities are subject to limitation on the amount which may be contributed and deducted and the time when distributions may commence. In addition, distributions from certain other types of qualified plans may be placed into an Individual Retirement Annuity on a tax-deferred basis. CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS Section 401(a) and 403(a) of the Code permit corporate employers to establish various types of retirement plans for employees and self-employed individuals to establish qualified plans for themselves and their employees. Such retirement plans may permit the purchase of the Contracts to provide benefits under the plans. DEFERRED COMPENSATION PLANS Section 457 of the Code, while not actually providing for a qualified plan as that term is normally used, provides for certain deferred compensation plans with respect to service for state governments, local governments, political sub-divisions, agencies, instrumentalities and certain affiliates of such entities and tax exempt organizations which enjoy special treatment. The Contracts can be used with such plans. Under such plans a participant may specify the form of investment in which his or her participation will be made. All such investments of a nongovernmental organization, however, are owned by, and are subject to, the claims of the general creditors of the sponsoring employer. Recent tax legislation provides that governmental plans, on or after August 20, 1996, must hold the assets and income of the plan for the exclusive benefit of participants and their beneficiaries; preexisting plans have until January 1, 1999 to meet this requirement. The above description of federal income tax consequences pertaining to the different types of Qualified Plans that may be funded by the Contracts is only a brief summary and is not intended as tax advice. The rules governing the provisions of Qualified Plans are extremely complex and often difficult to comprehend. Anything less than full compliance with the applicable rules, all of which are subject to change, may have significant adverse tax consequences. A prospective purchaser considering the purchase of a Contract in connection with a Qualified Plan should first consult a qualified and competent tax adviser with regard to the suitability of the Contract as an investment vehicle for the Qualified Plan. TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of any distribution from qualified retirement plans, including Contracts issued and qualified under Code Sections 401, 403(b) and 408. To the extent amounts are not includable in gross income because they have been properly rolled over to an IRA or to another eligible Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply to the following distributions: (a) if distribution is made on or after the date on which the Payee reaches age 59 1/2; (b) distributions following the death of the Contract Owner or Annuitant (as applicable) or disability of the Payee (for this purpose disability is as defined in Section 72(m)(7) of the Code); (c) after separation from service, distributions that are part of substantially equal periodic payments made not less frequently than annually for the life (or life expectancy) of the Payee or the joint lives (or joint life 39 expectancies) of such Payee and his/her designated beneficiary; (d) distributions to a Payee who has separated from service after attaining age 55; (e) distributions made to the extent such distributions do not exceed the amount allowable as a deduction under Code Section 213 to the Payee for amounts paid during the taxable year for medical care: and (f) distributions made to an alternate payee pursuant to a qualified domestic relations order. The exceptions stated in items (d) and (f) above do not apply in the case of an Individual Retirement Annuity. Additional exceptions to the tax penalty are available for the following distributions from an Individual Retirement Annuity: (a) Payee is unemployed and uses the money to pay health insurance premiums; and (b) for tax years after December 31, 1997, Payee uses the distribution for higher education expenses or a qualified first-time home purchase. FINANCIAL STATEMENTS [To be filed by amendment.] LEGAL PROCEEDINGS [To be filed by amendment.] 40 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION A Statement of Additional Information which contains more details concerning some subjects discussed in this Prospectus is available (at no cost) by calling or writing Lincoln Life's Administrative Office. The following is the Table of Contents for that Statement:
TABLE OF CONTENTS PAGE THE CONTRACTS-GENERAL PROVISIONS................ 3 The Contracts................................. 3 Loans......................................... 3 Non-Participating Contracts................... 3 Misstatement of Age........................... 3 CALCULATION OF VARIABLE ACCOUNT VALUES.......... 3 Variable Accumulation Unit Value.............. 3 SAMPLE CALCULATIONS AND TABLES.................. 4 Variable Account Unit Value Calculations...... 4 Withdrawal Charge and Market Value Adjustment Tables....................................... 5 STATE REGULATION OF LINCOLN LIFE................ 6 TABLE OF CONTENTS PAGE ADMINISTRATION.................................. 6 ACCOUNT INFORMATION............................. 7 DISTRIBUTION OF THE CONTRACTS................... 7 CUSTODY OF ASSETS............................... 7 HISTORICAL PERFORMANCE DATA..................... 7 Money Market Sub-Account Yield................ 7 Other Sub-Account Yields...................... 8 Total Returns................................. 8 Other Performance Data........................ 9 LEGAL PROCEEDINGS............................... 9 EXPERTS......................................... 9 FINANCIAL STATEMENTS............................ 9
41 STATEMENT OF ADDITIONAL INFORMATION FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS Issued through LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N Offered by THE LINCOLN NATIONAL LIFE INSURANCE COMPANY Administrative Office Location: Telephone: (800) This Statement of Additional Information ("Statement") expands upon subjects discussed in the current Prospectus for the Variable Annuity Contracts (the "Contracts") offered by The Lincoln National Life Insurance Company through Lincoln Life Variable Annuity Account N. You may obtain a copy of the Prospectus dated , 1998, by calling (800) , or by writing to The Lincoln National Life Insurance Company at it's Administrative Office address shown above. Terms used in the current Prospectus for the Contracts are incorporated in this Statement. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS AND LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N. Dated: , 1998 1 TABLE OF CONTENTS
PAGE ----- THE CONTRACTS -- GENERAL PROVISIONS........................................................................ 3 The Contracts............................................................................................ 3 Loans.................................................................................................... 3 Non-Participating Contracts.............................................................................. 3 Misstatement of Age...................................................................................... 3 CALCULATION OF VARIABLE ACCOUNT VALUES..................................................................... 3 Variable Accumulation Unit Value......................................................................... 3 SAMPLE CALCULATIONS AND TABLES............................................................................. 4 Variable Account Unit Value Calculations................................................................. 4 Withdrawal Charge and Market Value Adjustment Tables..................................................... 5 STATE REGULATION OF LINCOLN LIFE........................................................................... 6 ADMINISTRATION............................................................................................. 6 ACCOUNT INFORMATION........................................................................................ 7 DISTRIBUTION OF THE CONTRACTS.............................................................................. 7 CUSTODY OF ASSETS.......................................................................................... 7 HISTORICAL PERFORMANCE DATA................................................................................ 7 Money Market Sub-Account Yield........................................................................... 7 Other Sub-Account Yields................................................................................. 8 Total Returns............................................................................................ 8 Other Performance Data................................................................................... 9 LEGAL PROCEEDINGS.......................................................................................... 9 EXPERTS.................................................................................................... 9 FINANCIAL STATEMENTS....................................................................................... 9
2 In order to supplement the description in the Prospectus, the following provides additional information about The Lincoln National Life Insurance Company ("Lincoln Life") and the Contracts which may be of interest to an Owner. Terms have the same meaning as in the Prospectus, unless otherwise indicated. THE CONTRACTS -- GENERAL PROVISIONS THE CONTRACTS A Contract, attached riders, amendments and any application, form the entire contract. Only the President, a Vice President, a Secretary, a Director, or an Assistant Director of Lincoln Life may change or waive any provision in a Contract. Any changes or waivers must be in writing. Lincoln Life may change or amend the Contracts if such change or amendment is necessary for the Contracts to comply with or take advantage of any state or federal law, rule or regulation. LOANS Under the Contracts, loans are not permitted. NON-PARTICIPATING CONTRACTS The Contracts do not participate or share in the profits or surplus earnings of Lincoln Life. MISSTATEMENT OF AGE If the age of the Annuitant is misstated, any amounts payable by Lincoln Life under the Contract will be adjusted to be those amounts which the Premium Payments would have purchased for the correct age, according to Lincoln Life's rates in effect on the Date of Issue. Any overpayment by Lincoln Life, with interest at the rate of 6% per year, compounded annually, will be charged against the payments to be made next succeeding the adjustment. Any underpayment by Lincoln Life will be paid in a lump sum. If the age or sex of the Owner is misstated, Lincoln Life will adjust the charge associated with any Optional Death Benefits elected to the charges that would have been assessed for the correct age and sex. CALCULATION OF VARIABLE ACCOUNT VALUES On any Valuation Date, the Variable Account value is equal to the totals of the values allocated to the Contracts in each Sub-Account. The portion of an Owner's Annuity Account Value held in any Variable Account Sub-Account is equal to the number of Sub-Account units allocated to a Contract multiplied by the Sub-Account accumulation unit value as described below. VARIABLE ACCUMULATION UNIT VALUE Upon receipt of a Premium Payment by Lincoln Life at its Administrative Office, all or that portion, if any, of the Premium Payment to be allocated to the Variable Account Sub-Accounts will be credited to the Variable Account in the form of Variable Accumulation Units. The number of particular Variable Accumulation Units to be credited is determined by dividing the dollar amount allocated to the particular Variable Account Sub-Account by the Variable Accumulation Unit Value for the particular Variable Account Sub-Account for the Valuation Period during which the Premium Payment is received at the Company's Administrative Office (for the initial Premium Payment, for the Valuation Period during which the Premium Payment is accepted). The Variable Accumulation Unit Value for each Variable Account Sub-Account was set at an arbitrary amount for the first Valuation Period of the particular Variable Account Sub-Account. The Variable Account commenced operations on , 1998. The Accumulation Unit value for a Sub-Account for any later Valuation Period is determined as follows: (1) The total value of Fund shares held in the Sub-Account is calculated by multiplying the number of Fund shares owned by the Sub-Account at the beginning of the Valuation [Period] 3 by the net asset value per share of the Fund at the end of the Valuation [Period], and adding any dividend or other distribution of the Fund if an ex-dividend date occurs during the Valuation Period; minus (2) The liabilities of the Sub-Account at the end of the Valuation [Period]; such liabilities include daily charges imposed on the Sub-Account, and may include a charge or credit with respect to any taxes paid or reserved for by Lincoln Life that Lincoln Life determines result from the operations of the Variable Account; and (3) The result of (2) is divided by the number of Sub-Account units outstanding at the beginning of the Valuation [Period]. The daily charges imposed on a Sub-Account for any Valuation Period are equal to the daily mortality and expense risk charge and the daily administrative charge multiplied by the number of calendar days in the Valuation Period. The Variable Account portion of the Annuity Account Value, if any, for any Valuation Period is equal to the sum of the value of all Variable Accumulation Units of each Variable Account Sub-Account credited to the Contract for such Valuation Period. The value in a Contract of each Variable Account Sub-Account is determined by multiplying the number of Variable Accumulation Units, if any, credited to such Variable Account Sub-Account in a Contract by the Variable Accumulation Unit Value of the particular Variable Account Sub-Account for such Valuation Period. SAMPLE CALCULATIONS AND TABLES VARIABLE ACCOUNT UNIT VALUE CALCULATIONS VARIABLE ACCUMULATION UNIT VALUE CALCULATION. Assume the net asset value of a Fund share at the end of the current Valuation Period is $ ; and the number of Fund shares held in the Sub-Account at the beginning of the Valuation Period was ; the number of Sub-Account units outstanding at the beginning of the Valuation Period was ; the Valuation Period is one day; and no dividends or distributions caused Fund shares to go "ex-dividend" during the current Valuation Period. multiplied by equals . Subtracting the one day risk factor for mortality and expense risks and the administrative expense charge of .00003862644 (the daily equivalent of the current charge of 1.40% on an annual basis) results in ; divided by (the number of Sub-Account units outstanding at the beginning of the Valuation Period) equals a Sub-Account unit value for the current Valuation Period of . VARIABLE ANNUITY UNIT VALUE CALCULATION. The assumptions in the above example exist. Also assume that the value of an Annuity Unit for the immediately preceding Valuation Period had been $ . As the first variable annuity payment is determined by using an assumed interest rate of 3% per year, the value of the Annuity Unit for the current Valuation Period would be $ [ X 0.999919020]. 0.999919020 is the factor, for a one day Valuation Period, that neutralizes the assumed interest rate of three percent (3%) per year used to establish the Annuity Payment Rates found in the Contract. VARIABLE ANNUITY PAYMENT CALCULATION. Assume that a Participant's Variable Annuity Account is credited with Variable Accumulation Units of a particular Sub-Account; that the Variable Accumulation Unit Value and the Annuity Unit Value for the particular Sub-Account for the Valuation Period which ends immediately preceding the Annuity Date are $ and $ respectively; that the Annuity Payment Rate for the age and option elected is $ per $1,000; and that the Annuity Unit Value on the day prior to the second variable annuity payment date is $ . The first variable annuity payment would be $ ( X $ X divided by 1,000). The number of Annuity Units credited would be ($ divided by $ ) and the second variable annuity payment would be $ ( X $ ). 4 WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT TABLES The following example illustrates the detailed calculations for a $50,000 deposit into the Fixed Account with a guaranteed rate of 8% for a duration of five years. The intent of the example is to show the effect of the Market Value Adjustment ("MVA") and the 3% minimum guarantee under various interest rates on the calculation of the cash surrender (withdrawal) value. Any charges for optional death benefit risks are not taken into account in the example. The effect of the MVA is reflected in the index rate factor in column (2) and the minimum 3% guarantee is shown under column (4) under the "Surrender Value Calculation". The "Surrender Charge Calculation" assumes there have been no prior withdrawals and illustrates the operation of the Fifteen Percent Free provision of the Contract. The "Market Value Adjustment Tables" and "Minimum Value Calculation" contain the explicit calculation of the index factors and the 3% minimum guarantee respectively. The "Annuity Value Calculation" and "Minimum Value" calculations assume the imposition of the annual $35 Annuity Account Fee charge, but that fee is waived if the Annuity Account Value at the end of a Contract Year is $100,000 or more. The results would be slightly different for New York Contracts which have a $30 annual Account Fee. WITHDRAWAL CHARGE TABLES SAMPLE CALCULATIONS FOR MALE 35 ISSUE CASH SURRENDER VALUES Single premium............................... $50,000 Premium taxes................................ None Withdrawals.................................. None Guaranteed period............................ 5 years Guaranteed interest rate..................... 8% Annuity date................................. Age 70 Index rate A................................. 7.50% Index rate B................................. 8.00% end of contract year 1 7.75% end of contract year 2 7.00% end of contract year 3 6.50% end of contract year 4 Percentage adjustment to B................... 0.50%
SURRENDER VALUE CALCULATION
(3) (1) (2) ADJUSTED (4) (5) (6) (7) ANNUITY INDEX RATE ANNUITY MINIMUM GREATER OF SURRENDER SURRENDER CONTRACT YEAR VALUE FACTOR VALUE VALUE (3)&(4) CHARGE VALUE - -------------------- --------- ---------- ------------ --------- ----------- ----------- --------- 1................... $ 53,965 0.963640 $ 52,003 $ 51,465 $ 52,003 $ 2,975 $ 49,028 2................... $ 58,247 0.993056 $ 57,843 $ 52,974 $ 57,843 $ 2,975 $ 54,868 3................... $ 62,872 1.000000 $ 62,872 $ 54,528 $ 62,872 $ 2,975 $ 59,897 4................... $ 67,867 1.004673 $ 68,184 $ 56,129 $ 68,184 $ 2,550 $ 65,634 5................... $ 73,261 1.000000 $ 73,261 $ 57,778 $ 73,261 $ 2,550 $ 70,711
ANNUITY VALUE CALCULATION
CONTRACT YEAR ANNUITY VALUE - -------------------- ----------------------------------------- 1................... $50,000 X 1.08 - $35 = $53,965 2................... $53,965 X 1.08 - $35 = $58,247 3................... $58,247 X 1.08 - $35 = $62,872 4................... $62,872 X 1.08 - $35 = $67,867 5................... $67,867 X 1.08 - $35 = $73,261
5 SURRENDER CHARGE CALCULATION
(1) (2) (3) SURRENDER SURRENDER CHARGE SURRENDER CONTRACT YEAR CHARGE FACTOR FACTOR CHARGE - -------------------- --------------- ---------------------- ----------- 1................... 0.07 0.0595 $ 2,975 2................... 0.07 0.0595 $ 2,975 3................... 0.07 0.0595 $ 2,975 4................... 0.06 0.0510 $ 2,550 5................... 0.06 0.0510 $ 2,550
MARKET VALUE ADJUSTMENT TABLES INTEREST RATE FACTOR CALCULATION
(1) (2) (3) (4) (5) INDEX INDEX ADJUSTED N (1+A) CONTRACT YEAR RATE A RATE B INDEX RATE B -- (1+B) - -------------------- --------- --------- ------------- ---------- 1................... 7.50% 8.00% 8.50% 4 0.963640 2................... 7.50% 7.75% 7.75% 3 0.993056 3................... 7.50% 7.00% 7.50% 2 1.000000 4................... 7.50% 6.50% 7.00% 1 1.004673 5................... 7.50% NA NA 0 NA
MINIMUM VALUE CALCULATION
CONTRACT YEAR MINIMUM VALUE - -------------------- ----------------------------------------- 1................... $50,000 X 1.03 - $35 = $51,465 2................... $51,465 X 1.03 - $35 = $52,974 3................... $52,974 X 1.03 - $35 = $54,528 4................... $54,528 X 1.03 - $35 = $56,129 5................... $56,129 X 1.03 - $35 = $57,778
STATE REGULATION OF LINCOLN LIFE Lincoln Life, an Indiana corporation, is subject to regulation by the Indiana Department of Insurance. An annual statement is filed with the Indiana Department of Insurance each year covering the operations and reporting on the financial condition of Lincoln Life as of December 31 of the preceding year. Periodically, the Indiana Department of Insurance or other authorities examine the liabilities and reserves of Lincoln Life and the Variable Account, and a full examination of Lincoln Life's operations is conducted periodically by the Indiana Department of Insurance. In addition, Lincoln Life is subject to the insurance laws and regulations of other states within which it is licensed to operate. Generally, the Insurance Department of any other state applies the laws of the state of domicile in determining permissible investments. A Contract is governed by the laws of the state in which it is delivered. The values and benefits of each Contract are at least equal to those required by such state. ADMINISTRATION Lincoln Life performs certain administrative functions relating to the Contracts, the individual Annuity Accounts, the Fixed Account, and the Variable Account. These functions include, among other things, maintaining the books and records of the Variable Account, the Fixed Account, and the Sub-Accounts, and maintaining records of the name, address, taxpayer identification number, contract number, Annuity Account number and type, the status of each Annuity Account and other pertinent information necessary to the administration and operation of the Contracts. 6 ACCOUNT INFORMATION At least once during each Calendar Year, Lincoln Life will furnish the Owner with a report showing the Annuity Account Value at the end of the preceding Calendar Year, all transactions during the reporting period, the current Annuity Account Value, the number of Accumulation Units in each Variable Account Sub-Account Accumulation Account and the applicable Accumulation Unit Value as of the date of the report. In addition, each person having voting rights in the Variable Account and a Fund or Funds will receive each such reports or prospectuses as may be required by the Investment Company Act of 1940 and the Securities Act of 1933. Lincoln Life will also send each Owner such statements reflecting transactions in the Owner's Annuity Account as may be required by applicable laws, rules and regulations. Upon request to its Administrative Office, Lincoln Life will provide an Owner with information regarding fixed and variable accumulation values. DISTRIBUTION OF THE CONTRACTS Lincoln Life is the principal underwriter for the Contracts, which are offered continuously. Sales charges on and exchange privileges under the Contracts are described in the Prospectus. There are no variations in the prices at which the Contracts are offered for certain types of purchasers. CUSTODY OF ASSETS Lincoln Life is the Custodian of the assets of the Variable Account. Lincoln Life will purchase Fund shares at net asset value in connection with amounts allocated to the Variable Account Sub-Accounts in accordance with the instructions of the Purchasers and redeem Fund shares at net asset value for the purpose of meeting the contractual obligations of the Variable Account, paying charges relative to the Variable Account or making adjustments for annuity reserves held in the Variable Account. The assets of the Sub-Accounts of the Variable Account are held separate and apart from the assets of any other segregated asset accounts of Lincoln Life and separate and apart from Lincoln Life's general account assets. Lincoln Life maintains records of all purchases and redemptions of shares of each Fund held by each of the Sub-Accounts of the Variable Account. HISTORICAL PERFORMANCE DATA MONEY MARKET SUB-ACCOUNT YIELD From time to time, the Money Market Sub-Account may advertise its "yield" and "effective yield." Both yield figures will be based on historical earnings and are not intended to indicate future performance. The "yield" of the Money Market Sub-Account refers to the income generated by Annuity Account Values in the Money Market Sub-Account over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the Annuity Account Values in the Money Market Sub-Account. The "effective yield" is calculated similarly but, when annualized, the income earned by Annuity Account Values in the Money Market Sub-Account is assumed to be reinvested. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. The computation of the yield calculation includes a deduction for the Mortality and Expense Risk Charge, the Administrative Expense Charge, and the Annuity Account Fee. The effective yield is calculated by compounding the unannualized base period return according to the following formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)to the power of 365/7] - 1 The yield on amounts held in the Money Market Sub-Account normally will fluctuate on a daily basis. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. The Money Market Sub-Account's actual yield is affected by changes in interest 7 rates on money market securities, average portfolio maturity of the Money Market Fund, the types and quality of portfolio securities held by the Money Market Fund and its operating expenses. The yield figures do not reflect withdrawal charges or premium taxes. OTHER SUB-ACCOUNT YIELDS Lincoln Life may from time to time advertise or disclose the current annualized yield of one or more of the Sub-Accounts of the Variable Account (except the Money Market Sub-Account) for 30-day periods. The annualized yield of a Sub-Account refers to income generated by the Sub-Account over a specific 30-day period. Because the yield is annualized, the yield generated by a Sub-Account during the 30-day period is assumed to be generated each 30-day period over a 12-month period. The yield is computed by: (i) dividing the net investment income per accumulation unit earned during the period by the maximum offering price per unit on the last day of the period, according to the following formula: Yield = 2 [(a - b + 1)(to the power of 6) - 1] ----- cd Where: a = Net investment income earned during the period by the Fund attributable to shares owned by the Sub-Account. b = Expenses accrued for the period (net of reimbursements). c = The average daily number of accumulation units outstanding during the period. d = The maximum offering price per accumulation unit on the last day of the period. Because of the charges and deductions imposed by the Variable Account, the yield for a Sub-Account of the Variable Account will be lower than the yield for its corresponding Fund. The yield calculations do not reflect the effect of any premium taxes or deferred sales charges that may be applicable to a particular Contract. Deferred sales charges range from 7% to 1% of the amount withdrawn or surrendered on total Premium Payments paid less prior partial withdrawals, based on the Contract Year in which the withdrawal or surrender occurs. The yield on amounts held in the Sub-Accounts of the Variable Account normally will fluctuate over time. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. A Sub-Account's actual yield is affected by the types and quality of the Fund's investments and its operating expenses. TOTAL RETURNS Lincoln Life may from time to time also advise or disclose annual average total returns for one or more of the Sub-Accounts of the Variable Account for various periods of time. When a Sub-Account has been in operation for 1, 5 and 10 years, respectively, the total return for these periods will be provided. Total returns for other periods of time may from time to time also be disclosed. Total returns represent the average annual compounded rates of return that would equate the initial amount invested to the redemption value of that investment as of the last day of each of the periods. Total returns will be calculated using Sub-Account Unit Values which Lincoln Life calculates on each Valuation Period based on the performance of the Sub-Account's underlying Fund, and the deductions for the mortality and expense risk charge, the administrative expense charge, and the Account Fee. The Account Fee is reflected by dividing the total amount of such charges collected during the year that are attributable to the Variable Account by the total average net assets of all the Variable Sub-Accounts. The resulting percentage is deducted from the return in calculating the ending redeemable value. These 8 figures will not reflect any premium taxes. Total return calculations will reflect the effect of deferred sales charges that may be applicable to a particular period. The total return will then be calculated according to the following formula: P(1+T)to the power of n = ERV Where: P = A hypothetical initial Premium Payment of $1,000. T = Average annual total return. n = Number of years in the period. ERV = Ending redeemable value of a hypothetical $1,000 payment made at the beginning of the one, five or ten-year period, at the end of the one, five or ten-year period (or fractional portion thereof). OTHER PERFORMANCE DATA Lincoln Life may from time to time also disclose average annual total returns in a non-standard format in conjunction with the standard format described above. The non-standard format will be identical to the standard one except that the deferred sales charge percentage will be assumed to be 0%. Lincoln Life may from time to time disclose cumulative total returns in conjunction with the standard format described above. The cumulative returns will be calculated using the following formula assuming that the deferred sales charge percentage will be 0%. CTR = (ERV/P) - 1 Where: CTR = The cumulative total return net of Sub-Account recurring charges for the period. ERV = The ending redeemable value of the hypothetical investment made at the beginning of the one, five or ten-year period, at the end of the one, five or ten-year period (or fractional portion thereof). P = A hypothetical initial payment of $10,000 All non-standard performance data will only be advertised if the standard performance data is also disclosed. Lincoln Life may also from time to time use advertising which includes hypothetical illustrations to compare the difference between the growth of a taxable investment and a tax-deferred investment in a variable annuity. LEGAL PROCEEDINGS There are no legal proceedings to which the Variable Account is a party or to which the assets of the Variable Account are subject. Lincoln Life is not involved in any litigation that is of material importance in relation to its total assets or that relates to the Variable Account. EXPERTS The consolidated financial statements of The Lincoln National Life Insurance Company as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in this Statement of Additional Information have been so included in reliance on the report of , independent accountants, given on the authority of said firm as experts in auditing and accounting. 's consent to this reference to the firm as an "expert" is filed as an exhibit to the registration statement of which this Statement of Additional Information is a part. FINANCIAL STATEMENTS [To be filed by amendment.] 9 PART C ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements provided in the Statement of Additional Information. To be filed by amendment. (b) Exhibits (1) Resolution of Board of Directors and Memorandum from the President Of The Lincoln National Life Insurance Company authorizing establishment of the Variable Account. (2) Not Applicable. (3) Form of Selling Agreement.* (4) Form of The Lincoln National Life Insurance Company Variable Annuity Contract. (5) Form of Application for the Contract. (6) (a) Articles of Incorporation of The Lincoln National Life Insurance Company are incorporated herein by reference to Registration Statement on Form N-4 (33-27783) filed on December 5, 1996. (b) By-Laws of The Lincoln National Life Insurance Company are incorporated herein by reference to Registration Statement on Form N-4 (33-27783) filed on December 5, 1996. (7) Not Applicable. (8) (a) Fund Participation Agreements. Agreements between The Lincoln National Life Insurance Company and: (i) Alger American Fund.* (ii)Lincoln National Money Market Fund, Inc.* (iii) Variable Insurance Products Fund.* (iv)Variable Insurance Products Fund II.* (v) Variable Insurance Products Fund III.* (vi)MFS-Registered Trademark- Variable Insurance Trust.* (vii) Neuberger & Berman Advisers Management Trust.* (viii) OCC Accumulation Trust.* (b) Accounting Services Agreement between the Lincoln National Life Insurance Company and the Delaware Management Company is incorporated herein by reference to the Registration Statement on Form N-4 (33-27783) filed on December 5, 1996. (9) Opinion [and Consent] of [ ] of The Lincoln National Life Insurance Company.* (10) Consent of auditors.* (11) Not Applicable. (12) Not Applicable. (13) Schedule for Computation of Performance Results.* (14) Not Applicable. (15) (a) Organizational Chart of The Lincoln National Insurance Holding Company System.* (b) Books and Records Report.* - ------------------------ * To be filed by amendment. C-1 ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR NAME POSITIONS AND OFFICES WITH DEPOSITOR - ------------------------------ --------------------------------------------- President, Chief Executive Officer and Jon A. Boscia* Director Carolyn P. Brody* Vice President Thomas L. Clagg* Vice President and Associate General Counsel Kelly D. Clevenger* Vice President Jeffrey K. Dellinger* Vice President Jack D. Hunter* Executive Vice President and General Counsel Donald E. Keller* Vice President Stephen H. Lewis* Senior Vice President E. Thomas McMeekin** Director Reed P. Miller* Vice President Ian M. Rolland** Director Lawrence T. Rowland*** Executive Vice President and Director Vice President, Chief Financial Officer and Keith J. Ryan* Assistant Treasurer Roy V. Washington* Vice President and Chief Compliance Officer Janet C. Whitney** Vice President and Treasurer C. Suzanne Womack** Secretary and Assistant Vice President * Principal business address is 1300 South Clinton Street, Fort Wayne, Indiana 46802. ** Principal business address is 200 East Berry Street, Fort Wayne, Indiana 46802-2706. *** Principal business address is 1700 Magnovox Way, One Reinsurance Place, Fort Wayne, Indiana 46804. ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT See Exhibit 15(a): Organizational Chart of The Lincoln National Life Insurance Holding Company System (11/1/96). ITEM 27. NUMBER OF PURCHASERS Not applicable, since this separate account had not yet commenced operations. ITEM 28. INDEMNIFICATION (a) Brief description of indemnification provisions. C-2 In general, Article VII of the By-Laws of The Lincoln National Life Insurance Company (LNL) provides that LNL will indemnify certain persons against expenses, judgments and certain other specified costs incurred by any such person if he/she is made a party or is threatened to be made a party to a suit or proceeding because he/she was a director, officer, or employee of LNL, as long as he/she acted in good faith and in a manner he/she reasonably believed to be in the best interests of, or not opposed to the best interests of, LNL. Certain additional conditions apply to indemnification in criminal proceedings. In particular, separate conditions govern indemnification of directors, officers, and employees of LNL in connection with suits by, or in the right of, LNL. Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b) hereto) for the full text of the indemnification provisions. Indemnification is permitted by, and is subject to the requirements of, Indiana law. (b) Understanding pursuant to Rule 484 of Regulation C under the Securities Act of 1933. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 28(a) above or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 29. PRINCIPAL UNDERWRITER (a) Lincoln National Variable Annuity Fund A (Group); Lincoln National Variable Annuity Fund A (Individual); Lincoln National Variable Annuity Account C; Lincoln National Flexible Premium Variable Life Account D; Lincoln National Variable Annuity Account E; Lincoln National Flexible Premium Variable Life Account F; Lincoln National Flexible Premium Variable Life Account G; Lincoln National Variable Annuity Account H; Lincoln Life Flexible Premium Variable Life Account J; Lincoln Life Flexible Premium Variable Life Account K; Lincoln National Variable Annuity Account L; Lincoln National Variable Annuity Accounts 50, 51 and 52. (b) See Item 25. (c) Lincoln Life received no commissions nor other compensation from the Variable Account during the fiscal year which ended December 31, 1996 because the Variable Account had not yet commenced operations. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS See Exhibit 15(b): Books and Records Report. ITEM 31. MANAGEMENT SERVICES Not applicable. C-3 ITEM 32. UNDERTAKINGS (a) Registrant undertakes that it will file a post effective amendment to this registration statement under the Securities Act of 1933 as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as Payments under the variable annuity contracts may be accepted. (b) Registrant undertakes that it will include either (i) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information or (ii) a space in the Contract application or order to purchase that an applicant can check to request a Statement of Additional Information. (c) Registrant undertakes to deliver promptly, upon written or oral request made to The Lincoln National Life Insurance Company at the address or phone number listed in the Prospectus, any Statement of Additional Information and any financial statements required by Form N-4 to be made available to applicants or owners. (d) The Lincoln National Life Insurance Company hereby represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by The Lincoln National Life Insurance Company. (e) Registrant represents that it is relying on the American Council of Life Insurance (avail. Nov. 28, 1988) no-action letter with respect to Contracts used in connection with retirement plans meeting the requirements of Section 403(b) of the Internal Revenue Code, and represents further that it will comply with the provisions of paragraphs (1) through (4) set forth in that no-action letter. C-4 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement on Form N-4 to be signed on its behalf, in the City of Fort Wayne and State of Indiana on the th day of November, 1997. LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N (Registrant) By: /s/ STEPHEN H. LEWIS ----------------------------------- Stephen H. Lewis (SIGNATURE-OFFICER OF DEPOSITOR) SENIOR VICE PRESIDENT, LNL (TITLE) By: THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (Depositor) By: /s/ JON A. BOSCIA ----------------------------------- Jon A. Boscia PRESIDENT (TITLE) Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- -------------------------------------- -------------------- /s/ JON A. BOSCIA President, Chief Executive Officer & November 24, 1997 ------------------------------------ Director (Principal Executive Jon A. Boscia Officer) /s/ JACK D. HUNTER ------------------------------------ Executive Vice President, General November 24, 1997 Jack D. Hunter Counsel and Director /s/ LAWRENCE T. ROWLAND ------------------------------------ Lawrence T. Rowland Executive Vice President and Director November 24, 1997 /s/ IAN M. ROLLAND ------------------------------------ Ian M. Rolland Director November 24, 1997 /s/ H. THOMAS MCMEEKIN ------------------------------------ H. Thomas McMeekin Director November 24, 1997 /s/ RICHARD C. VAUGHAN ------------------------------------ Richard C. Vaughan Director November 24, 1997 Vice President, Chief Financial /s/ KEITH J. RYAN Officer and Assistant Treasurer November 24, 1997 ------------------------------------ (Principal Accounting Officer and Keith J. Ryan Principal Financial Officer)
EX-1 2 EXHIBIT 1 Exhibit 1 ESTABLISHMENT OF SEGREGATED INVESTMENT ACCOUNT OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY Pursuant to the authority given me by Resolution No. 82-28 of the Board of Directors of The Lincoln National Life Insurance Company (the "Company") dated November 4, 1982, I hereby establish a segregated investment account designated as "Lincoln Life Variable Annuity Account N" (the "Separate Account"). The Separate Account is to be used in connection with the issuance by the Company of certain variable annuity contracts (the "Contracts"). The Separate Account will be registered as a unit investment trust with the Securities and Exchange Commission ("SEC") and shall invest in shares of investment companies which are registered with the SEC. The establishment and operation of the Separate Account will be in accordance with the applicable provisions of the Indiana Insurance Code ("IIC") and all rules and regulations issued pursuant thereto. In particular, but not by way of limitation, the Separate Account shall not be chargeable with liabilities arising out of any other business the Company may conduct and which has no specific relation to or dependence upon the Separate Account. The Contracts issued in connection with the Separate Account are subject to review by the Commissioner of Insurance of the State of Indiana. The Separate Account's investment objectives, contracts, and limitations shall be in accordance with (1) the registration statement for the Contracts filed with the SEC under the Securities Act of 1933, and (2) applicable provisions of IIC and all other applicable legal requirements. /s/ Jon A. Boscia -------------------------- Jon A. Boscia Chief Executive Officer Effective Date: November 3, 1997 - --------------------------- BOARD RESOLUTION OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY ADOPTED NOVEMBER 4, 1982 82-28 RESOLVED, That the resolution relating to the establishment of segregated investment accounts, adopted by the Board of Directors on September 12, 1968, is hereby rescinded effective this date; and RESOLVED FURTHER, That the chief executive officers of the Company is hereby authorized in his discretion from time to time to establish one or more segregated investment accounts in accordance with the provisions of the Indiana Insurance Law, for such purpose or purposes as he may determine and as may be apporpriate under the Indiana Insurance Law; and RESOLVED FURTHER, That if in the opinion of legal counsel of the Company it is necessary or desirable to register any of such accounts under the Investment Company Act of 1940 or to register a security issued by any such account under the Securities Act of 1933, or to make application for exemption from registration, the chief executive officer or such other officers as he may designate are hereby authorized to accomplish any such registration or to make any such application for exemption, and to perform all other acts as may be desirable or necessary in connection with the conduct of business of the Company with respect to any such account. EX-4 3 EXHIBIT 4 LINCOLN NATIONAL LIFE INSURANCE COMPANY A Stock Company Home Office Location: 1300 South Clinton Street Fort Wayne, Indiana 46802-3506 ADMINISTRATOR MAILING ADDRESS: [LINCOLN NATIONAL LIFE INSURANCE COMPANY ANNUITY & VARIABLE LIFE SERVICE CENTER - ROUTING S249 HARTFORD, CT 06152-2249] The Company agrees with the Owner to provide the benefits in this contract. RIGHT TO EXAMINE CONTRACT. The contract may be returned to the individual through whom it was purchased or to the Company within 10 days after its receipt (20 days after its receipt where required by law for a contract issued in replacement of another contract). If the contract is so returned, it will be deemed void from the Date of Issue, and the Company will refund the Premium Payment(s) as provided plus or minus any investment gains or losses under the contract as of the date the returned contract is received by the Company, unless required otherwise by law. The contract is issued and accepted subject to the terms set forth on this page and on the following pages which are made a part of the contract. In consideration of the Premium Payment(s) as provided, this contract is executed by the Company as of its Date of Issue. Registrar /s/ Jon A. Boscia PRESIDENT PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE TO THE OWNER, INCLUDING WITHDRAWALS AND TRANSFERS. PAYMENTS MADE FROM THE FIXED ACCOUNT PURSUANT TO AN ELECTION WHICH BECOMES EFFECTIVE AT THE END OF A GUARANTEED PERIOD AND PAYMENTS MADE UNDER THE "ANNUITY BENEFIT" PROVISIONS ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT. PAYMENTS MADE UNDER THE "DEATH BENEFIT" PROVISIONS ARE NOT SUBJECT TO ANY MARKET VALUE ADJUSTMENT. ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. USE OF CONTRACT. This contract is available for retirement and deferred compensation plans some of which may qualify for special tax treatment under various sections of the Internal Revenue Code. FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT WITH FIXED AND VARIABLE ACCOUNTS - NON-PARTICIPATING THIS IS A LEGAL CONTRACT BETWEEN THE OWNER AND THE COMPANY READ YOUR CONTRACT CAREFULLY. AN425 LL TABLE OF CONTENTS CONTRACT SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SCHEDULE OF CHARGES, EXPENSES AND FEES . . . . . . . . . . . . . . . . . . . 7 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 PREMIUM PAYMENT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 10 Premium Payments Allocation of Premium Payments Annuity Account Continuation Minimum Value Requirements OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS . . . . . . . . . . . . . . 11 Owner Rights of Owner Transfer of Ownership Assignment Beneficiary Change of Beneficiary FIXED AND VARIABLE ACCOUNTS PROVISIONS . . . . . . . . . . . . . . . . . . . 12 Fixed Account and Sub-Accounts Variable Account and Sub-Accounts Investment Risk Investments of the Variable Account Sub-Accounts Substituted Securities CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS. . . . . . . . . . . . 13 Part A - Fixed Account Value Guaranteed Periods Guaranteed Interest Rates Fixed Accumulation Value Minimum Surrender Value Part B - Variable Account Value Acquisition and Redemption of Variable Accumulation Units Variable Accumulation Unit Value Variable Accumulation Value Net Investment Factor Part C - General Annuity Account Transfer Privilege Annuity Account Fee CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Cash Withdrawals Withdrawal Charges Market Value Adjustment 2 TABLE OF CONTENTS (CONTINUED) PENALTY-FREE WITHDRAWALS, TRANSFERS AND ANNUITIZATION PROVISIONS 18 Penalty-Free Partial Withdrawals or Transfers Full or Partial Withdrawals and Transfers at the End of a Guaranteed Period Waiver of Withdrawal Charge and Market Value Adjustment on Death or Annuity Date Penalty-Free Annuitization BENEFIT PROVISIONS 18 Annuity Benefit Annuity Date Election and Effective Date of Election with Respect to Annuity Benefit Determination of Amount Income Payment Benefits Death Benefit Election and Effective Date of Election with Respect to Death Benefit Payment of Death Benefit Amount of Death Benefit GENERAL PROVISIONS 21 The Contract Modification of Contract Non-Participation Loans Determination of Values Endorsement of Income Payments Misstatement of Age Claims of Creditors Periodic Reports Followed by Optional Methods of Settlement and any Riders Note: Pages 4, 6 and 8 are intentionally "blank." 3 CONTRACT SPECIFICATIONS SPECIMEN CONTRACT NUMBER ANNUITANT(S) JOHN DOE AGE AT ISSUE 35 DATE OF ISSUE JANUARY 1, 1998 ANNUITY DATE JANUARY 1, 2028 - -------------------------------------------------------------------------------- LINCOLN NATIONAL ACCRU CHOICEPLUS VARIABLE ANNUITY FORM BENEFIT INITIAL PREMIUM PAYMENT AN425 FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY $50,000 WITH FIXED AND VARIABLE ACCOUNTS INITIAL PREMIUM PAYMENT ALLOCATION PERCENTAGE FIXED ACCOUNT - SUB-ACCOUNTS PERCENTAGE ADJUSTMENT TO INDEX RATE "B": .50% INITIAL GUARANTEED PERIOD/INTEREST RATE 1/YEAR /4.55% 10% INITIAL GUARANTEED PERIOD/INTEREST RATE 5/YEARS/6.40% 0% INITIAL GUARANTEED PERIOD/INTEREST RATE 10/YEARS/6.90% 0% VARIABLE ACCOUNT - SUB-ACCOUNTS (FUNDS) ALGER AMERICAN FUND ALGER AMERICAN GROWTH PORTFOLIO 10% ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO 0% ALGER AMERICAN MIDCAP GROWTH PORTFOLIO 0% ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO 0% FIDELITY VARIABLE INSURANCE PORTFOLIO VARIABLE INSURANCE PRODUCTS FUND FIDELITY VIP HIGH INCOME PORTFOLIO 10% FIDELITY VIP EQUITY-INCOME PORTFOLIO 10% FIDELITY VIP OVERSEAS PORTFOLIO 0% VARIABLE INSURANCE PRODUCTS FUND II FIDELITY VIPII INVESTMENT GRADE BONDS PORTFOLIO 0% FIDELITY VIPII CONTRA FUND PORTFOLIO 0% VARIABLE INSURANCE PRODUCTS FUND III FIDELITY VIPIII GROWTH OPPORTUNITIES PORTFOLIO 0% MFS VARIABLE INSURANCE TRUST MFS TOTAL RETURN SERIES 0% MFS UTILITIES SERIES 10% MFS EMERGING GROWTH SERIES 0% MFS RESEARCH SERIES 0% MFS GROWTH WITH INCOME SERIES 10% (Continued on Page 5.1) 5 CONTRACT SPECIFICATIONS CONTRACT NUMBER SPECIMEN ANNUITANT(S) JOHN DOE AGE AT ISSUE 35 DATE OF ISSUE JANUARY 1, 1998 ANNUITY DATE JANUARY 1, 2028 - -------------------------------------------------------------------------------- NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST ("AMT") AMT PARTNERS PORTFOLIO 0% AMT LIMITED MATURITY BOND PORTFOLIO 10% OCC ACCUMULATION TRUST OCC GLOBAL EQUITY PORTFOLIO 10% OCC MANAGED PORTFOLIO 10% OCC SMALL CAP PORTFOLIO 0% LINCOLN NATIONAL VARIABLE PRODUCTS GROUP LINCOLN NATIONAL MONEY MARKET FUND 10% TOTAL 100% LIMITATIONS ON TRANSFERS FROM FIXED ACCOUNT: IN EACH CONTRACT YEAR, AN OWNER IS ALLOWED TO MAKE ONE OR MORE TRANSFERS FROM EACH SUB-ACCOUNT, AND THE AMOUNT(S) TRANSFERRED IN AGGREGATE MAY NOT EXCEED MORE THAN [15%] OF THE THEN CURRENT VALUE OF THE APPLICABLE SUB-ACCOUNT(S). THIS CONTRACT IS FOR USE WITH "LINCOLN LIFE VARIABLE ANNUITY ACCOUNT N". OWNER: THE ANNUITANT BENEFICIARY: THE PERSON(S) DESIGNATED BY THE OWNER AND RECORDED BY THE COMPANY MINIMUM SUBSEQUENT PREMIUM PAYMENTS: $2,000 PER FIXED ACCOUNT GUARANTEED PERIOD $100 PER VARIABLE ACCOUNT SUB-ACCOUNT 5.1 SCHEDULE OF CHARGES, EXPENSES AND FEES ANNUITY ACCOUNT FEE: The Annuity Account Fee is $35 per Contract Year and will be deducted on the last Valuation Date of each Contract Year. The Annuity Account Fee, however, will be waived for any Contract Year for which the Annuity Account Value equals or exceeds $100,000 as of the last Valuation Date of such Contract Year. WITHDRAWAL CHARGES: The Withdrawal charges applicable under this contract are as follows. Withdrawal Charge Against Premium Year Payment Withdrawn Applicable ----------------- ---------- [7%] During 1st year since Premium Payment Accepted [7%] During 2nd year since Premium Payment Accepted [7%] During 3rd year since Premium Payment Accepted [6%] During 4th year since Premium Payment Accepted [6%] During 5th year since Premium Payment Accepted [5%] During 6th year since Premium Payment Accepted [4%] During 7th year since Premium Payment Accepted [0%] Thereafter Each Subsequent Premium Payment will be subject to its own 7-year period. Any Withdrawal from the Fixed Account prior to the end of a Guaranteed Period may also be subject to a Market Value Adjustment as described on page 17 which may increase, decrease, or have no effect on the applicable account value(s). A Market Value Adjustment would not apply to a withdrawal effective at the end of a Guaranteed Period. PENALTY-FREE PARTIAL WITHDRAWAL CHARGES: The Withdrawal charges are not applicable to certain partial withdrawals of 15% or less of Premium Payments annually (see page 18). Withdrawal charges and a Market Value Adjustment are not applicable to annuitization of the contract at any time. Withdrawal charges and a Market Value Adjustment are not applicable to payment of the Death Benefit. (See "Penalty-Free Withdrawals, Transfers and Annuitization Provisions.") ASSET CHARGES: The Company imposes a mortality and expense ("M&E") risk charge and an administrative expense charge, each of which is calculated as a percentage of asset value of each Variable Account Sub-Account, to cover mortality and expense risk and other administrative costs. The percentages applied to asset value to determine these charges are the Daily M&E Rate and the Daily Administrative Rate. These charges are deducted from each Variable Account Sub-Account by reducing the Variable Accumulation Unit Value at the end of each Valuation Period. The Daily M&E Rate is equal to the daily rate equivalent of the annual rate of [1.25%] and the Daily Administrative Rate is equal to the daily rate equivalent of the annual rate of [0.15%]. In addition, Daily Fund Operating Expenses will be applied by each Fund as a percent of the daily fund balance as set forth in the prospectus for the applicable Fund(s). 7 SCHEDULE OF CHARGES, EXPENSES AND FEES (CONTINUED) TAXES: Premium tax equivalents (including any related retaliatory taxes), if any, and any other taxes due under this contract will be deducted if applicable. It is currently the Company's practice to deduct such taxes, if any, at the time the Annuity Account Value, or any portion thereof, becomes payable. (Refer to Definition of "Annuity Account Value".) 7.1 DEFINITIONS ACCUMULATION PERIOD. The period from the Date of Issue to the Annuity Date, the date on which the Death Benefit becomes payable, or the date on which the contract is surrendered or annuitized, whichever is earliest. ANNUITANT(S). The person or persons on whose life the first Income Payment is to be made. The Annuitant(s) on the Date of Issue is/are the person(s) designated in the Contract Specifications and will remain the Annuitant(s) under the contract unless the Owner exercises the right to change the Annuitant(s) as set forth in the "Rights of Owner" provision. If prior to the Annuity Date, the Annuitant predeceases the Owner, the Owner will then become the Annuitant until such time as the Owner exercises the right to designate a new Annuitant as set forth in the "Rights of Owner" provision. (Provided that the Contract Owner is a natural person.) If joint Annuitants are named and if one of the Annuitants predeceases the Owner prior to the Annuity Date, the contract will thereupon become an annuity contract on the surviving Annuitant until such time that the Owner exercises the right to designate another joint Annuitant as set forth in the "Rights of Owner" provision.) A request for change of Annuitant(s) must be in writing to the Company at its Annuity & Variable Life Service Center's Mailing Address and will not take effect until recorded by the Company. ANNUITY ACCOUNT. The account which is comprised of the Fixed and Variable Accounts with respect to this contract. ANNUITY ACCOUNT VALUE. The account value which at any time equals the sum of all the then current values of the Fixed and Variable Accounts with respect to this contract. Applicable premium taxes, if any, will be deducted when the Annuity Account Value amount to be applied under the Annuity Benefit, Death Benefit, Cash Withdrawals or Penalty-Free Withdrawal and Annuitization provisions is determined. ANNUITY DATE. The date on which Income Payments begin upon annuitization of the contract. CONTRACT YEARS AND CONTRACT ANNIVERSARIES. All Contract Years and Contract Anniversaries are 12-month periods measured from the Date of Issue. DAILY M&E RATE. The rate applied by the Company as a percentage of each Variable Account Sub-Account's asset value to determine the M&E charge for its assumption of mortality and expense risks for a 24-hour period. DATE OF ISSUE. The date on which the contract becomes effective. DUE PROOF OF DEATH. An original certified copy of an official death certificate, an original certified copy of a decree of a court of competent jurisdiction as to the finding of death, or any other proof of death satisfactory to the Company. EXPIRATION DATE(S). The date(s) on which Guaranteed Period(s), if any, end. FIXED ACCOUNT. The term "Fixed Account" under this contract means all Sub-Account(s) associated with Guaranteed Period(s) and Guaranteed Interest Rate(s). Fixed Account assets are general assets of the Company and are distinguishable from those allocated to a separate account of the Company. FUND(S). The Variable Account Sub-Accounts in which Premium Payments, or Transfers in accordance with the "Transfer Privilege" provision, may be invested. GUARANTEED PERIOD. The Guaranteed Period is the period for which interest, at either an initial or subsequent Guaranteed Interest Rate will be credited to an amount under a Fixed Account Sub-Account. HOME OFFICE. The term "Home Office" means the Company indicated on the front cover of the contract. 9 DEFINITIONS (CONTINUED) IN WRITING. The term "in writing" means in a written form satisfactory to the Company and received by the Company at its Annuity & Variable Life Service Center's Mailing Address. INCOME PAYMENTS. Income Payments are the amounts payable under this contract as determined by the settlement options provisions of the contract. PAYOUT PERIOD. The period during which Income Payments are made under this contract. SEC. The Securities and Exchange Commission. SUB-ACCOUNT. That portion of the Fixed Account associated with specific Guaranteed Period(s) and Guaranteed Interest Rate(s) and that portion of the Variable Account which invests in shares of a specific Fund. VALUATION DATE. Any day on which the New York Stock Exchange ("NYSE") is open for business, except a day during which trading on the NYSE is restricted or on which an emergency exists as a result of which the valuation or disposal of securities is not reasonably practicable. VALUATION PERIOD. The period beginning immediately after the close of business on a Valuation Date and ending at the close of business on the next Valuation Date. VARIABLE ACCOUNT. The term "Variable Account" under this contract means all Sub-Account(s) associated with investments in the Fund(s). Variable Account assets are separate account assets of the Company, the investment performance of which is kept separate from that of the general assets of the Company and are not chargeable with general liabilities of the Company. VARIABLE ANNUITY UNITS. A unit of measure used in the calculation of the value of the variable portion of the Annuity Account during the Payout Period. VARIABLE ACCUMULATION UNIT. A unit of measure used in the calculation of the value of the variable portion of the Annuity Account before the Payout Period. PREMIUM PAYMENT PROVISIONS PREMIUM PAYMENTS. Premium Payments are payable to the Company at its Annuity & Variable Life Service Center's Mailing Address (or its lockbox address) or to an authorized agent of the Company. A Company receipt will be furnished upon request. The Initial Premium Payment is the amount paid to the Company as consideration for the benefits provided under the contract on the Date of Issue. Subsequent Premium Payments may be paid to the Company from time to time after the Date of Issue and prior to the Annuity Date. The Company will not accept any Premium Payment which is less than the minimum amount requirement then in effect as determined by the Company. In addition, the prior approval of the Company is required before it will accept a Premium Payment in excess of the maximum amount limit then in effect as determined by the Company. All Premium Payments must meet the allocation requirements specified under the "Allocation of Premium Payments" provision. The payment of any amount under the contract which is derived, all or in part, from any Premium Payments made by check or draft may be postponed until such check or draft has been honored by the financial institution upon which it is drawn. The Initial Premium Payment attributable to the contract is shown on the Contract Specifications page. ALLOCATION OF PREMIUM PAYMENTS. Upon receipt by the Company at its Annuity & Variable Life Service Center's Mailing Address, each Premium Payment will be added to the Annuity Account established under the contract. The Annuity Account is described under the "Annuity Account" provision and is comprised of Fixed Account Sub-Account(s) and Variable Account Sub-Account(s). The Initial Premium Payment will be allocated to one or more such Sub-Accounts in accordance with the allocation percentages specified by the Owner and shown in the Contract Specifications, provided such allocations to Fixed and/or Variable Accounts conform to the Company's minimum deposit requirements in effect as of the Date of Issue. 10 PREMIUM PAYMENT PROVISIONS (CONTINUED) Subsequent Premium Payments will be allocated as directed by the Owner. If no direction is given, the allocation percentages will be that which has been most recently directed for payments by the Owner. If a portion of the most recent previous Premium Payment was allocated to the Fixed Account and the allocation percentages when applied to a Subsequent Premium Payment does not produce an amount which meets the Fixed Account minimum requirements, the Company will promptly seek further instructions from the Owner regarding allocation of the premium or otherwise return the applicable portion of such Premium Payment as provided by law. ANNUITY ACCOUNT CONTINUATION. The Annuity Account shall be continued automatically in full force from the Date of Issue until the Annuity Date or until the contract is surrendered or annuitized, the Death Benefit is paid, or the Annuity Account Value no longer meets the requirements specified in the "Minimum Value Requirements" provision, whichever occurs first. MINIMUM VALUE REQUIREMENTS. If no Premium Payments have been made for three consecutive years and the Annuity Account Value decreases to less than $1,000 during that period, or if any partial withdrawal decreases the Annuity Account Value to less than $1,000, the Company reserves the right to cancel the contract and pay to the Owner an adjusted value of the Annuity Account as would be calculated under the "Determination of Amount" provision. The Company will, however, provide at least 30 days advance notice to the Owner of its intended action. During the notification period an additional Premium Payment may be made to meet the minimum value requirements. OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS OWNER. The Owner on the Date of Issue will be the person designated in the Contract Specifications. If no Owner is designated, the Annuitant(s) will be the Owner. RIGHTS OF OWNER. The Owner may exercise all rights and privileges under the contract including the right to: (a) agree with the Company to any change in or amendment to the contract, (b) transfer all rights and privileges to another person, (c) change the Beneficiary, (d) change the Annuitant(s) any time prior to the Annuity Date or name a new Annuitant if the Annuitant, or one of the Annuitants named under a joint life annuity, predeceases the Owner, (e) name the payee to whom Income Payments are to be directed, and (f) assign the contract. All rights and privileges of the Owner may be exercised without the consent of any designated transferee, or any Beneficiary if the Owner has reserved the right to change the Beneficiary. All such rights and privileges, however, may be exercised only with the consent of any assignee on record with the Company. TRANSFER OF OWNERSHIP. The Owner may transfer all rights and privileges of the Owner. On the effective date of transfer, (a) the transferee will become the Owner and will have all the rights and privileges of the Owner, and (b) the amount of Death Benefit applicable under the contract will change as set forth under the "Amount of Death Benefit" provision. The Owner may revoke any transfer prior to its effective date. Unless provided otherwise, a transfer will not affect the interest of any Beneficiary designated prior to the effective date of the transfer. A transfer of Ownership, or a revocation of transfer, must be in writing to the Company at its Annuity & Variable Life Service Center's Mailing Address. A transfer or a revocation will not take effect until recorded in writing by the Company at its Annuity & Variable Life Service Center's Mailing Address. When a transfer or revocation has been so recorded, it will take effect as of the effective date specified by the Owner. Any payment made or any action taken or allowed by the Company before the transfer or the revocation is recorded will be without prejudice to the Company. ASSIGNMENT. The Company will not be affected by any assignment of the contract until the original assignment or a certified copy of the assignment is filed with the Company at its Annuity & Variable Life Service Center's Mailing Address. 11 OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS (CONTINUED) The Company does not assume responsibility for the validity or sufficiency of any assignment. An assignment of the contract will operate so long as the assignment remains in force. To the extent provided under the terms of the assignment, an assignment will transfer the interest of any designated transferee or of any Beneficiary if the Owner has reserved the right to change the Beneficiary. BENEFICIARY. The Beneficiary is the person who has the right to receive the Death Benefit set forth in the contract and, for Non-Qualified Contracts, who is the "designated beneficiary" for purposes of Section 72(s) of the Internal Revenue Code in the event of the Owner's death. The Beneficiary on the Date of Issue will be the person designated in the Contract Specifications. Unless provided otherwise, the interest of any Beneficiary who dies before the Owner will vest in the Owner or the Owner's administrators or assigns. CHANGE OF BENEFICIARY. A new Beneficiary may be designated from time to time. A request for change of Beneficiary must be in writing to the Company at its Annuity & Variable Life Service Center's Mailing Address. The request must be signed by the Owner. The request must also be signed by the Beneficiary if the right to change the Beneficiary has not been reserved to the Owner. A change of Beneficiary will not take effect until recorded by the Company. When a change of Beneficiary has been so recorded, whether or not the Owner is then alive, it will take effect as of the date the request was signed. Any payment made or any action taken or allowed by the Company before the change of Beneficiary is recorded will be without prejudice to the Company. Unless provided otherwise, the right to change any Beneficiary is reserved to the Owner. FIXED AND VARIABLE ACCOUNTS PROVISIONS FIXED ACCOUNT AND SUB-ACCOUNTS. Fixed Account assets are general assets of the Company and are distinguishable from those allocated to a separate account of the Company. Any portion of Premium Payments allocated by the Owner to a Fixed Account Sub-Account will become part of the Fixed Account. VARIABLE ACCOUNT AND SUB-ACCOUNTS. The Variable Account to which the variable accumulation values, if any, under this contract relate is shown in the Contract Specifications. It was established pursuant to a resolution of its Board of Directors as a "separate account" under governing law of Indiana, the Company's state of domicile, and registered as a unit investment trust under the 1940 Act. Under Indiana law, the Variable Account assets (except assets in excess of its reserves and other contract liabilities) cannot be charged with the general liabilities from any other business of the Company and the income, gains or losses from the Variable Account assets are credited or charged against the Variable Account without regard to the income, gains or losses of the Company. The Variable Account assets are owned and controlled exclusively by the Company, and the Company is not a trustee with respect to those assets. The Variable Account is divided into Sub-Accounts. Each Variable Account Sub-Account's assets are invested in shares of a particular Fund made available as a funding vehicle under this contract. For each Variable Account Sub-Account, the Company maintains Variable Accumulation Units whose values reflect the investment performance of the Fund whose shares are held in that Sub-Account. Subject to any vote by persons having the right under the 1940 Act to vote thereon, the Company may elect to operate the Variable Account as a management company rather than a unit investment trust under the 1940 Act, or, if registration is no longer required, to deregister the Variable Account. In such event, the Company may endorse this contract to reflect such change and any necessary or appropriate action taken to effect the change. Any changes in Variable Account investment policy shall have been approved by the Indiana Insurance Commissioner and approved or filed, as required, in the state or other jurisdiction where this policy was issued. 12 FIXED AND VARIABLE ACCOUNTS PROVISIONS (CONTINUED) INVESTMENT RISK. Each Variable Account Sub-Account's assets are always fully invested in the shares of the particular Fund purchased for that Sub-Account. Each Variable Account Sub-Account's investment performance reflects the investment performance of the Fund. Fund share values fluctuate, reflecting the risks of changing economic conditions and the ability of a Fund's investment advisor or sub-adviser to manage that Fund and anticipate changes in economic conditions. As to the Variable Account assets, the Owner bears the entire investment risk of gain or loss. INVESTMENTS OF THE VARIABLE ACCOUNT SUB-ACCOUNTS. All amounts allocated to a Variable Account Sub-Account will be used to purchase shares of a specific Fund. The Funds available on the Date of Issue are shown in the Contract Specifications; more may be subsequently added. The Fund is an open-end management investment company registered under the Investment Company Act of 1940. Any and all distributions made by the Fund(s) will be reinvested to purchase additional shares of that Fund at net asset value. Deductions from the Variable Account Sub-Accounts will, in effect, be made by redeeming a number of Fund shares at net asset value equal in total value to the amount to be deducted. Assets of Variable Account Sub-Accounts will be fully invested in Fund shares at all times. SUBSTITUTED SECURITIES. Shares corresponding to a particular Fund may not always be available for purchase or the Company may decide that further investment in such Fund is no longer appropriate in view of the purposes of the Variable Account, or in view of legal, regulatory or federal income tax restrictions. In such event, shares of another registered open-end investment company or unit investment trust may be substituted both for Fund shares already purchased and/or as the securities to be purchased in the future, provided that these substitutions meet applicable Internal Revenue Service diversification guidelines and have been approved by the Securities and Exchange Commission and such other regulatory authorities as may be necessary. In the event of any substitution pursuant to this provision, the Company may make appropriate endorsement(s) to this contract to reflect the substitution. CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS PART A - FIXED ACCOUNT VALUE GUARANTEED PERIODS. The Initial Guaranteed Period(s), if any, are selected by the Owner and are shown in the Contract Specifications. The duration of the Initial Guaranteed Period(s) will affect the Initial Guaranteed Interest Rate(s). Any Premium Payment or the portion thereof (or amount transferred in accordance with the "Transfer Privilege" provision described below) allocated to a particular Guaranteed Period will earn interest at the specified Guaranteed Interest Rate during the Guaranteed Period. Initial Guaranteed Periods begin on the date a Premium Payment is accepted (or, in the case of a transfer, on the effective date of the transfer) and end on the Expiration Date for each duration selected. Any portion of the Annuity Account Value comprising a particular Fixed Account Sub-Account (including interest earned thereon) will be referred to in this contract as the "Guaranteed Period Amount." As a result of renewals, Subsequent Payments, and transfers of portions of the Annuity Account Value, Guaranteed Amounts for Guaranteed Periods of the same duration may have different Expiration Dates, and each Guaranteed Period Amount will be treated separately for purposes of determining any Market Value Adjustment. The Company will send written notice to the Owner by ordinary mail to the most recent address in the Company's records about the upcoming expiration of a Guaranteed Period with respect to a Fixed Account Sub-Account at least 60 days prior to the Expiration Date of such Guaranteed Period. A subsequent Guaranteed Period of the same duration will begin automatically at the end of the previous Guaranteed Period unless the Company receives, in writing at its Annuity & Variable Life Service Center's Mailing Address within the 60-day period immediately preceding the end of such Guaranteed Period, an election by the Owner of a different Guaranteed Period from among those being offered by the Company at such time, or instructions to transfer all or a portion of the applicable Guaranteed Period Amount to one or more Fixed Account or Variable Account Sub-Accounts in accordance with the "Transfer Privilege" provision. 13 CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED) GUARANTEED INTEREST RATES. The Company will establish the applicable Guaranteed Interest Rate that will be used to determine the interest with respect to a Fixed Account Sub-Account for each Guaranteed Period at the beginning of the Guaranteed Period. This rate will be guaranteed for the duration of the applicable Guaranteed Period. The Initial or Subsequent Guaranteed Interest Rate will never be less than 3% per year, compounded annually. Subsequent Guaranteed Interest Rate(s) will also be determined at the beginning of Guaranteed Period(s) and may be higher or lower than the previous rate, but will never be less than 3% per year, compounded annually. (See "Minimum Surrender Value" provision.) FIXED ACCUMULATION VALUE. Upon receipt of a Premium Payment by the Company at its Annuity & Variable Life Service Center's Mailing Address, all or that portion, if any, of the Premium Payment which is allocated to the Fixed Account will be credited to the Fixed Account and allocated to the Fixed Account Sub-Accounts selected by the Owner. The Fixed Accumulation Value, if any, at any time, is equal to the sum of the then current values of all Guaranteed Period Amounts with respect to this contract. MINIMUM SURRENDER VALUE. The Minimum Surrender Value for the Fixed Account for a given contract year is the Premium Payment(s), or portion thereof, and transfers allocated to the Fixed Account accumulated at 3% per year, compounded annually, less the deduction of the applicable withdrawal charge(s), any prior withdrawals or transfers out of the Fixed Account, premium taxes, if any, and applicable Annuity Account Fee(s). PART B - VARIABLE ACCOUNT VALUE ACQUISITION AND REDEMPTION OF VARIABLE ACCUMULATION UNITS. Any dollar amounts allocated to a Variable Account Sub-Account shall be converted into Variable Accumulation Units and credited to the Variable Account Sub-Account on a unit basis. The number of Variable Accumulation Units into which a dollar amount would be converted is calculated by dividing the dollar amount by the Variable Accumulation Unit Value for the particular Sub-Account. Any redemption of units from a Variable Account Sub-Account will be processed at the end of a Valuation Period, including any units redeemed to fund a monthly deduction, and shall result in the redemption and cancellation of Variable Accumulation Units having an aggregate dollar value equal to the amount of such withdrawal. VARIABLE ACCUMULATION UNIT VALUE. The Variable Accumulation Unit Value at the beginning of the first Valuation Period of each Variable Account Sub-Account was established at $10.00. The Variable Accumulation Unit value in any later Valuation Period is equal to the net asset value per unit of the particular Sub-Account as of the end of such Valuation Period. VARIABLE ACCUMULATION VALUE. The Variable Accumulation Value of the Annuity Account, if any, for any Valuation Period is equal to the sum of the value of all Variable Accumulation Units of each Variable Account Sub-Account credited to the Variable Account with respect to this contract at the end of such Valuation Period. The Variable Accumulation Value of each Variable Account Sub-Account is determined by multiplying the number of Variable Accumulation Units, if any, credited to each Variable Account Sub-Account with respect to this contract at the end of a Valuation Period, by the Variable Accumulation Unit Value of the particular Variable Account Sub-Account for such Valuation Period. NET INVESTMENT FACTOR. An index, calculated as described below, that provides a measure of the investment performance of a Variable Account Sub-Account for each Valuation Period. The Net Investment Factor is equal to A+B-C where: ----- - E D A is the net asset value per unit of the Fund held in the Variable Account Sub-Account (such net asset value being determined as described in the prospectus for the Fund) as of the end of the Valuation Period; B is any dividend or other distribution payable with respect to units held of record during the Valuation Period; 14 CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED) C is the per unit amount of any tax determined by the Company to be attributable to the operation of the Variable Account Sub-Account during such Valuation Period; D is the net asset value of each unit of the Fund as of the close of business on the Valuation Date immediately preceding the Valuation Period; and E is the sum of the Daily M&E Rate plus the Daily Administrative Rate, multiplied by the number of 24-hour periods included in the Valuation Period. The Net Investment Factor may be 1.0 or may be greater or less than 1.0, reflecting the possibility that the Variable Accumulation Unit Value of a particular Variable Account Sub-Account may remain the same, increase or decrease. PART C - GENERAL ANNUITY ACCOUNT. The Company will establish an Annuity Account under the contract and will maintain the Annuity Account during the Accumulation Period. The Annuity Account Value at any time equals the sum of all the then current values of the Fixed and Variable Accounts with respect to this contract. TRANSFER PRIVILEGE. At any time during the Accumulation Period, other than during the "Right to Examine Contract" period, the Owner may transfer all or part of the Annuity Account Value to one or more of the Fixed or Variable Account Sub-Accounts then available under the contract, subject to the provisions set forth below. Transfers may be made in writing or by telephone, if telephone transfers have been previously authorized in writing. Transfer requests must be received at the Company's Annuity & Variable Life Service Center prior to the time of day set forth in the prospectus, and provided the New York Stock Exchange is open for business, in order to be processed as of the close of business on the date the request is received; otherwise, the transfer will be processed on the next business day the New York Stock Exchange is open for business. The Company will not be held legally responsible for (a) any liability for acting in good faith upon any transfer instructions given by telephone, or (b) the authenticity of such instructions. Transfers involving Variable Account Sub-Accounts will reflect the purchase or cancellation of Variable Accumulation Units having an aggregate value equal to the dollar amount being transferred to or from a particular Variable Account Sub-Account. The purchase or cancellation of such units shall be made using Variable Accumulation Unit Values of the applicable Variable Account Sub-Account at the end of the Valuation Period for which the transfer is effective. Transfers to a Fixed Account Sub-Account will result in a new Guaranteed Period for the amount being transferred. Any such Guaranteed Period will begin on the effective date of the transfer. The amount transferred into such Fixed Account Sub-Account will earn interest at the Guaranteed Interest Rate declared by the Company for that Guaranteed Period as of the effective date of the transfer. Transfers shall be subject to the following conditions: (a) Not more than 12 transfers may be made per Contract Year (including the frequency limitation shown in the Contract Specifications with respect to transfers from the Fixed Account), unless otherwise authorized in writing by the Company; (b) No withdrawal charge will be imposed on transferred amounts, however, transfers of all or a portion out of a Fixed Account Sub-Account may be subject to the Market Value Adjustment set forth below unless such transfer is made in accordance with the "Full or Partial Withdrawals and Transfers at the End of a Guaranteed Period" provision; (c) The amount being transferred may not be less than $100 unless the entire value of the Fixed or Variable Account Sub-Account is being transferred; (d) The amount being transferred may not exceed the Company's maximum amount limit then in effect; (e) The amount transferred to any Fixed Account Sub-Account may not be less than $2,000, or $100 to a Variable Sub-Account; (f) Unless a transfer out of a Fixed Account Sub-Account is made in accordance with the "Full or Partial Withdrawals and Transfers at the End of a Guaranteed Period" provision, the amount transferred from each Fixed Account Sub-Account during any contract year may not exceed the limits shown in the Contract Specifications; (g) Any value remaining in a Fixed Account Sub-Account may not be less than $2,000, or a Variable Account Sub-Account may not 15 CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED) be less than $50; (h) The Company reserves the right to defer transfers of amounts from the Fixed Account for a period not to exceed six months from the date the request for such transfer is received by the Company in writing or by telephone, if such has been previously authorized, at its Annuity & Variable Life Service Center; and (i) Transfers involving Variable Account Sub-Account(s) shall be subject to such terms and conditions as may be imposed by the Funds. TRANSFER FEE. The Company reserves the right to charge a fee up to $10 for each transfer prior to the Annuity Date if there have been more than twelve transfers made in the Contract Year. ANNUITY ACCOUNT FEE. Prior to the Annuity Date, on the anniversary date of each Contract Year the Company will deduct from the value of the Annuity Account the annual Annuity Account Fee, if any, shown in the Schedule of Charges, Expenses and Fees to reimburse it for administrative expenses relating to the Annuity Account. The Annuity Account Fee will be deducted on a pro rata basis from amounts allocated to each Fixed and Variable Account Sub-Account in which the Annuity Account values are invested at the time of such deduction. If the Annuity Account is surrendered for its full value, the Annuity Account Fee will be deducted in full at the time of such surrender. On the Annuity Date the value of the Annuity Account will be reduced by a proportionate amount of the Annuity Account Fee to reflect the time elapsed between the last valuation date of the most recent Contract Year and the day before the Annuity Date. CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT PROVISIONS CASH WITHDRAWALS. At any time before the Annuity Date, the Owner may elect to receive a cash withdrawal payment from the Company by filing with the Company at its Annuity & Variable Life Service Center's Mailing Address a written election in such form as the Company may require. Any such election shall specify the amount of the withdrawal and will be effective on the date that it is received at the Company's Annuity & Variable Life Service Center's Mailing Address. Any cash withdrawal payment will be paid within seven days of the Company's receipt of such request, except as the Company may be permitted to defer the payment of amounts withdrawn from the Variable Account in accordance with the Investment Company Act of 1940. The Company reserves the right to defer the payment of amounts withdrawn from the Fixed Account for a period not to exceed six months from the date written request for such withdrawal is received by the Company at its Annuity & Variable Life Service Center's Mailing Address. The amount of the cash withdrawal payment may be for any amount not to exceed the Annuity Account Value at the end of the Valuation Period during which the election becomes effective, plus or minus any applicable Market Value Adjustment, and less any applicable withdrawal charge and premium taxes. In the case of a full surrender, the Annuity Account will be canceled and the contract will terminate. A partial withdrawal will result in a decrease in the Annuity Account Value by an amount with an aggregate dollar value equal to the dollar amount of the cash withdrawal payment, plus or minus any applicable Market Value Adjustment, any applicable withdrawal charge and premium taxes. In the case of a partial withdrawal, the Owner must instruct the Company as to the amounts to be withdrawn from each Fixed and/or Variable Account Sub-Account. If not so instructed, the Company will effect such withdrawal from each Fixed and/or Variable Sub-Account in proportion to the then current Sub-Account values. Partial withdrawals cannot reduce any Fixed Account Sub-Account below $2,000 or any Variable Account Sub-Account below $50. Such partial withdrawals will be treated as a full surrender of that Sub-Account and the balance will be transferred to the largest Variable Account Sub-Account, if any. Partial withdrawals may not reduce the total Annuity Account Value below $1,000. (See "Minimum Value Requirements" provision.) Such partial withdrawals may be treated as a full surrender. Cash withdrawals from a Variable Account Sub-Account will result in the cancellation of Variable Accumulation Units attributable to the Annuity Account with an aggregate value on the effective date of the withdrawal equal to the total amount by which the Variable Account Sub-Account is reduced. The cancellation of such units will be based on the Variable Accumulation Unit values of the Variable Account Sub-Account at the end of the Valuation Period during which the cash withdrawal is effective. 16 CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT PROVISIONS (CONTINUED) All cash withdrawals or transfers of any portion of Fixed Account Sub-Accounts, except those specified otherwise under "Penalty-Free Withdrawals, Transfers and Annuitization Provisions," will be subject to the Market Value Adjustment described below. WITHDRAWAL CHARGES. If a cash withdrawal is made, a withdrawal charge may be assessed by the Company. The length of time between the Company acceptance of the Premium Payment(s) and the receipt of a withdrawal request determines the withdrawal charge. For this purpose each withdrawal is deemed to represent a withdrawal of a Premium Payment previously accepted (or a portion thereof). Premium Payments will be deemed to have been withdrawn in the order in which the Premium Payments were received by the Company (i.e., oldest premium first). After all Premium Payments have been deemed withdrawn, the Company will deem further withdrawals to be from net investment results attributable to such Premium Payments, if any. The schedule of withdrawal charges is set forth in the "Schedule of Charges, Expenses and Fees." On withdrawal, any applicable Annuity Account Fee and Market Value Adjustment will be deducted before application of any withdrawal charge. Withdrawal charges are deducted proportionately from the Fixed and/or Variable Account Sub-Account(s) from which the withdrawal is to be made, provided such Sub-Account(s) have sufficient account value(s) for making such deduction(s). If any of the account value(s) of such Sub-Account(s), however, are insufficient, its remaining withdrawal charges will be deducted on a pro rata basis from all Fixed and/or Variable Account Sub-Accounts in proportion to the then current account value(s) of Such Sub-Account(s). See "Penalty-Free Withdrawals, Transfers and Annuitization Provisions" for situations in which a withdrawal charge is not imposed. For the purpose of any qualified plan riders which may be attached to this contract, the term "Surrender Charge" wherever referenced therein, shall mean "withdrawal charge" as set forth above. MARKET VALUE ADJUSTMENT. Any cash withdrawal or transfer from a Fixed Account Sub-Account, except those specified otherwise under the "Penalty-Free Withdrawals, Transfers and Annuitization Provisions," will be subject to a Market Value Adjustment. The amount payable on such cash withdrawal or transfer may be adjusted up or down by the application of the Market Value Adjustment. The Index Rate Factor applicable to the amount of such cash withdrawal or transfer is: N (1+A) ------ N (1+B) where: A = an Index Rate (based on the Treasury Constant Maturity Series published by the Federal Reserve) for a security with time to maturity equal to the applicable Guaranteed Period, determined at the beginning of the Guaranteed Period. B = an Index Rate (based on the Treasury Constant Maturity Series published by the Federal Reserve) for a security with time to maturity equal to the applicable Guaranteed Period, determined at the time of cash withdrawal or transfer, plus the percentage adjustment to "B" as shown in the Contract Specifications. If Index Rates "A" and "B" are within .25% of each other when the Index Rate Factor is determined, no such percentage adjustment to "B" will be made. N = The number of years remaining in the applicable Guaranteed Period (e.g. 1 year and 73 days = 1 + (73 divided by 365) = 1.2 years) Straight-line interpolation is used for periods to maturity not quoted. 17 PENALTY-FREE WITHDRAWALS, TRANSFERS AND ANNUITIZATION PROVISIONS PENALTY-FREE PARTIAL WITHDRAWALS OR TRANSFERS. Upon request in writing, the Owner may, during any Contract Year prior to the Annuity Date, withdraw up to [15%] of the Premium Payment(s) or portion remaining thereof, without incurring a withdrawal charge. For this purpose each withdrawal is deemed to represent a withdrawal of a portion of a Premium Payment previously accepted. Premium Payments will be deemed to be withdrawn in the order in which they were received by the Company (i.e., the oldest premium first). Any such withdrawal from a Fixed Account Sub-Account may be subject to a Market Value Adjustment unless the withdrawal is made at the end of a Guaranteed Period as set forth below. The Owner must specify from which Fixed and/or Variable Account Sub-Accounts the withdrawal is to be made, otherwise the Company may effect such withdrawal on a proportionate basis from all Fixed and/or Variable Account Sub-Accounts in which the Annuity Account is invested. Such partial withdrawals may be either taken as a lump sum or, upon consent of the Company, paid in equal installments. No withdrawal charge will be imposed on any withdrawal with respect to a Premium Payment after the end of the seventh year following the Company's acceptance of that Premium Payment. The Owner may also transfer amounts within the Annuity Account during the Accumulation Period without the application of a withdrawal charge, however, any transfers would be subject to any terms and conditions as may be imposed under the "Transfer Privilege" provision. FULL OR PARTIAL WITHDRAWALS AND TRANSFERS AT THE END OF A GUARANTEED PERIOD. No Market Value Adjustment will be imposed on a full or partial withdrawal or transfer made from a Fixed Account Sub-Account which becomes effective at the end of the applicable initial or subsequent Guaranteed Period. In such event, the Owner's proper request for withdrawal or transfer must be received at the Company's Annuity & Variable Life Service Center's Mailing Address within a 45-day period immediately preceding the end of such Guaranteed Period. WAIVER OF WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT ON DEATH OR ANNUITY DATE. No withdrawal charge or Market Value Adjustment will be imposed upon payments made under the Annuity Benefit or Death Benefit provisions of this contract. PENALTY-FREE ANNUITIZATION. At any time the Owner may request in writing payment of the then current Annuity Account Value in accordance with any one of the settlement options set forth in this contract. In such event, no withdrawal charge or Market Value Adjustment will be imposed at the time such settlement is made. Such annuitization will automatically result in a change in the Annuity Date to the date Income Payments commence under the settlement option elected. BENEFIT PROVISIONS ANNUITY BENEFIT. On the Annuity Date the Company will pay all or a part of the adjusted value of the Annuity Account (as set forth below) in cash or apply it in accordance with the settlement option(s) elected by the Owner. However, if the amount to be applied under any settlement option is less than $5,000, or if the first Income Payment payable in accordance with such option is less than $50, the Company will pay the adjusted value in a single payment to the payee designated by the Owner. 18 BENEFIT PROVISIONS (CONTINUED) ANNUITY DATE. The Annuity Date selected by the Owner is shown in the Contract Specifications. The Annuity Date may be changed from time to time by the Owner by notifying the Company in writing. The notice must be received at the Company's Annuity & Variable Life Service Center's Mailing Address at least 45 days prior to the Annuity Date then in effect. The new Annuity Date selected must be at least 30 days after the effective date of the change and not later than the Annuitant's 90th birthday. After the Annuity Date, no change of a settlement option is permitted, no payments may be requested under the "Cash Withdrawals" provision of the contract, and no Death Benefit is payable under the contract except as otherwise specified under the settlement option selected. ELECTION AND EFFECTIVE DATE OF ELECTION WITH RESPECT TO ANNUITY BENEFIT. During the lifetime of the Owner and prior to the Annuity Date, the Owner may elect to have the adjusted value of the Annuity Account applied on the Annuity Date under one or more of the settlement options set forth in this contract, or under any other settlement option as agreed to by the Company. The Owner may also change any election, but any election or change of election must be received at the Company's Annuity & Variable Life Service Center's Mailing Address at least 45 days prior to the Annuity Date. The election or change of election may be made by filing with the Company at its Annuity & Variable Life Service Center's Mailing Address written notice in such form as the Company may require. If no such election is in effect on the 30th day prior to the Annuity Date, the adjusted value of the Annuity Account will be applied under a Life Annuity with 120 months guaranteed. In such situation, the portion of the adjusted value of the Annuity Account to be applied for a Fixed Life Annuity under the Second Option and/or a Variable Life Annuity under Option II will be determined on a pro rata basis from the composition of the Annuity Account on the Annuity Date. DETERMINATION OF AMOUNT. On the Annuity Date the Annuity Account will be canceled and the adjusted value of the Annuity Account to be applied under the settlement options provisions shall be equal to the Annuity Account Value for the Valuation Period which ends immediately preceding the Annuity Date, minus any applicable premium or similar tax. For the purposes of any qualified plan riders which may be attached to this contract, the term "Annuity Value," wherever referenced therein, shall mean the "adjusted value of the Annuity Account" as defined above. INCOME PAYMENT BENEFITS. On the Annuity Date, the adjusted value of the Annuity Account as determined under the "Determination of Amount" provision may be applied, as elected by the Owner, under one or more of the settlement options set forth in the contract to effect: (a) a Fixed Income Payment Benefit or a Variable Income Payment Benefit; or (b) a combination of the Fixed Income Payment Benefit and the Variable Income Payment Benefit. If a combination Fixed and Variable Income Payment Benefit is elected, the Owner may specify the amount to be allocated to the Fixed Income Payment Benefit and the amount to be allocated to the Variable Income Payment Benefit. Such election and allocation may also be made by a Beneficiary to the extent provided in the "Election and Effective Date of Election with Respect to Death Benefit Provision." DEATH BENEFIT. If the Owner dies before the Annuity Date, the Company will pay the Death Benefit to the Beneficiary upon receipt of due proof of the death of the Owner in accordance with the "Payment of Death Benefit" provision. If there is no designated Beneficiary living on the date of death of the Owner, the Company will pay the Death Benefit, upon receipt of due proof of the death of both the Owner and the designated Beneficiary, in one sum to the estate of the Owner. ELECTION AND EFFECTIVE DATE OF ELECTION WITH RESPECT TO DEATH BENEFIT. During the lifetime of the Annuitant and prior to the Annuity Date, the Owner may elect one or more of the settlement options set forth in this contract to effect an annuity for the Beneficiary as payee after the death of the Owner. This election may be made or subsequently revoked by filing with the Company at its Annuity & Variable Life Service Center's Mailing Address a written election or revocation of an election in such form as required by the Company. Any election or revocation of an election of a method of settlement of the Death Benefit will become effective on the date it is received by the Company at its Annuity & Variable Life Service Center's Mailing Address. 19 Benefit Provisions (Continued) Unless otherwise specified in writing by the Owner, the Beneficiary may elect (a) to receive the Death Benefit as a cash payment, in which event the Annuity Account will be canceled, or (b) to have the Death Benefit applied under one or more of the settlement options set forth under the contract. This election may be made by filing with the Company a written request in a form as required by the Company. Any written request for an election of a settlement option for the Death Benefit by the Beneficiary will become effective on the later of (a) the date the request is received by the Company at its Annuity & Variable Life Service Center's Mailing Address; or (b) the date due proof of the death of the Owner is received by the Company at its Annuity & Variable Life Service Center's Mailing Address. If a written request for a settlement option by the Beneficiary is not received by the Company within 60 days following the date due proof of the death of the Owner is received by the Company, the Beneficiary shall be deemed to have elected a cash payment as of the last day of the 60-day period. Notwithstanding the above, the Owner or Beneficiary may only elect a settlement option which provides for the distribution of the entire Death Benefit to the Beneficiary within five years of the Owner's death unless; (a) the entire interest in the contract is distributed over the life of the Beneficiary, with distributions beginning within one year of the Owner's death; (b) the entire interest in the contract is distributed over a period not extending beyond the life expectancy of the Beneficiary, with distributions beginning within one year of the Owner's death; or (c) the Beneficiary is the deceased Owner's spouse and elects to continue the contract and become the new Owner, but in no event may such an election be made under this contract more than once. For purposes of Section 72(s) of the Internal Revenue Code, if any Owner is not an individual, the death or change of any Annuitant is treated as the death of an Owner, and if the Owner is grantor trust within the meaning of the Internal Revenue Code, the death of the grantor of such trust is also treated as the death of an Owner. PAYMENT OF DEATH BENEFIT. If the Death Benefit is to be paid in cash to the Beneficiary, payment will be made within 7 days of the date the election becomes effective or is deemed to become effective, provided due proof of the death of the Owner is received by the Company at its Annuity & Variable Life Service Center's Mailing Address, except as the Company may be permitted to defer any such payment of amounts derived from the Variable Account in accordance with the Investment Company Act of 1940. If the Death Benefit is to be paid in one sum to the estate of the deceased Owner, payment will be made within 7 days of the date due proof of the death of the Owner and/or Beneficiary is received by the Company at its Annuity & Variable Life Service Center's Mailing Address, except as the Company may be permitted to defer any such payment of amounts derived from the Variable Account in accordance with the Investment Company Act of 1940. If settlement under the settlement option provisions is elected, the Income Payments will commence 30 days following the effective date or the deemed effective date of the election and the Annuity Account will be maintained in effect until such Income Payments commence. AMOUNT OF DEATH BENEFIT. The Death Benefit is determined as of the effective date or deemed effective date of the Death Benefit election and is equal to the greatest of (a) the Annuity Account Value for the Valuation Period during which the Death Benefit election is effective or is deemed to become effective, (b) the sum of all the Premium Payment(s) made under the contract less the sum of all partial withdrawals, or (c) the highest Annuity Account Value ever attained on a Contract Anniversary date, occurring on or before the Owner's 80th birthday (or the Annuitant's 80th birthday in the case of a non-natural Owner), with adjustments for any subsequent Premium Payments, partial withdrawals and charges made since such Contract Anniversary Date. However, the Death Benefit on or after the Owner's 90th birthday (if a natural person) will be the greater of the sum of all the Premium Payment(s) with adjustments for any partial withdrawals and charges made under the contract since the Date of Issue or the Annuity Account Value for the Valuation Period during which the Death Benefit election is effective or is deemed to become effective. On and after the effective date of each transfer of Ownership, the Amount of Death Benefit will be equal to the greatest of 1) the sum of Premium Payments made prior to the date of such transfer of Ownership, less 20 BENEFIT PROVISIONS (CONTINUED) the sum of all withdrawals made on or before the effective date of such transfer, plus the sum of all Premium Payments made on or after the effective date of such transfer, less the sum of all partial withdrawals made on or after the effective date of such transfer, 2) the Annuity Account Value for the Valuation Period during which the Death Benefit election is effective or is deemed to become effective, or 3) the highest Annuity Account Value ever attained on a Contract Anniversary date occurring on or after the date of such transfer of Ownership, with adjustments for any subsequent Premium Payments, partial withdrawals and charges made since such Contract Anniversary Date. SECTION 72(s). The provisions above will be interpreted so as to comply with the requirements of Section 72(s) of the Internal Revenue Code. GENERAL PROVISIONS THE CONTRACT. The contract constitutes the entire contract between the parties. Only the President, a Vice President, an Assistant Vice President, a Secretary, a Director or an Assistant Director of the Company may make or modify this contract. The contract is executed at the administrator mailing address located on the front cover of the contract. MODIFICATION OF CONTRACT. The Company reserves the right to modify this contract to meet the requirements of applicable state and federal laws or regulations. The Company will notify the Owner in writing of any changes. NON-PARTICIPATION. The contract is not entitled to share in surplus distribution. LOANS. Loans are not permitted under this contract. DETERMINATION OF VALUES. The method of determination by the Company of the Net Investment Factor and the number and value of Accumulation Units and Annuity Units shall be conclusive upon the Owner, and any Beneficiary or payee. ENDORSEMENT OF INCOME PAYMENTS. The Company will make each Income Payment at the administrator mailing address by check. Each check must be personally endorsed by the payee/Annuitant, or the Company may require that proof of the payee/Annuitant's survival be furnished. MISSTATEMENT OF AGE. If the age of an Annuitant is misstated, the amount payable under the contract will be adjusted to be the amount of Income which the actual premium paid would have purchased for the correct age according to the Company's rates in effect on the Date of Issue. Any overpayment by the Company, with interest at the rate of 6% per year, compounded annually, will be charged against the payments to be made next succeeding the adjustment. Any underpayment by the Company will be paid in a lump sum, with interest at the rate of 6% per year, compounded annually. CLAIMS OF CREDITORS. To the extent permitted by law, no amounts payable under this contract will be subject to the claims of creditors of any payee. PERIODIC REPORTS. At least once each calendar year, the Company will furnish the Owner a report as required by law showing the Annuity Account Value at the end of the preceding year, all transactions during the year, the current Annuity Account Value, the number of Accumulation Units in each Variable Accumulation Account, the applicable Accumulation Unit Value as of the date of the report and the interest rate credited to the Fixed Account Sub-Account(s). The Company will also send such statements reflecting transactions in the Annuity Account as may be required by applicable laws, rules and regulations. 21 OPTIONAL METHODS OF SETTLEMENT This rider is made part of the contract to which it is attached as of the Date of Issue. Upon written request, the Company will agree to pay in accordance with any one of the options shown below all or part of the net proceeds that may be payable under the contract. While the Owner is alive, the request, including the designation of the payee, may be made by the Owner. At the time a Death Benefit becomes payable under the contract, the request, including the designation of the payee, may then be made by the Beneficiary. Once Income Payments have begun, no surrender of the Annuity Value can be made (unless Variable Income Payments are made under Option III) and the Annuitant(s) cannot be changed, nor can the settlement option be changed. PAYMENT DATES. The first Income Payment under the settlement option selected will be made on the first day of the month following the Annuity Date. Subsequent payments will be made on the first day of each month in accordance with the manner of payment selected. MINIMUM PAYMENT AMOUNT. The settlement option elected must result in an Income Payment at least equal to the minimum payment amount in accordance with the Company's rules then in effect. If at any time payments are less than the minimum payment amount, the Company has the right to change the frequency to an interval that will provide the minimum payment amount. If any amount due is less than the minimum per year, the Company may make other arrangements that are equitable. FIXED BENEFIT OPTIONS FIXED INCOME PAYMENTS. Fixed Income Payments will remain constant pursuant to the terms of the fixed settlement option(s) selected. The amount of each Fixed Income Payment shall be determined in accordance with the terms of the settlement option and the table(s) set forth in this rider, as applicable. The mortality table used is the 1983 Individual Annuitant Mortality (IAM) Table "a" and 3% interest. In determining the settlement amount, the Annuitant's settlement age will be reduced by one year when the first instalment is payable during the 1990's, reduced by two years when the first instalment is payable during the decade 2000-2009, and so on. FIRST OPTION: LIFE ANNUITY. An annuity payable monthly to the payee during the lifetime of the Annuitant, ceasing with the last payment due prior to the death of the Annuitant. SECOND OPTION: LIFE ANNUITY WITH CERTAIN PERIOD. An annuity providing monthly income to the payee for a fixed period of 60, 120, 180, or 240 months (as selected), and for as long thereafter as the Annuitant shall live. THIRD OPTION: CASH REFUND LIFE ANNUITY. An annuity payable monthly to the payee during the lifetime of the Annuitant ceasing with the last payment due prior to the death of the Annuitant provided that, at the death of the Annuitant, the payee will receive an additional payment equal to the excess, if any, of (a) over (b) where: (a) is the initial value of the proceeds applied under this option; and (b) is the dollar amount of payments already paid. FOURTH OPTION: ANNUITY CERTAIN. An amount payable monthly for the number of years selected which may be from 5 to 30 years. EXCESS INTEREST. At the sole discretion of the Company, excess interest may be paid or credited from time to time in addition to the payments guaranteed under any fixed benefit Optional Method of Settlement. AR425 (Page 1) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) VARIABLE BENEFIT OPTIONS VARIABLE INCOME PAYMENTS. The amount of the first Variable Income Payment shall be determined in accordance with the terms of the settlement option and the table(s) set forth in this rider, as applicable. The mortality table used is the 1983 Individual Annuitant Mortality (IAM) Table "a" and 3%. In determining the settlement amount, the Annuitant's settlement age will be reduced by one year when the first instalment is payable during the 1990's, reduced by two years when the first instalment is payable during the decade 2000-2009 and so on. All Variable Income Payments other than the first are determined by means of Annuity Units credited to the contract with respect to the particular payee. The number of Annuity Units to be credited in respect of a particular Sub- Account is determined by dividing that portion of the first Variable Income Payment attributable to that Sub-Account by the Annuity Unit Value of that Sub- Account for the Valuation Period which ends immediately preceding the Annuity Date. The number of Annuity Units of each Sub-Account credited with respect to the particular payee then remains fixed unless an exchange of Annuity Units is made pursuant to the "Exchange of Variable Annuity Units" section. The dollar amount of each Variable Income Payment after the first may increase, decrease or remain constant, and is equal to the sum of the amounts determined by multiplying the number of Annuity Units of a particular Sub-Account for the Valuation Period which ends immediately preceding the due date of each subsequent payment by the Annuity Unit Value for the particular Sub-Account for the first Valuation Period occurring on or immediately prior to the first day of each month. ANNUITY UNIT VALUE. The Annuity Unit Value for each Sub-Account was established at $10.00 for the first Valuation Period of the particular Sub-Account. The Annuity Unit Value for the particular Sub-Account for any subsequent Valuation Period is determined by multiplying the Annuity Unit Value for the particular Sub-Account for the immediately preceding Valuation Period by the Net Investment Factor for the current Valuation Period and then multiplying that product by a factor to neutralize the assumed interest rate of 3% per year to establish the Annuity Payment Rates set forth in this rider. The factor is 0.99991902 for a one day valuation period. EXCHANGE OF VARIABLE ANNUITY UNITS. After the Annuity Date the payee may, by filing a written request with the Company at its Annuity & Variable Life Service Center's Mailing Address, exchange the value of a designated number of Annuity Units of particular Variable Sub-Accounts then credited with respect to such payee into other Annuity Units, the value of which would be such that the dollar amount of an Income Payment made on the date of the exchange would be unaffected by the exchange. Unless otherwise authorized by the Company in writing, no more than 3 exchanges may be made in any Contract Year. Exchanges may be made among the Variable Sub-Accounts only. Exchanges shall be made using the Annuity Unit Values for the Valuation Period during which the request for exchange is received by the Company at its Annuity & Variable Life Service Center's Mailing Address. ANNUITY ACCOUNT FEE. After the Annuity Date an Annuity Account Fee amounting to $35 per year will be deducted in equal amounts from each variable Income Payment made during the calendar year. For example, this would amount to a $2.92 deduction from each monthly Variable Income Payment. No deduction will be made from Fixed Income Payments. OPTION I: VARIABLE LIFE ANNUITY. A variable annuity payable monthly to the payee during the lifetime of the Annuitant, ceasing with the last payment due prior to the death of the Annuitant. AR425 (Page 2) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) OPTION II: VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A variable annuity which provides monthly payments during the lifetime of the annuitant and further provides that if, at the death of the annuitant, payments have been made for less than the elected period certain, which may be 60, 120, 180 or 240 months, the annuity payments will be continued during the remainder of such period. OPTION III: VARIABLE ANNUITY CERTAIN. A variable amount payable monthly for the number of years selected which may be from 5 to 30 years. At the expiration of the period certain, no further payments of any kind are payable. If the Annuitant dies before the specified number of certain payments have been received, the remainder of the payments will be continued during the remainder of such period. ADDITIONAL FIXED AND VARIABLE OPTIONS. Any proceeds payable under the contract may also be settled under any other method of settlement (including joint and survivor settlement options under joint life annuities) offered by the Company at the time of the request. LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Jon A. Boscia ----------------- PRESIDENT AR425 (Page 3) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) LIFE ANNUITY AND LIFE ANNUITY WITH CERTAIN PERIOD TABLE FOR EACH $1,000 APPLIED - - MALE - --------------------------------------------------- Settlement age of Number of instalments certain Annuitant nearest birthday 60 120 180 240 - --------------------------------------------------- Age Life Annuity 10 $2.87 $2.87 $2.87 $2.87 $2.87 11 2.89 2.89 2.89 2.88 2.88 12 2.90 2.90 2.90 2.90 2.90 13 2.92 2.92 2.91 2.91 2.91 14 2.93 2.93 2.93 2.93 2.92 15 2.95 2.95 2.95 2.94 2.94 16 2.96 2.96 2.96 2.96 2.96 17 2.98 2.98 2.98 2.98 2.97 18 3.00 3.00 3.00 2.99 2.99 19 3.02 3.02 3.01 3.01 3.01 20 3.04 3.04 3.03 3.03 3.03 21 3.06 3.05 3.05 3.05 3.05 22 3.08 3.08 3.07 3.07 3.07 23 3.10 3.10 3.09 3.09 3.09 24 3.12 3.12 3.12 3.11 3.11 25 3.14 3.14 3.14 3.14 3.13 26 3.17 3.17 3.16 3.16 3.15 27 3.19 3.19 3.19 3.19 3.18 28 3.22 3.22 3.22 3.21 3.20 29 3.25 3.25 3.24 3.24 3.23 30 3.28 3.28 3.27 3.27 3.26 31 3.31 3.31 3.30 3.30 3.29 32 3.34 3.34 3.33 3.33 3.32 33 3.37 3.37 3.37 3.36 3.35 34 3.41 3.41 3.40 3.39 3.38 35 $3.44 $3.44 $3.44 $3.43 $3.41 36 3.48 3.48 3.48 3.46 3.45 37 3.52 3.52 3.52 3.50 3.48 38 3.57 3.56 3.56 3.54 3.52 39 3.61 3.61 3.60 3.58 3.56 40 3.66 3.65 3.65 3.63 3.60 41 3.71 3.70 3.69 3.67 3.64 42 3.76 3.75 3.74 3.72 3.68 43 3.81 3.81 3.79 3.77 3.73 44 3.87 3.86 3.85 3.82 3.77 45 3.93 3.92 3.90 3.87 3.82 46 3.99 3.98 3.96 3.92 3.87 47 4.05 4.05 4.02 3.98 3.92 48 4.12 4.11 4.09 4.04 3.97 49 4.19 4.18 4.15 4.10 4.03 50 4.27 4.26 4.22 4.17 4.08 51 4.34 4.33 4.30 4.23 4.14 52 4.43 4.41 4.37 4.30 4.20 53 4.51 4.50 4.45 4.37 4.26 54 4.60 4.59 4.54 4.45 4.32 55 4.70 4.68 4.62 4.53 4.39 56 4.80 4.78 4.72 4.61 4.45 57 4.91 4.89 4.82 4.69 4.51 58 5.03 5.00 4.92 4.78 4.58 59 5.15 5.12 5.03 4.87 4.65 60 $5.28 $5.25 $5.14 $4.96 $4.71 61 5.43 5.39 5.27 5.06 4.78 62 5.58 5.53 5.39 5.16 4.84 63 5.74 5.69 5.53 5.26 4.90 64 5.91 5.85 5.66 5.36 4.96 65 6.10 6.03 5.81 5.46 5.02 66 6.30 6.21 5.96 5.56 5.08 67 6.51 6.41 6.12 5.66 5.13 68 6.73 6.62 6.28 5.77 5.18 69 6.97 6.84 6.44 5.86 5.23 70 7.23 7.07 6.61 5.96 5.27 71 7.51 7.32 6.79 6.05 5.31 72 7.80 7.58 6.96 6.14 5.34 73 8.12 7.85 7.14 6.23 5.37 74 8.46 8.14 7.32 6.31 5.40 75 8.82 8.45 7.50 6.38 5.42 76 9.21 8.76 7.67 6.45 5.44 77 9.63 9.10 7.84 6.51 5.45 78 10.08 9.44 8.01 6.57 5.47 79 10.56 9.80 8.17 6.62 5.48 80 11.07 10.17 8.33 6.66 5.49 81 11.62 10.55 8.48 6.70 5.49 82 12.20 10.94 8.61 6.73 5.50 83 12.82 11.33 8.74 6.76 5.50 84 13.47 11.73 8.86 6.79 5.51 85 14.17 12.12 8.97 6.81 5.51 AR425 (Page 4) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) LIFE ANNUITY AND LIFE ANNUITY WITH CERTAIN PERIOD TABLE FOR EACH $1,000 APPLIED - - FEMALE - --------------------------------------------------- Settlement age of Number of instalments certain Annuitant nearest birthday 60 120 180 240 - --------------------------------------------------- Age Life Annuity 10 $2.80 $2.80 $2.80 $2.80 $2.80 11 2.81 2.81 2.81 2.81 2.81 12 2.82 2.82 2.82 2.82 2.82 13 2.83 2.83 2.83 2.83 2.83 14 2.85 2.85 2.85 2.84 2.84 15 2.86 2.86 2.86 2.86 2.86 16 2.87 2.87 2.87 2.87 2.87 17 2.89 2.89 2.89 2.88 2.88 18 2.90 2.90 2.90 2.90 2.90 19 2.92 2.92 2.92 2.91 2.91 20 2.93 2.93 2.93 2.93 2.93 21 2.95 2.95 2.95 2.95 2.94 22 2.96 2.96 2.96 2.96 2.96 23 2.98 2.98 2.98 2.98 2.98 24 3.00 3.00 3.00 3.00 2.99 25 3.02 3.02 3.02 3.02 3.01 26 3.04 3.04 3.04 3.03 3.03 27 3.06 3.06 3.06 3.06 3.05 28 3.08 3.08 3.08 3.08 3.07 29 3.10 3.10 3.10 3.10 3.09 30 3.13 3.13 3.12 3.12 3.12 31 3.15 3.15 3.15 3.14 3.14 32 3.18 3.18 3.17 3.17 3.16 33 3.20 3.20 3.20 3.20 3.19 34 3.23 3.23 3.23 3.22 3.22 35 $3.26 $3.26 $3.26 $3.25 $3.24 36 3.29 3.29 3.29 3.28 3.27 37 3.32 3.32 3.32 3.31 3.30 38 3.35 3.35 3.35 3.34 3.33 39 3.39 3.39 3.38 3.38 3.37 40 3.42 3.42 3.42 3.41 3.40 41 3.46 3.46 3.46 3.45 3.43 42 3.50 3.50 3.50 3.49 3.47 43 3.54 3.54 3.54 3.53 3.51 44 3.59 3.59 3.58 3.57 3.55 45 3.64 3.63 3.63 3.61 3.59 46 3.68 3.68 3.67 3.66 3.63 47 3.73 3.73 3.72 3.71 3.68 48 3.79 3.79 3.77 3.76 3.72 49 3.84 3.84 3.83 3.81 3.77 50 3.90 3.90 3.89 3.86 3.82 51 3.97 3.96 3.95 3.92 3.88 52 4.03 4.03 4.01 3.98 3.93 53 4.10 4.10 4.08 4.04 3.99 54 4.18 4.17 4.15 4.11 4.04 55 4.25 4.25 4.22 4.18 4.11 56 4.34 4.33 4.30 4.25 4.17 57 4.42 4.41 4.38 4.32 4.23 58 4.52 4.51 4.47 4.40 4.30 59 4.61 4.60 4.56 4.48 4.37 60 $4.72 $4.70 $4.66 $4.57 $4.44 61 4.83 4.81 4.76 4.66 4.51 62 4.95 4.93 4.87 4.75 4.58 63 5.08 5.05 4.98 4.85 4.65 64 5.21 5.18 5.10 4.95 4.72 65 5.36 5.32 5.22 5.05 4.79 66 5.51 5.47 5.36 5.16 4.86 67 5.67 5.63 5.50 5.26 4.93 68 5.85 5.80 5.65 5.37 5.00 69 6.04 5.98 5.80 5.49 5.06 70 6.25 6.18 5.97 5.60 5.12 71 6.47 6.39 6.14 5.71 5.18 72 6.71 6.62 6.32 5.83 5.23 73 6.98 6.86 6.50 5.94 5.28 74 7.26 7.12 6.69 6.04 5.32 75 7.57 7.40 6.89 6.14 5.35 76 7.90 7.69 7.09 6.24 5.39 77 8.26 8.01 7.29 6.33 5.41 78 8.65 8.34 7.49 6.41 5.43 79 9.08 8.70 7.69 6.49 5.45 80 9.54 9.07 7.89 6.55 5.47 81 10.03 9.47 8.08 6.61 5.48 82 10.58 9.88 8.26 6.66 5.49 83 11.16 10.31 8.43 6.70 5.49 84 11.80 10.75 8.59 6.74 5.50 85 12.48 11.20 8.74 6.77 5.50 - --------------------------------------------------- ANNUITY CERTAIN TABLE FOR EACH $1,000 APPLIED - --------------------------------------------------- Numbers of years Amount of each instalment during which instalments will be paid Annual Monthly - --------------------------------------------------- 5 $ 211.99 $ 17.91 6 179.22 15.14 7 155.83 13.16 8 138.31 11.68 9 124.69 10.53 10 113.82 9.61 11 $ 104.93 $ 8.86 12 97.54 8.24 13 91.29 7.71 14 85.95 7.26 15 81.33 6.87 16 77.29 6.53 17 $ 73.74 $ 6.23 18 70.59 5.96 19 67.78 5.73 20 65.26 5.51 25 55.76 4.71 AR425 (Page 5) LINCOLN NATIONAL LIFE INSURANCE COMPANY FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT WITH FIXED AND VARIABLE ACCOUNTS - NON-PARTICIPATING OPTIONAL METHODS OF SETTLEMENT This rider is made part of the contract to which it is attached as of the Date of Issue. Upon written request, the Company will agree to pay in accordance with any one of the options shown below all or part of the net proceeds that may be payable under the contract. While the Owner is alive, the request, including the designation of the payee, may be made by the Owner. At the time a Death Benefit becomes payable under the contract, the request, including the designation of the payee, may then be made by the Beneficiary. Once Income Payments have begun, no surrender of the Annuity Value can be made (unless Variable Income Payments are made under Option III) and the Annuitant(s) cannot be changed, nor can the settlement option be changed. PAYMENT DATES. The first Income Payment under the settlement option selected will be made on the first day of the month following the Annuity Date. Subsequent payments will be made on the first day of each month in accordance with the manner of payment selected. MINIMUM PAYMENT AMOUNT. The settlement option elected must result in an Income Payment at least equal to the minimum payment amount in accordance with the Company's rules then in effect. If at any time payments are less than the minimum payment amount, the Company has the right to change the frequency to an interval that will provide the minimum payment amount. If any amount due is less than the minimum per year, the Company may make other arrangements that are equitable. FIXED BENEFIT OPTIONS FIXED INCOME PAYMENTS. Fixed Income Payments will remain constant pursuant to the terms of the fixed settlement option(s) selected. The amount of each Fixed Income Payment shall be determined in accordance with the terms of the settlement option and the table(s) set forth in this rider, as applicable. The mortality table used is the 1983 Individual Annuitant Mortality (IAM) Table "a" and 3% interest. In determining the settlement amount, the Annuitant's settlement age will be reduced by one year when the first instalment is payable during the 1990's, reduced by two years when the first instalment is payable during the decade 2000-2009, and so on. FIRST OPTION: LIFE ANNUITY. An annuity payable monthly to the payee during the lifetime of the Annuitant, ceasing with the last payment due prior to the death of the Annuitant. SECOND OPTION: LIFE ANNUITY WITH CERTAIN PERIOD. An annuity providing monthly income to the payee for a fixed period of 60, 120, 180, or 240 months (as selected), and for as long thereafter as the Annuitant shall live. THIRD OPTION: CASH REFUND LIFE ANNUITY. An annuity payable monthly to the payee during the lifetime of the Annuitant ceasing with the last payment due prior to the death of the Annuitant provided that, at the death of the Annuitant, the payee will receive an additional payment equal to the excess, if any, of (a) over (b) where: (a) is the initial value of the proceeds applied under this option; and (b) is the dollar amount of payments already paid. FOURTH OPTION: ANNUITY CERTAIN. An amount payable monthly for the number of years selected which may be from 5 to 30 years. EXCESS INTEREST. At the sole discretion of the Company, excess interest may be paid or credited from time to time in addition to the payments guaranteed under any fixed benefit Optional Method of Settlement. (Page 1) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) VARIABLE BENEFIT OPTIONS VARIABLE INCOME PAYMENTS. The amount of the first Variable Income Payment shall be determined in accordance with the terms of the settlement option and the table(s) set forth in this rider, as applicable. The mortality table used is the 1983 Individual Annuitant Mortality (IAM) Table "a" and 3%. In determining the settlement amount, the Annuitant's settlement age will be reduced by one year when the first instalment is payable during the 1990's, reduced by two years when the first instalment is payable during the decade 2000-2009 and so on. All Variable Income Payments other than the first are determined by means of Annuity Units credited to the contract with respect to the particular payee. The number of Annuity Units to be credited in respect of a particular Sub- Account is determined by dividing that portion of the first Variable Income Payment attributable to that Sub-Account by the Annuity Unit Value of that Sub- Account for the Valuation Period which ends immediately preceding the Annuity Date. The number of Annuity Units of each Sub-Account credited with respect to the particular payee then remains fixed unless an exchange of Annuity Units is made pursuant to the "Exchange of Variable Annuity Units" section. The dollar amount of each Variable Income Payment after the first may increase, decrease or remain constant, and is equal to the sum of the amounts determined by multiplying the number of Annuity Units of a particular Sub-Account for the Valuation Period which ends immediately preceding the due date of each subsequent payment by the Annuity Unit Value for the particular Sub-Account for the first Valuation Period occurring on or immediately prior to the first day of each month. ANNUITY UNIT VALUE. The Annuity Unit Value for each Sub-Account was established at $10.00 for the first Valuation Period of the particular Sub-Account. The Annuity Unit Value for the particular Sub-Account for any subsequent Valuation Period is determined by multiplying the Annuity Unit Value for the particular Sub-Account for the immediately preceding Valuation Period by the Net Investment Factor for the current Valuation Period and then multiplying that product by a factor to neutralize the assumed interest rate of 3% per year to establish the Annuity Payment Rates set forth in this rider. The factor is 0.99991902 for a one day valuation period. EXCHANGE OF VARIABLE ANNUITY UNITS. After the Annuity Date the payee may, by filing a written request with the Company at its Annuity & Variable Life Service Center's Mailing Address, exchange the value of a designated number of Annuity Units of particular Variable Sub-Accounts then credited with respect to such payee into other Annuity Units, the value of which would be such that the dollar amount of an Income Payment made on the date of the exchange would be unaffected by the exchange. Unless otherwise authorized by the Company in writing, no more than 3 exchanges may be made in any Contract Year. Exchanges may be made among the Variable Sub-Accounts only. Exchanges shall be made using the Annuity Unit Values for the Valuation Period during which the request for exchange is received by the Company at its Annuity & Variable Life Service Center's Mailing Address. ANNUITY ACCOUNT FEE. After the Annuity Date an Annuity Account Fee amounting to $35 per year will be deducted in equal amounts from each variable Income Payment made during the calendar year. For example, this would amount to a $2.92 deduction from each monthly Variable Income Payment. No deduction will be made from Fixed Income Payments. OPTION I: VARIABLE LIFE ANNUITY. A variable annuity payable monthly to the payee during the lifetime of the Annuitant, ceasing with the last payment due prior to the death of the Annuitant. (Page 2) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) OPTION II: VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A variable annuity which provides monthly payments during the lifetime of the annuitant and further provides that if, at the death of the annuitant, payments have been made for less than the elected period certain, which may be 60, 120, 180 or 240 months, the annuity payments will be continued during the remainder of such period. OPTION III: VARIABLE ANNUITY CERTAIN. A variable amount payable monthly for the number of years selected which may be from 5 to 30 years. At the expiration of the period certain, no further payments of any kind are payable. If the Annuitant dies before the specified number of certain payments have been received, the remainder of the payments will be continued during the remainder of such period. ADDITIONAL FIXED AND VARIABLE BENEFIT OPTIONS. Any proceeds payable under the contract may also be settled under any other method of settlement (including joint and survivor settlement options under joint life annuities) offered by the Company at the time of the request. LINCOLN NATIONAL LIFE INSURANCE COMPANY /s/ Jon A. Boscia PRESIDENT (Page 3) OPTIONAL METHODS OF SETTLEMENT (CONTINUED) LIFE ANNUITY AND LIFE ANNUITY WITH CERTAIN PERIOD TABLE FOR EACH $1,000 APPLIED - - UNISEX - ----------------------------------------------------- Settlement age of Number of instalments certain Annuitant nearest birthday 60 120 180 240 - ----------------------------------------------------- Age Life Annuity 10 2.84 2.84 2.84 2.84 2.83 11 2.85 2.85 2.85 2.85 2.85 12 2.86 2.86 2.86 2.86 2.86 13 2.88 2.88 2.88 2.87 2.87 14 2.89 2.89 2.89 2.89 2.89 15 2.91 2.90 2.90 2.90 2.90 16 2.92 2.92 2.92 2.92 2.91 17 2.94 2.94 2.93 2.93 2.93 18 2.95 2.95 2.95 2.95 2.95 19 2.97 2.97 2.97 2.96 2.96 20 2.99 2.99 2.98 2.98 2.98 21 3.00 3.00 3.00 3.00 3.00 22 3.02 3.02 3.02 3.02 3.01 23 3.04 3.04 3.04 3.04 3.03 24 3.06 3.06 3.06 3.06 3.05 25 3.08 3.08 3.08 3.08 3.07 26 3.11 3.11 3.10 3.10 3.10 27 3.13 3.13 3.13 3.12 3.12 28 3.15 3.15 3.15 3.15 3.14 29 3.18 3.18 3.17 3.17 3.16 30 3.20 3.20 3.20 3.20 3.19 31 3.23 3.23 3.23 3.22 3.22 32 3.26 3.26 3.26 3.25 3.24 33 3.29 3.29 3.29 3.28 3.27 34 3.32 3.32 3.32 3.31 3.30 35 3.35 3.35 3.35 3.34 3.33 36 3.39 3.39 3.38 3.38 3.36 37 3.42 3.42 3.42 3.41 3.40 38 3.46 3.46 3.46 3.45 3.43 39 3.50 3.50 3.49 3.48 3.47 40 3.54 3.54 3.54 3.52 3.50 41 3.59 3.59 3.58 3.56 3.54 42 3.63 3.63 3.62 3.61 3.58 43 3.68 3.68 3.67 3.65 3.62 44 3.73 3.73 3.72 3.70 3.67 45 3.78 3.78 3.77 3.74 3.71 46 3.84 3.84 3.82 3.79 3.76 47 3.90 3.89 3.88 3.85 3.80 48 3.96 3.95 3.93 3.90 3.85 49 4.02 4.02 3.99 3.96 3.91 50 4.09 4.08 4.06 4.02 3.96 51 4.16 4.15 4.13 4.08 4.01 52 4.23 4.22 4.20 4.15 4.07 53 4.31 4.30 4.27 4.21 4.13 54 4.39 4.38 4.35 4.28 4.19 55 4.48 4.47 4.43 4.36 4.25 56 4.57 4.56 4.51 4.43 4.32 57 4.67 4.65 4.60 4.51 4.38 58 4.78 4.76 4.70 4.60 4.45 59 4.89 4.87 4.80 4.68 4.51 60 5.00 4.98 4.91 4.77 4.58 61 5.13 5.10 5.02 4.87 4.65 62 5.27 5.23 5.13 4.96 4.72 63 5.41 5.37 5.26 5.06 4.79 64 5.56 5.52 5.39 5.16 4.85 65 5.73 5.68 5.52 5.27 4.92 66 5.90 5.84 5.67 5.37 4.98 67 6.09 6.02 5.82 5.48 5.04 68 6.29 6.21 5.97 5.58 5.10 69 6.51 6.41 6.13 5.69 5.15 70 6.74 6.63 6.30 5.79 5.20 71 6.99 6.86 6.47 5.90 5.25 72 7.25 7.10 6.65 6.00 5.29 73 7.54 7.36 6.83 6.09 5.33 74 7.85 7.63 7.02 6.19 5.36 75 8.19 7.92 7.21 6.27 5.39 76 8.55 8.23 7.39 6.36 5.42 77 8.93 8.56 7.58 6.43 5.44 78 9.35 8.90 7.77 6.50 5.45 79 9.80 9.26 7.95 6.56 5.47 80 10.29 9.63 8.12 6.61 5.48 81 10.81 10.02 8.29 6.66 5.49 82 11.37 10.42 8.45 6.70 5.49 83 11.98 10.83 8.60 6.74 5.50 84 12.62 11.25 8.74 6.76 5.50 85 13.31 11.67 8.86 6.79 5.51 - ----------------------------------------------------- ANNUITY CERTAIN TABLE FOR EACH $1,000 APPLIED - ----------------------------------------------------- Numbers of years Amount of each instalment during which instalments will be paid Annual Monthly - ----------------------------------------------------- 5 211.99 17.91 6 179.22 15.14 7 155.83 13.16 8 138.31 11.68 9 124.69 10.53 10 113.82 9.61 11 104.93 8.86 12 97.54 8.24 13 91.29 7.71 14 85.95 7.26 15 81.33 6.87 16 77.29 6.53 17 $ 73.74 $ 6.23 18 70.59 5.96 19 67.78 5.73 20 65.26 5.51 25 55.76 4.71 30 49.53 4.18 (Page 4) EX-5 4 EXHIBIT 5 VARIABLE ANNUITY LINCOLN NATIONAL LIFE INSURANCE COMPANY - ---------------- --------------------------------------- MAILING ADDRESS: [LINCOLN NATIONAL LIFE INSURANCE COMPANY VARIABLE PRODUCTS SERVICE CENTER, ROUTING S249 HARTFORD, CONNECTICUT 06152-2249] - ---------------------------------------------------------------------------------------------------------------------------------- 1 OWNER Name ----------------------------------------------------------------------------------------------------- First Middle Last Address -------------------------------------------------------------------------------------------------- Number Street City State Zip Code Date of Birth / / SS# Sex / / M Telephone ( ) (HOME) --- --- --- -------------------- / / F ---- --------------- Mo. Day Yr. (or Tax Iden. #) ( ) (WORK) ---- --------------- Full Name of Trust Name(s) of Trustee(s) -------------------------- --------------- ------------------- (If applicable) (Date of Trust) (If applicable) - ---------------------------------------------------------------------------------------------------------------------------------- 2 a. ANNUITANT a. Annuitant (If different from -------------------------------------------------------------------------------------------- Owner)(List older First Middle Last Annuitant first, if Address Joint Annuitant) ------------------------------------------------------------------------------------------------- Number Street City State Zip Code Date of Birth / / SS# Sex / / M Telephone ( ) (HOME) --- --- --- -------------------- / / F ---- --------------- Mo. Day Yr. (or Tax Iden. #) ( ) (WORK) ---- --------------- b. JOINT b. Joint Annuitant ANNUITANT --------------------------------------------------------------------------------------- (If applicable) First Middle Last (Annuitant/Joint Address Annuitant may not -------------------------------------------------------------------------------------------------- be a corporation Number Street City State Zip Code or trust) Date of Birth / / SS# Sex / / M Telephone ( ) (HOME) --- --- --- -------------------- / / F ---- --------------- Mo. Day Yr. (or Tax Iden. #) ( ) (WORK) ---- --------------- - ---------------------------------------------------------------------------------------------------------------------------------- 3 OWNER'S Primary Beneficiary(s) and relationship to Owner Contingent Beneficiary(s) and relationship to Owner BENEFICIARY DESIGNATION ------------------------------------------------ --------------------------------------------------- ------------------------------------------------ --------------------------------------------------- ------------------------------------------------ --------------------------------------------------- ------------------------------------------------ --------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 4 PREMIUM PAYMENT(S) I. Premium Payment $ (MAKE CHECK PAYABLE TO "Lincoln National Life ------------------------ Insurance Co.") II. Plan Type (CHECK ONE) / / QUALIFIED (IF QUALIFIED, PLEASE COMPLETE ADDENDUM TO APPLICATION - FORM B10243) / / NON-QUALIFIED III. Does any portion of the payment represent after-tax dollars? / / YES / / NO IF YES, SPECIFY THE AMOUNT $ ---------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 5 Fixed Account Guaranteed Periods - (Sub-Accounts) PREMIUM % 1 Year % 5 Years % 10 Years PAYMENT ----- ----- ----- ALLOCATION % Years (IF AVAILABLE FROM THE COMPANY) ---- (Allocation to any VARIABLE ACCOUNT - SUB-ACCOUNTS (FUNDS) one % line must be --------------------------------------- 1% or more. Use ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST Whole percentages ___% Alger American Growth Portfolio ___% MFS Total Return Series only. Must total ___% Alger American Leverage AllCap Portfolio ___% MFS Utilities Series 100%.) ___% Alger American Midcap Growth Portfolio ___% MFS Emerging Growth Series ___% Alger American Small Capitalization Portfolio ___% MFS Research Series If DOLLAR COST ___% MFS Growth With Income Series AVERAGING is LINCOLN NATIONAL VARIABLE PRODUCTS GROUP employed, an ___% Lincoln National Money Market Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST allocation must be ("AMT") made to the Lincoln FIDELITY INVESTMENTS ___% AMT Partners Portfolio Variable Products ___% Fidelity High Income Portfolio ___% AMT Limited Maturity Bond Portfolio Money Market Fund ___% Fidelity Equity-Income Portfolio and the % allocation ___% Fidelity Overseas Portfolio OCC ACCUMULATION TRUST must result in at ___% Fidelity Investment Grade Bonds Portfolio ___% OCC Global Equity Portfolio least $12,000 to such ___% Fidelity Contra Fund Portfolio ___% OCC Managed Portfolio account. Please ___% Fidelity Growth Opportunities Portfolio ___% OCC Small Cap Portfolio complete Section 8. OTHER (IF AVAILABLE FROM THE COMPANY) ___% _________________________________ ___% _________________________________ _____% TOTAL of percentages allocated to Fixed Account and/or Variable Account (MUST EQUAL 100%). - ---------------------------------------------------------------------------------------------------------------------------------- 6 TELEPHONE I(We) acknowledge that neither the Company nor any person authorized by the Company will be responsible TRANSFER for any claim, loss, liability or expense in connection with a telephone transfer if the Company or such AUTHORIZATION other person acted on telephone transfer instructions in good faith in reliance on this authorization. Check here if you DO NOT wish to authorize telephone transfer instructions. / / Check here if you wish to authorize your registered representative/agent to make telephone transfers. / / - ---------------------------------------------------------------------------------------------------------------------------------- (Page 1) - ---------------------------------------------------------------------------------------------------------------------------------- 7 ANNUITY DATE The Annuity Date (INCOME PAYMENTS BEGIN ON THE FIRST DAY OF THE MONTH FOLLOWING THE ANNUITY DATE) must be at least one month after the Date of Issue. If no date is selected, the initial Annuity Date will be the Annuitant's (older Annuitant's, if Joint Annuitant) 90th birthday (FOR QUALIFIED PLANS, AGE 701/2). Initial Annuity Date __________________________________ MONTH YEAR - ---------------------------------------------------------------------------------------------------------------------------------- 8 DOLLAR COST SELECT ONE TRANSFER OPTION ($1,000 MINIMUM PER TRANSFER): AVERAGING / / $_____________ monthly / / $_____________ quarterly (For Variable Each amount transferred is to be applied to the following Fund(s) in these percentages (USE WHOLE Account only) PERCENTAGES ONLY. TOTAL MUST EQUAL 100%.): (FOLLOW ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST INSTRUCTIONS IN ___% Alger American Growth Portfolio ___% MFS Total Return Series SECTION 5 BEFORE ___% Alger American Leveraged AllCap Portfolio ___% MFS Utilities Series COMPLETING THIS ___% Alger American Midcap Growth Portfolio ___% MFS Emerging Growth Series SECTION.) ___% Alger American Small Capitalization Portfolio ___% MFS Research Series ___% MFS Growth With Income Series LINCOLN NATIONAL VARIABLE PRODUCTS GROUP ___% Lincoln National Money Market Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST ("AMT") FIDELITY INVESTMENTS ___% AMT Partners Portfolio ___% Fidelity High Income Portfolio ___% AMT Limited Maturity Bond Portfolio ___% Fidelity Equity-Income Portfolio ___% Fidelity Overseas Portfolio OCC ACCUMULATION TRUST ___% Fidelity Investment Grade Bonds Portfolio ___% OCC Global Equity Portfolio ___% Fidelity Contra Fund Portfolio ___% OCC Managed Portfolio ___% Fidelity Growth Opportunities Portfolio ___% OCC Small Cap Portfolio OTHER (IF AVAILABLE FROM THE COMPANY) ___% _________________________________ ___% _________________________________ _____% TOTAL of percentages allocated to Fixed Account and/or Variable Account (MUST EQUAL 100%). - ---------------------------------------------------------------------------------------------------------------------------------- 9 REPLACEMENT Will the contract replace one or more existing annuity or life insurance contracts? / / YES / / NO IF YES, PLEASE PROVIDE COMPANY NAME, POLICY NUMBER AND AMOUNT IN SPECIAL REMARKS SECTION AND FOR NON-QUALIFIED PLANS, COMPLETE THE FOLLOWING: INDICATE COST BASIS: COST BASIS GAIN ---------- ---- PRE-TEFRA (PRIOR TO 8/13/82) ------------------------ ---------------------- POST-TEFRA (ON OR AFTER 8/13/82) ------------------------ ---------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 10 SPECIAL REMARKS - ---------------------------------------------------------------------------------------------------------------------------------- 11 HOME OFFICE CHANGES OR CORRECTIONS - ---------------------------------------------------------------------------------------------------------------------------------- 12 SIGNATURE(S) I(We) hereby certify that the answers to the above questions are true and correct to the best of my(our) knowledge and belief and agree that this application will be made a part of any contract issued by the Company. ALL PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA THAT MAY INCREASE OR DECREASE THE VALUE OF ANY PARTIAL OR FULL SURRENDER MADE PRIOR TO THE END OF A GUARANTEED PERIOD. ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. I(We) acknowledge receipt of a current prospectus. Please check here / / if you wish to receive a copy of the Statement of Additional Information which supplements the information in the prospectus. Under penalties of perjury, I (the Owner) certify that the above Social Security and Taxpayer Identification numbers are correct and that I am of legal age to enter into this agreement. Signed at (City and State) On / / ------------------------------------------------- ----- ----- ----- MO DAY YEAR --------------------------------------------------------------------------- SIGNATURE(S) OF OWNER(S) - ---------------------------------------------------------------------------------------------------------------------------------- 13 CERTIFICATION/ The Registered Representative hereby certifies that the contract / / IS / / IS NOT intended to replace REPORT BY or change any existing annuity or life insurance. REGISTERED REPRESENTATIVE/ Print Name Signature WITNESS -------------------------------------------- -------------------------------------- SS# Telephone ---------------------------------------------------- -------------------------------------- Rep. Code/Percentage / % Field Office Code ----------------------------------- ------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- Print Name Signature -------------------------------------------- --------------------------------------- SS# Telephone ---------------------------------------------------- -------------------------------------- Rep. Code/Percentage / % Field Office Code ----------------------------------- ------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 14 BROKER/ Print Name Telephone DEALER -------------------------------------------- --------------------------------------- INFORMATION Address Broker Code ----------------------------------------------- ------------------------------------- Field Office Code ----------------------------------------------- ------------------------------- Registered Representative Election (IF NO CHOICE IS ELECTED, THE COMPANY WILL DEFAULT TO AN OPTION PICKED BY A BROKER/DEALER.) A, B, C Other --------------- - ---------------------------------------------------------------------------------------------------------------------------------- (Page 2)
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