<PAGE>
As filed with the Securities and Exchange Commission on May l, 1996
Registration No. 33-90406
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
------------------------
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT D
(Exact name of Trust)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of depositor)
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
(Complete address of depositor's principal executive offices)
-------------------------
Name and complete address
of agent for service: Copy to:
Carl L. Baker, Esquire Roy V. Washington, Esquire
Vice President & Associate Counsel
Deputy General Counsel The Lincoln National
The Lincoln National Life Insurance Company
Life Insurance Company 1300 South Clinton Street
1300 South Clinton Street P.O. Box 1110
P.O. Box 1110 Fort Wayne, Indiana 46801
Fort Wayne, IN 46801
-------------------------
This filing is made pursuant to Rule 6c-3 and Rule 6e-3(T), as amended,
under the Investment Company Act of 1940.
It is proposed that this post-effective amendment become effective pursuant
to Rule 485(b) on May 1, 1996.
================================================================================
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
For Lincoln Life Flexible Premium Variable Life Account D
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
1 Cover Page
2 Cover Page
3 Not applicable
4 Lincoln Life
5 Lincoln Life
6 The Account
7 Not Required
8 Not Required
9 Legal Proceedings
10 The Separate Account; Right to Examine Policy; Surrender of the
Policy; Withdrawals; Proceeds; Addition, Deletion, or
Substitutions of Investments; Transfer Between Subaccounts;
Policy Lapse and Reinstatement; Voting Rights; Premium Payment
and Allocation of Premiums; Death Benefits and Death Benefit
Types; Policy Changes; Changes in Type of Coverage; Policy Value;
Proceeds and Payment Options
11 Lincoln Life; The General Account; The Separate Account
12 The Separate Account; Lincoln Life
13 Charges and Deductions
14 Requirements for Issuance of a Policy
15 Premium Payment and Allocation of Premiums
16 Premium Payment and Allocation of Premiums; Percent of Premium
Charge; Charges and Deductions
17 Surrender of the Policy
18 The Separate Account
19 Reports and Records
20 Not Applicable
21 Loans
22 Not applicable
23 Safekeeping of the Account's Assets
24 General Provisions
25 Lincoln Life
26 Not Applicable
27 Lincoln Life
28 Executive Officers and Directors of Lincoln National Life
Insurance Company
29 Lincoln Life
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
34 Not applicable
35 Distribution of the Policy
36 Not Required
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41 Lincoln Life; Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Not Applicable
45 Not Applicable
46 Not Applicable
47 The Separate Account
48 Not Applicable
49 Not Applicable
50 The Separate Account
51 Lincoln Life; Premium Payment and Allocation of Premiums; Surrender of
the Policy; Withdrawals; Proceeds; Policy Lapse and Reinstatement;
Charges and Deductions
52 Addition, Deletion and Substitution of Investments
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Required
57 Not Required
58 Not Required
59 Not Required
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT D
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
LINCOLN NATIONAL LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET--P.O. BOX 1110
FORT WAYNE, IN 46801 (800)348-0851
The flexible premium variable life insurance policy ("Policy") offered by
Lincoln National Life Insurance Company ("Lincoln Life") and described in this
prospectus is designed to provide life insurance protection. A Policy may be
issued only to persons age 80 or younger and only for an initial Specified
Amount of $50,000 or more. Subject to the payment of a minimum premium for the
first year, an Owner may, subject to certain restrictions, vary the frequency
and amount of premium payments. The level of life insurance benefits payable
under the Policy may also be increased or decreased subject to certain
restrictions.
The Owner may allocate amounts to the Lincoln Life Flexible Premium Variable
Life Account D ("Separate Account"). Amounts allocated to the Separate Account
may be invested in one of the five available funds:
Lincoln National Bond Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
The amount of the death benefit may, and the Policy Value will, reflect the
investment experience of the chosen subaccounts of the Separate Account and
interest credited to the Policy by the General Account, as well as the frequency
and amount of premiums, and the charges assessed in connection with the Policy.
As long as the Policy remains in force, the death benefit will not be less than
the current Specified Amount of the Policy. The Policy will remain in force so
long as Net Cash Surrender Value is sufficient to pay the monthly deductions
imposed in connection with the Policy. The Owner bears the entire investment
risk for all amounts allocated to the Separate Account; no minimum Policy Value
or Net Cash Surrender Value is guaranteed.
The purchase and ownership of the Policy involves various charges which are
explained under the heading "Charges and Deductions" on page 8.
It may not be advantageous to purchase a Policy as: (1) a replacement for
another type of life insurance; or, (2) to obtain additional insurance
protection if the purchaser already owns another flexible premium variable life
insurance policy.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY
A PROSPECTUS FOR EACH OF THE AVAILABLE FUNDS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE REGULATORY AGENCY, NOR HAS THE COMMISSION,
OR ANY STATE REGULATORY AGENCY, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS 4/30/96
<PAGE>
TABLE OF CONTENTS PAGE
PAGE
SUMMARY OF THE POLICY ............................................ 1
LINCOLN LIFE, THE GENERAL ACCOUNT,
AND THE SEPARATE ACCOUNT ........................................ 3
Lincoln Life .................................................... 3
The General Account ............................................. 3
The Separate Account ............................................ 4
The Investment Advisor .......................................... 4
Addition, Deletion, or Substitution of Investments .............. 4
THE POLICY ....................................................... 5
Requirements for Issuance of a Policy ........................... 5
Premium Payment and Allocation of Premiums ...................... 5
Dollar Cost Averaging Program ................................... 7
Effective Date .................................................. 7
Right to Examine Policy ......................................... 8
Policy Termination .............................................. 8
CHARGES AND DEDUCTIONS ........................................... 8
Percent of Premium Charge ....................................... 8
Surrender Charge ................................................ 8
Monthly Deductions .............................................. 8
Cost of Insurance Charges ....................................... 8
Monthly Charge .................................................. 9
Asset Management Charge ......................................... 9
Mortality and Expense Risk Charge ............................... 9
Other Charges .................................................. 10
Reduction of Charges............................................ 10
Exchange of Lincoln Life Universal Life Policies ............... 10
Term Conversion Credit ......................................... 10
POLICY BENEFITS ................................................. 11
Death Benefit and Death Benefit Types .......................... 11
Death Benefit Guarantee ........................................ 12
Policy Changes ................................................. 13
Policy Value ................................................... 14
Transfer between Subaccounts ................................... 15
Transfer To and From the General Account ....................... 15
Loans .......................................................... 15
Withdrawals .................................................... 16
Policy Lapse and Reinstatement ................................. 16
Surrender of the Policy ........................................ 17
Proceeds and Payment Options ................................... 17
GENERAL PROVISIONS .............................................. 18
The Contract ................................................... 18
Suicide ........................................................ 18
Representations & Contestability ............................... 18
Incorrect Age or Sex ........................................... 19
Change of Owner or Beneficiary ................................. 19
Assignment ..................................................... 19
Reports and Records ............................................ 19
Projection of Benefits & Values ................................ 19
Postponement of Payments ....................................... 20
Riders ......................................................... 20
DISTRIBUTION OF THE POLICY .......................................22
FEDERAL TAX MATTERS ..............................................22
Tax Status of the Policy ....................................... 22
Tax Treatment of Policy Benefits ............................... 23
Taxation of the Separate Account................................ 25
VOTING RIGHTS ....................................................25
STATE REGULATION OF LINCOLN LIFE AND THE SEPARATE ACCOUNT.........26
SAFEKEEPING OF THE ACCOUNT'S ASSETS ..............................26
LEGAL PROCEEDINGS................................................ 26
EXPERTS ......................................................... 26
ADDITIONAL INFORMATION .......................................... 26
APPENDIX A: Table of Base Minimum Premiums...................... 27
APPENDIX B: Executive Officers & Directors of Lincoln National
Life Insurance Co....................................29
APPENDIX C: Illustrations of Policy Values ..................... 34
APPENDIX D: Definitions ........................................ 43
FINANCIAL STATEMENTS
<PAGE>
SUMMARY OF THE POLICY
The following Summary is intended to give you a brief explanation of the most
important features of your Policy. The Summary is not comprehensive and is
entirely qualified by more specific information contained elsewhere in this
prospectus. For the definition of terms used in this Prospectus, see Appendix D,
page 43.
WHAT TYPE OF POLICY AM I PURCHASING?
Your Policy is a flexible premium variable life insurance policy whose primary
purpose is to provide life insurance protection on the Insured. As long as your
Policy remains in force, the Policy will provide for: (1) the payment of a Death
Benefit to a Beneficiary upon the Insured's death; (2) Policy loan privileges,
withdrawal rights, and surrender privileges; and (3) the payment of the Net Cash
Surrender Value to the Owner, if living, on the Maturity Date.
HOW DOES THE LIFE INSURANCE PROTECTION WORK?
The Policy provides for the payment of benefits upon the death of the Insured.
The Policy contains two types of Death Benefit coverage. If you choose Type 1,
the Death Benefit is the greater of the Specified Amount of the Policy or a
specified percentage of Policy Value. If you choose Type 2, the Death Benefit is
the greater of the Specified Amount of the Policy plus the Policy Value or a
specified percentage of Policy Value. So long as your Policy remains in force,
the minimum Death Benefit payable under either option will be the current
Specified Amount, reduced by any outstanding loan and any due and unpaid
charges, and increased by any unearned loan interest. (See Death Benefit and
Death Benefit Types, p. 11.)
You also have significant flexibility to adjust the Death Benefit prior to the
Maturity Date by increasing or decreasing the Specified Amount of the Policy.
Any increases in the Specified Amount will require additional evidence of
insurability satisfactory to us and will result in additional charges.
HOW ARE THE PREMIUMS FLEXIBLE?
You have considerable flexibility concerning the amount and frequency of premium
payments. During the first three policy years, your Policy will lapse unless
either the total of all premiums paid (minus any partial withdrawals and minus
any outstanding loans) is at all times at least equal to the Death Benefit
Guarantee Monthly Premium times the number of months since the initial policy
date (including the current month) or the Net Cash Surrender Value of the Policy
is greater than zero. In order to place your policy in force, you must pay at
least the first two Death Benefit Guarantee Monthly Premiums. In addition, you
will be asked to determine a Planned Periodic Premium schedule, although you
will not be required to adhere to that premium schedule. Instead, after the
first policy year, you may, subject to certain restrictions, make premium
payments in any amount and at any frequency. (See Premium Payments and
Allocation of Premiums, p. 5.)
WHAT MAKES MY POLICY VARIABLE?
Your Policy is described as variable because the Death Benefit and the Policy
Value can vary with the investment performance of amounts you have allocated to
the subaccounts you have selected. While you bear the entire investment risk on
such amounts, you also enjoy the opportunity to obtain market rates of return on
those amounts.
WHAT FUNDS ARE AVAILABLE TO SELECT?
3
<PAGE>
You have the option to allocate amounts to one or more subaccounts of the
Separate Account. The subaccounts of the Separate Account each invest in one of
the following available funds:
Lincoln National Bond Fund, INC.: This fund is a diversified, open-end
management investment company whose investment objective is maximum current
income consistent with a prudent investment strategy.
Lincoln National Growth and Income Fund, INC.: This fund is a diversified,
open-end management investment company whose investment objective is long-term
capital appreciation.
Lincoln National Managed Fund, INC.: This fund is a diversified, open-end
management investment company whose investment objective is maximum long-term
total return (capital gains plus income) consistent with prudent investment
strategy.
Lincoln National Money Market Fund, INC.: This fund is a diversified, open-end
management investment company whose investment objective is maximum current
income consistent with the preservation of capital.
Lincoln National Special Opportunities Fund, INC.: This fund is a non-
diversified open-end management investment company whose investment objective is
maximum capital appreciation. Realization of current investment income is not
expected to be significant.
HOW ARE PREMIUMS PROCESSED?
You determine in the application what portions of net premiums are to be
allocated to the various subaccounts of the Separate Account. Premium amounts
may only be allocated to the General Account if the entire amount in the General
Account will be used for Dollar Cost Averaging. Prior to the Record Date, net
premiums are automatically allocated to the General Account. After the Record
Date, the Policy Value and all subsequent net premiums will automatically be
invested in the subaccounts of the Separate Account in accordance with your
instructions in the application. You may change future allocations of net
premiums at any time without charge by notifying us in writing. Subject to
certain restrictions, you may transfer amounts among the subaccounts of the
Separate Account.
WHEN DOES MY POLICY TERMINATE?
Your policy may terminate due to any one of the following: voluntary return or
surrender of the Policy, lapse due to failure to pay required premiums or due to
insufficient Net Cash Surrender Value, payment of the death benefit, or
maturity. During the Free Look Period, you may return the Policy for a refund of
all premiums paid. Anytime after the Free Look Period, you may surrender the
Policy and receive its Net Cash Surrender Value. (See Charges and Deductions, p.
8)
DO I HAVE ACCESS TO THE POLICY VALUES?
You may access the Net Cash Surrender Value through loans or withdrawals. You
may borrow the Net Cash Surrender Value at any time. In addition, subject to
some restrictions and charges, you may withdraw portions of the Net Cash
Surrender Value after the first policy year. Loans and withdrawals decrease both
the Death Benefit and future policy values and may have Federal income tax
consequences.
WHAT CHARGES AND DEDUCTIONS ARE MADE FROM MY POLICY?
4
<PAGE>
PERCENT OF PREMIUM CHARGE. A Percent of Premium Charge is currently deducted
from each premium you pay. The total charge currently consists of the sum of the
following:
a. 4.45% for charges deemed to be sales loads as defined by the Investment
Company Act of 1940. This item is guaranteed not to exceed 4.45%.
b. 2.50% for premium taxes and other taxes not deemed to be sales loads as
defined by the Investment Company Act of 1940. Any increase in this item
must first be approved by the Securities and Exchange Commission and, in
any event, this item is guaranteed not to exceed 4.05%.
The Percent of Premium Charge is deducted as compensation for distribution
expenses we incur in the sales process. These distribution expenses include
sales commissions, the cost of printing the prospectus and sales literature, and
any advertising costs. To the extent that such distribution expenses are not
recovered through explicit sales charges, we will recover them from our other
assets or surplus, including income from Mortality and Expense Risk Charges and
Cost of Insurance Charges.
SURRENDER CHARGE. There are no Surrender Charges for this policy. If we approve
a requested increase in the Specified Amount, no Surrender Charges will apply to
the amount of the increase. There is, however, a fixed dollar withdrawal charge
for partial withdrawals. (See following paragraph.)
OTHER CHARGES AND DEDUCTIONS. The Policy Value will be reduced by certain
Monthly Deductions equal to the sum of a monthly Cost of Insurance Charge
(including the cost of any optional insurance benefits), and a Monthly Charge
equal to $7.50 per month. Currently, no charge is made for transfers of amounts
among the subaccounts, although a maximum of $10 per transfer may be charged. A
Withdrawal Charge consisting of a processing fee is deducted from each
withdrawal. Currently, the Withdrawal Charge is equal to $10. This charge is
guaranteed not to exceed $25 at all times.
A daily charge currently equivalent to an annual rate of .60% of the average
daily net assets of the Separate Account is currently imposed for Lincoln Life's
assumption of certain Mortality and Expense Risks. This charge is guaranteed not
to exceed .90%.
No charges are currently made from the Separate Account for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
Company reserves the right to make deductions from the Policy to pay those
taxes.
In addition, because the Separate Account purchases shares of the funds
involved, the value of the net assets of these subaccounts of the Separate
Account will reflect the fees of the Investment Adviser and other miscellaneous
expenses incurred by those funds.
HOW ARE MY POLICY AND ITS BENEFITS TAXED?
The taxation of life insurance death benefits and distributions is complex and
is discussed in detail under "Federal Tax Matters", p. 22. You should note in
particular that the taxation of loans, withdrawals and surrenders of a life
insurance policy that becomes a Modified Endowment Contract is generally less
favorable than distributions from a life insurance policy that is not a Modified
Endowment Contract. Your Policy will be a Modified Endowment Contract if the
premiums you pay exceed certain limits referred to as the 7-pay Limitation.
5
<PAGE>
LINCOLN LIFE, THE GENERAL ACCOUNT AND THE SEPARATE ACCOUNT
LINCOLN LIFE
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
individual 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, a publicly held
insurance holding company incorporated under Indiana law on January 5, 1968.
The principal office of Lincoln Life is located at 1300 South Clinton Street,
Fort Wayne, Indiana 46802. The principal office of Lincoln National Corporation
is located at 200 East Berry Street, Fort Wayne, Indiana 46802. Through
subsidiaries, Lincoln National Corporation engages primarily in the issuance of
health-life insurance and annuities, property-casualty insurance, and other
financial services.
THE GENERAL ACCOUNT
The General Account refers to the General Account of Lincoln Life. The General
Account consists of all assets owned by Lincoln Life other than those allocated
to any of its separate accounts, including the Separate Account. The General
Account supports Lincoln Life's insurance and annuity obligations. Because of
applicable exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933, and the
General Account has not been registered as an investment company under the
Investment Company Act of 1940.
THE SEPARATE ACCOUNT
Lincoln Life Flexible Premium Variable Life Account D ("Separate Account") was
established by Lincoln Life as a separate account on September 1, 1986. Although
the assets of the Separate Account are the property of Lincoln Life, the laws of
Indiana under which the Separate Account was established provide that the assets
in the Separate Account attributable to the policies are not chargeable with
liabilities arising out of any other business which Lincoln Life may conduct.
The assets of the Separate Account shall, however, be available to cover the
liabilities of the General Account of Lincoln Life to the extent that the
Separate Account's assets exceed its liabilities arising under the policies
supported by it. The assets of the Separate Account will be valued once daily at
the close of trading (currently 4:00 p.m. New York time) on each day the New
York Stock Exchange is open. The New York Stock Exchange is currently closed on
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Separate Account has been registered as an investment company under the
Investment Company Act of 1940 and meets the definition of "separate account"
under Federal Securities laws. Registration with the Securities and Exchange
Commission does not involve supervision of the management or investment
practices or policies of the Separate Account or Lincoln Life by the Commission.
The Separate Account is divided into five subaccounts. Each subaccount invests
in shares of one of the available funds:
Lincoln National Bond Fund, Inc.
6
<PAGE>
Lincoln National Growth and Income Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Income and both realized and unrealized gains or losses from the assets of the
Separate Account are credited to or charged against the Separate Account without
regard to the income, gains or losses arising out of any other business Lincoln
Life may conduct. The funds are also invested in by variable annuity contract
holders. For an explanation of the risk involved with mixed and/or shared
funding, see the prospectus of the underlying funds.
There is no assurance that any fund will achieve its stated objective. For a
complete description of the funds, please refer to the prospectus for the funds
which must accompany or precede this prospectus and which should be read
carefully.
THE INVESTMENT ADVISER
Lincoln Investment Management Inc. (Lincoln Investment) is the investment
advisor for the funds. Lincoln Investment is a wholly owned subsidiary of
Lincoln National Corporation.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Lincoln Life cannot guarantee that any particular funds will be available for
investment by the subaccounts. Lincoln Life reserves the right, subject to
compliance with applicable law, to make additions to, deletions from, or
substitutions for the shares that are held by the Separate Account or that the
Separate Account may purchase. Lincoln Life reserves the right to eliminate the
shares of any fund and to substitute shares of another open-end, registered
investment company, if the shares are no longer available for investment, or if
in the judgment of Lincoln Life further investment in any fund should become
inappropriate in view of the purposes of the Separate Account. Lincoln Life will
not substitute any shares attributable to an Owner's interest in a subaccount of
the Separate Account without notice and prior approval of the Securities and
Exchange Commission, to the extent required by the Investment Company Act of
1940 or other applicable law. Nothing contained herein shall prevent the
Separate Account from purchasing other securities for other series or classes of
policies, or from permitting a conversion between series or classes of policies
on the basis of requests made by policy owners.
Lincoln Life also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new fund or series of a fund,
or in shares of another investment company, with a specified investment
objective. New subaccounts may be established when, at the sole discretion of
Lincoln Life, marketing needs or investment conditions warrant, and any new
subaccounts may be made available to existing policy owners on a basis to be
determined by Lincoln Life. Lincoln Life may also eliminate one or more
subaccounts if, in its sole discretion, marketing, tax, or investment conditions
warrant.
In the event of any such substitution or change, Lincoln Life may by appropriate
endorsement make such changes in the Policy as may be necessary or appropriate
to reflect such substitution or change. If deemed by Lincoln Life to be in the
best interests of persons having voting rights under the Policies, the Separate
Account may be operated as a management company under the Investment Company Act
of 1940, it may be deregistered under that Act in the event such registration is
no longer required, or it may be combined with other Lincoln Life separate
accounts.
7
<PAGE>
THE POLICY
REQUIREMENTS FOR ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must send a completed application to
Lincoln Life, 1300 South Clinton Street, Fort Wayne, IN 46802. The minimum
Specified Amount of a Policy is $50,000. A Policy will generally be issued only
to Insureds 80 years of age or under who supply satisfactory evidence of
insurability sufficient to Lincoln Life. Acceptance is subject to Lincoln Life's
underwriting rules and, except in California, Lincoln Life reserves the right to
reject an application for any reason.
Additional insurance on the life of other persons may be applied for by
supplemental application. Approval of the additional insurance will be subject
to evidence of insurability satisfactory to Lincoln Life.
PREMIUM PAYMENT AND ALLOCATION OF PREMIUMS
Subject to certain limitations, an Owner has considerable flexibility in
determining the frequency and amount of premiums. During the first three policy
years, the Policy will lapse unless either the total of all premiums paid (minus
any partial withdrawals and minus any outstanding loans) is at all times at
least equal to the Death Benefit Guarantee Monthly Premium times the number of
months since the initial policy date (including the current month) or the Net
Cash Surrender Value of the policy is greater than zero. Payment of the Death
Benefit Guarantee Monthly Premium during the first three policy years will
guarantee that the Policy will remain in force for the first three policy years
despite negative Net Cash Surrender Value (see Death Benefit Guarantee, P. 12)
but continued payment of such premiums will not guarantee that the Policy will
remain in force thereafter. The amount of the Death Benefit Guarantee Monthly
Premium is based on a base minimum premium per $1,000 of Specified Amount
(determined by the Insured's age, sex, and underwriting class) and includes
additional amounts to cover charges for additional benefits, Monthly Charges,
and substandard extra charges. A table of annual base minimum premiums per
$1,000 of Specified Amount is in Appendix A, pp 27-28.
The Owner may designate in the application one of several ways to pay the Death
Benefit Guarantee Monthly Premium. The Owner may elect to pay the first twelve
months of premiums in full prior to commencement of insurance coverage.
Alternatively, the Owner may elect to pay a level Planned Periodic Premium on a
quarterly or semi-annual basis sufficient to meet the premium requirements.
Premiums may also be paid monthly if paid by a pre-authorized check. Premiums,
other than the initial premium, are payable at the Home Office of Lincoln Life.
Each Owner will also define a Planned Periodic Premium schedule that provides
for payment of a level premium at fixed intervals for a specified period of
time. The Owner is not required to pay premiums in accord with this schedule.
Furthermore, the Owner has flexibility to alter the amount, frequency, and the
time period over which Planned Periodic Premiums are paid. Failure to pay
Planned Periodic Premiums will not of itself cause the Policy to lapse, nor will
the payment of Planned Periodic Premiums equal to or in excess of the required
Death Benefit Guarantee Monthly Premiums guarantee that the Policy will remain
in force beyond the first three policy years. Unless the Policy is being
continued under the Death Benefit Guarantee, (see Death Benefit Guarantee, p.
12), the Policy will lapse any time outstanding loans with interest exceed
Policy Value or Policy Value less outstanding loans is insufficient to pay
certain Monthly Deductions, and a grace period expires without a sufficient
payment. (See Policy Lapse and Reinstatement, p. 16.) Subject to the minimum
premiums required to keep the policy in force and the
8
<PAGE>
maximum premium limitations established under section 7702 of the Internal
Revenue Code 1986, as amended ("the Code"), an Owner may make unscheduled
premium payments at any time in any amount during the lifetime of the Insured
until the Maturity Date. Monies received that are not designated as premium
payments will be assumed to be loan repayments if there is an outstanding loan
on the Policy; otherwise, such monies will be assumed to be an unscheduled
premium payment.
PREMIUM LIMITATIONS. In no event can the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations
established for life insurance policies to meet the definition of life
insurance, as set forth under Section 7702 of the Code. Those limitations will
vary by issue age, sex, classification, benefits provided, and even policy
duration. If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium limitation, Lincoln Life will only accept
that portion of the premium which will make total premiums equal that amount.
Any part of the premium in excess of that amount will first be applied to reduce
any outstanding loan on the Policy, and any further excess will be refunded to
the Owner within 7 days of receipt and no further premiums will be accepted
until allowed by subsequent maximum premium limitations.
The tax status of a policy and the tax treatment of distributions from a policy
are dependent in part on whether or not the policy becomes a Modified Endowment
Contract. A Policy will become a Modified Endowment Contract if premiums paid
into the Policy cause the Policy to fail the 7-pay test set forth under Section
7702A of the Code. Lincoln Life will monitor premiums paid into each Policy
after the date of this Prospectus to determine when a premium payment will
exceed the 7-Pay test and cause the Policy to become a Modified Endowment
Contract. If the Owner has given Lincoln Life instructions that the Policy
should not be allowed to become a Modified Endowment Contract, any premiums in
excess of the 7-Pay Limitation will first be applied to reduce any outstanding
loan on the policy, and any further excess will be refunded to the Owner within
7 days of receipt. If the Owner has not given Lincoln Life instructions to the
contrary, however, the premium will be paid into the Policy and a letter of
notification of Modified Endowment Contract status will be sent to the Owner.
The letter of notification will include the available options, if any, for
remedying the Modified Endowment Contract status of the Policy.
NET PREMIUMS. The net premium equals the premium paid less the Percent of
Premium Charge (see Percent of Premium Charge, p. 8).
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Owner must
allocate all net premiums to the various subaccounts of the Separate Account.
Premium amounts may only be allocated to the General Account if the entire
amount in the General Account will be used for Dollar Cost Averaging.
Notwithstanding the allocation in the application, all net premiums received
prior to the Record Date will initially be allocated to the General Account. Net
premiums received prior to the Record Date will be credited to the Policy on the
later of the Policy Date or the date the premium is received. The Record Date is
the date the Policy is recorded on the books of Lincoln Life as an in-force
Policy, and may coincide with the Policy Date. Ordinarily, the policy will be
recorded as in-force within three business days after the later of the date we
receive the last outstanding requirement or the date of underwriting approval.
Net premiums will continue to be allocated to the General Account until the
Record Date. When the assets of the Separate Account are next valued following
the Record Date, the value of the Policy's assets in the General Account will
automatically be transferred to the subaccounts of the Separate Account in
accord with the Owner's percentage allocation in the application. No charge will
be imposed for this initial transfer. Net premiums paid after the Record Date
will be credited to the Policy on the date they are
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received and will be allocated in accord with the Owner's instructions in the
application. The minimum percentage of each premium that may be allocated to any
subaccount of the Separate Account is 10%; percentages must be in whole numbers.
The allocation of future net premiums may be changed without charge at any time
by providing written notification on a form suitable to Lincoln Life, unless the
Owner has made previous arrangements with Lincoln Life to allow the allocation
of future net premiums to be changed upon telephone request.
The value of the amount allocated to subaccounts of the Separate Account will
vary with the investment experience of these subaccounts and, the Owner bears
the entire investment risk. The value of the amount initially allocated to the
General Account will earn a current interest rate guaranteed to be at least
equal to the General Account guaranteed interest rate shown on the Policy
Schedule. Owners should periodically review their allocations of premiums and
values in light of market conditions, interest rates and overall estate planning
requirements.
DOLLAR COST AVERAGING PROGRAM
The Owner may wish to make uniform monthly transfers from the General Account to
one or more of the Subaccounts over a 12, 24, or 36-month period through the
Dollar Cost Averaging ("DCA") program. Under the program, the Owner designates
the total amount of Policy Value to be transferred from the General Account to
the chosen subaccounts; this amount is then divided by the chosen number of
months (12, 24, or 36) and the result is transferred each month to the various
subaccounts in accord with the most recent premium allocation. The transfers
continue until the end of the DCA period or until the policy value in the
General Account has been exhausted, whichever occurs sooner. DCA may also be
terminated upon written request by the Owner.
The theory of DCA is that transfers of uniform dollar amounts purchase a greater
number of subaccount units when unit values are relatively low than are
purchased when unit values are higher. This has the effect, when purchases are
made at fluctuating prices, of reducing the aggregate average cost per unit to
less than the average of the unit values on the same purchase dates. However,
participation in the DCA program does not assure the owner of a greater return
on purchases under the program, nor will it prevent or necessarily alleviate
losses in a declining market.
There are no charges associated with the DCA program. In order to participate in
(or terminate participation in) the DCA program, the Owner must complete a
written request on a form suitable to Lincoln Life.
EFFECTIVE DATE
For all coverage provided in the original application, the Effective Date will
be the Policy Date, provided the Policy has been delivered and the Initial
Premium has been paid prior to death and prior to any change in health or any
other factor affecting insurability of the Insured as shown in the application.
The Policy Date is ordinarily the earlier of the date the full Initial Premium
is received or the date on which the Policy is approved for issue by Lincoln
Life.
For any increase, the Effective Date will be the first Monthly Anniversary Day
on or next following the day the application for the increase is approved.
For any insurance that has been reinstated, the Effective Date will be the first
Monthly Anniversary Day on or next following the day the application for
reinstatement is approved.
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RIGHT TO EXAMINE POLICY
The Owner may, until a specified period of time has expired, examine the Policy
and return it for refund of all premiums paid. The applicable period of time
will depend on the State in which the Policy is issued, but will not expire
sooner than the latest of ten days after receipt of the Policy, 45 days after
Part 1 of the application is completed, or ten days after the Notice of
Withdrawal Right is mailed or delivered to the Owner. Upon cancellation the
Policy will be void from the beginning. An Owner wanting a refund should return
the Policy to either Lincoln Life at its Home Office or to the registered agent
who sold it.
POLICY TERMINATION
All coverage under the Policy will terminate when any one of the following
occurs: 1) the grace period ends without payment of required premium, and the
Policy is not being continued under the Death Benefit Guarantee provision, 2)
the Policy is surrendered, 3) the Insured dies, or 4) the Policy matures.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate Lincoln
Life for:
1) providing the insurance benefit set forth in the Policy and any optional
insurance benefits added by Rider;
2) administering the Policy;
3) assuming certain risks in connection with the Policy;
4) incurring expenses in distributing the Policy.
The nature and amount of these charges are described more fully below.
PERCENT OF PREMIUM CHARGE. A Percent of Premium Charge is currently deducted
from each premium you pay. The total charge currently consists of the sum of the
following:
a. 4.45% for charges deemed to be sales loads as defined by the Investment
Company Act of 1940. This item is guaranteed not to exceed 4.45%.
b. 2.50% for premium taxes and other taxes not deemed to be sales loads as
defined by the Investment Company Act of 1940. Any increase in this item
must first be approved by the Securities and Exchange Commission and, in
any event, this item is guaranteed not to exceed 4.05%.
SURRENDER CHARGE. There are no Surrender Charges for this policy. If we approve
a requested increase in the Specified Amount, no Surrender Charges will apply to
the amount of the increase.
MONTHLY DEDUCTIONS. On the Policy Date and on each Monthly Anniversary Day
following, deductions will be made from the Policy Value. These deductions are
of two types: a Monthly Charge and a Monthly Cost of Insurance Deduction.
Ordinarily, the Monthly Deductions are deducted from the Policy Value in
proportion to the values in the General Account and the subaccounts. The Monthly
Deductions may be made by some other method if requested by the Owner, and if
such method is acceptable to Lincoln Life.
COST OF INSURANCE CHARGES. On the Policy Date and on each Monthly Anniversary
Day following, Cost of Insurance Charges will be deducted from the Policy Value.
Ordinarily, the Cost of Insurance Charges are deducted in proportion to
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the values in the General Account and the subaccounts. The Cost of Insurance
Charges may be made by some other method if requested by the Owner, and if such
method is acceptable to Lincoln Life.
The Cost of Insurance Charges depend upon a number of variables, and the cost
for each policy month can vary from month to month. On each Monthly Anniversary
Day, Lincoln Life will determine the Monthly Cost of Insurance for the following
month as equal to:
a. the Death Benefit on the Monthly Anniversary Day; divided by
b. 1.0032737 (the monthly interest factor equivalent to an annual interest
rate of 4%); minus,
c. the Policy Value on the Monthly Anniversary Day without regard to the
Cost of Insurance; divided by
d. 1,000; the result multiplied by
e. the applicable Cost of Insurance rate per $1,000 as described below.
The Cost of Insurance Rates are based on the sex, attained age, rate class of
the person insured, and Specified Amount of the policy. In states requiring
unisex rates, in federally qualified pension plan sales, and in any other
situation where unisex rates are required by law, the Cost of Insurance Rates
are not based on sex. The monthly Cost of Insurance Rates may be changed by
Lincoln Life from time to time. A change in the Cost of Insurance Rates will
apply to all persons of the same attained age, sex, rate class, and Specified
Amount and whose policies have been in effect for the same length of time. The
Cost of Insurance Rates will not exceed those described in the Table of
Guaranteed Maximum Insurance Rates shown in the Policy. These rates are based on
the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday,
for attained ages under sixteen; on the 1980 Commissioner's Standard Ordinary
Nonsmoker Mortality Table Age Last Birthday, or the 1980 Commissioner's Standard
Ordinary Smoker Mortality Table Age Last Birthday, for attained ages sixteen and
over, depending on the smoking status of the Insured. Standard rate classes have
guaranteed rates which do not exceed 100% of the applicable table.
The rate class of an Insured will affect the Cost of Insurance rate. Lincoln
Life currently places Insureds into a standard rate class or rate classes
involving a higher mortality risk. In an otherwise identical policy, Insureds in
the standard rate class will have a lower Cost of Insurance than those in the
rate class with the higher mortality risk. The standard rate class is also
divided into four categories: Standard Smoker, Preferred Smoker, Standard
Nonsmoker, and Preferred Nonsmoker. Insureds who are Standard Nonsmoker or
Preferred Nonsmoker will generally incur a lower Cost of Insurance than those
Insureds who are in the smoker rate classes. Likewise, Insureds who are
Preferred Smoker or Preferred Nonsmoker will generally incur a lower Cost of
Insurance than similarly situated Insureds who are Standard Smoker or Standard
Nonsmoker respectively.
The Specified Amount of the policy will affect the Cost of Insurance rates
applied to a specific policy. In general, policies with a Specified Amount of
$200,000 or more will have lower Cost of Insurance rates than polices with
smaller Specified Amounts.
MONTHLY CHARGE. A Monthly Charge of $7.50 is deducted from the Policy Value each
month the Policy is in force to compensate Lincoln Life for continuing
administration of the Policy, premium billings, overhead expenses, and other
miscellaneous expenses. Lincoln Life does not anticipate any profits from this
charge. This charge is guaranteed not to increase during the life of the Policy.
ASSET MANAGEMENT CHARGE. The Investment Advisor for each of the funds deducts
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a daily charge as a percent of the net assets in each Fund as an Asset
Management Charge. The charge has the effect of reducing the investment results
credited to the subaccounts.
The Investment Advisor for the funds is Lincoln Investment Management Inc.
(Lincoln Investment). As compensation for its services, Lincoln Investment
deducts a daily charge as a percent of the net assets in each particular fund
which is equivalent to the following annual rates:
.48 of 1% on the first $200 million of the net assets of each fund, .40
of 1% of the next $200 million, and .30 of 1% of the remaining net
assets.
Because the Separate Account purchases shares of the funds involved, the value
of the net assets of the subaccounts of the Separate Account will reflect not
only the fees of the Investment Advisor, but also other miscellaneous expenses
incurred by those funds.
MORTALITY AND EXPENSE RISK CHARGE. Lincoln Life deducts a daily charge as a
percent of the assets of the Separate Account as a Mortality and Expense Risk
Charge. This charge has the effect of reducing Gross Investment Results credited
to the subaccounts. The daily rate currently charged is equal to an annual rate
of .60 of 1% of the value of the net assets of the Separate Account. This
deduction may increase or decrease, but is guaranteed not to exceed .90 of 1% in
any policy year.
The mortality risk assumed is that Insureds may live for a shorter period of
time than estimated and, therefore, a greater amount of Death Benefits will be
payable. The expense risk assumed is that expenses incurred in issuing and
administering the policies will be greater than estimated.
OTHER CHARGES. Two other miscellaneous charges are occasionally incurred: a
Withdrawal Charge and a Transfer Charge. The Withdrawal Charge is incurred when
the Owner of the Policy requests a withdrawal from the Policy Value; the charge
is deducted from the withdrawn amount and the balance is paid to the Owner.
Withdrawals may be made any time after the first policy year, but only one
withdrawal may be made per year. Currently, the Withdrawal Charge is equal to
$10. The Withdrawal Charge is guaranteed not to exceed $25.
The Transfer Charge is incurred when the Owner requests that funds be
transferred from one subaccount to another subaccount. The Transfer Charge is
$10, and is deducted from the amount transferred; however, the Transfer Charge
is currently being waived for all transfers. The maximum number of transfers
allowed between subaccounts in a policy year is twelve.
No charges are currently made from the Separate Account for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
Company may make deductions from the Policy to pay those taxes. (See Federal Tax
Matters, p. 22)
REDUCTION OF CHARGES
The Percent of Premium Charge and the Monthly Charge set forth in this
Prospectus may be reduced because of special circumstances that result in lower
sales, administrative, or mortality expenses. For example, special circumstances
may exist in connection with sales to Lincoln Life policyholders, or sales to
employees of Lincoln Life. The amounts of any reductions will reflect the
reduced sales effort and administrative costs resulting from, or the different
mortality experience expected as a result of, the special circumstances.
Reductions will not be unfairly discriminatory against any person, including the
affected policyowners and owners of all other policies funded by the Separate
Account.
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EXCHANGE OF LINCOLN LIFE UNIVERSAL LIFE POLICIES
Existing Lincoln Life Universal Life policies may currently be exchanged for a
policy described in this Prospectus. Because Lincoln Life's expenses are reduced
in such exchanges, as a current practice the Percent of Premium Charge will be
waived on the amount of Policy Value exchanged. All additional premiums will be
subject to the Percent of Premium Charge.
TERM CONVERSION CREDITS
Lincoln Life currently has a term conversion program which gives premium credits
to the Policy if the Owner is converting from a term insurance policy. Term
insurance policies issued by Lincoln Life or by most other life insurance
company may be converted to the Policy under this program and receive term
conversion credits. Except for guaranteed term conversion privileges provided
under some Lincoln Life term insurance policies or otherwise provided by special
agreement, all term insurance policy conversions are subject to evidence of
insurability satisfactory to Lincoln Life. All conversion credits are deposited
in the Policy without the Percent of Premium Charge. The amount of the term
conversion credits and the requirements for qualification for those credits is
subject to change by Lincoln Life, but such changes will not be unfairly
discriminatory against any person, including the affected policyowners and
owners of all other policies funded by the Separate Account.
POLICY BENEFITS
DEATH BENEFIT AND DEATH BENEFIT TYPES
As long as the Policy remains in force (see Policy Lapse and Reinstatement, p.
16), Lincoln Life will, upon proof of the Insured's death, pay the Death Benefit
Proceeds of the Policy to the named Beneficiary in accordance with the
designated Death Benefit Type. The Proceeds may be paid in cash or under one or
more of the Payment Options as described in the Policy. (See Proceeds and
Payment Options, p. 17.) The Death Benefit Proceeds payable under the designated
Death Benefit Type will be increased by any unearned loan interest, and will be
reduced by any outstanding loan and any due and unpaid charges. (See Policy
Lapse and Reinstatement, p. 16.) These Proceeds will be further increased by any
additional insurance on the Insured provided by Rider.
The Policy provides two Death Benefit Types: Type 1, Basic Coverage, and Type 2,
Basic Plus Policy Value coverage. Generally, the Owner designates the Death
Benefit Type in the application. The Owner may change the Death Benefit Type at
any time. (See Policy Changes, p. 13.)
TYPE 1. The Death Benefit is the greater of the Specified Amount of the
Policy or a specified percentage of the Policy Value on or prior to
the date of death. The specified percentage at any time is based on
the attained age of the Insured as of the beginning of the policy
year.
TYPE 2. The Death Benefit is equal to the greater of the Specified Amount
plus the Policy Value of the Policy or a specified percentage of the
Policy Value on or prior to the date of death. The specified
percentage at any time is based on the attained age of the Insured as
of the beginning of the policy year.
Under a Type 1 Basic Coverage, the net amount at risk decreases as the Policy
Value increases. (The net amount at risk is equal to the Death Benefit less the
Policy Value.) Under a Type 2 Basic Plus Policy Value Coverage, the net
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amount at risk remains constant, so the cost of insurance deduction will be
relatively higher on a Type 2 Basic Plus Policy Value Coverage than on a Type 1
Basic Coverage. As a result, Policy Values under a Type 1 Basic Coverage tend to
increase faster than under a Type 2 Basic Plus Policy Value Coverage, assuming
favorable investment performance. Because of this, policyowners that are more
interested in achieving higher Policy Values more quickly (assuming favorable
investment experience) would be more likely to select a Type 1 Basic Coverage.
In contrast, the Death Benefit under Type 2 will increase or decrease as the
Policy Value increases or decreases. Consequently, Policyowners who are more
interested in increasing total death benefits (assuming favorable investment
experience) would be more likely to select a Type 2 Basic Plus Policy Value
Coverage.
*The specified percentages are shown in the table below:
<TABLE>
<CAPTION>
ATTAINED SPECIFIED ATTAINED SPECIFIED ATTAINED SPECIFIED
AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C> <C> <C>
40 or
younger 250% 59 134% 91 104%
41 243 60 130 92 103
42 236 61 128 93 102
43 229 62 126 94 101
44 222 63 124 95 or 100
45 215 64 122 older
46 209 65 120
47 203 66 119
48 197 67 118
49 191 68 117
50 185 69 116
51 178 70 115
52 171 71 113
53 164 72 111
54 157 73 109
55 150 74 107
56 146 75 105
57 142 through
58 138 90
</TABLE>
EXAMPLES. For both examples, assume that the Insured is under the age of 40 and
that there is no outstanding Policy loan.
Under Type 1, a Policy with a Specified Amount of $250,000 will generally pay
$250,000 in life insurance Proceeds. However, because life insurance Proceeds
cannot be less than 250% (the applicable specified percentage) of Policy Value,
any time the Policy Value of this Policy exceeds $100,000, life insurance
Proceeds will exceed the $250,000 Specified Amount. If the Policy Value equals
or exceeds $100,000 each additional dollar added to the Policy Value will
increase the life insurance proceeds by $2.50. Thus, for a Policy with a
Specified Amount of $250,000 and a Policy Value of $200,000, the Beneficiary
will be entitled to life insurance Proceeds of $500,000 (250% x $200,000); a
Policy Value of $300,000 will yield life insurance Proceeds of $750,000 (250% x
$300,000); a Policy Value of $500,000 will yield life insurance Proceeds of
$1,250,000 (250% x $500,000). Similarly, as long as Policy Value exceeds
$100,000, each dollar taken out of Policy Value will reduce the life insurance
Proceeds by $2.50. If at any time the Policy Value multiplied by the specified
percentage is less than the Specified Amount, the life insurance Proceeds will
equal the Specified Amount of the Policy.
Under Type 2, a Policy with a Specified Amount of $250,000 will generally pay
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life insurance Proceeds of $250,000 plus Policy Value. Thus, for example, a
Policy with a Specified Amount of $250,000 and Policy Value of $50,000 will
yield life insurance Proceeds equal to $300,000 ($250,000 + $50,000); a Policy
Value of $100,000 will yield life insurance Proceeds of $350,000 ($250,000 +
$100,000). The life insurance Proceeds cannot, however, be less than 250% (the
applicable specified percentage) of Policy Value. As a result, if the Policy
Value of the Policy exceeds $166,667, the life insurance Proceeds will be
greater than the Specified Amount plus Policy Value. Each additional dollar
added to Policy Value above $166,667 will increase the life insurance Proceeds
by $2.50. A Policy with a Policy Value of $200,000 will therefore have life
insurance Proceeds of $500,000 (250% x $200,000); a Policy Value of $500,000
will yield life insurance Proceeds of $1,250,000 (250% x $500,000); a Policy
Value of $1,000,000 will yield life insurance Proceeds of $2,500,000 (250% x
$1,000,000).
Similarly, any time Policy Value exceeds $166,667, each dollar withdrawn from
Policy Value will reduce the life insurance Proceeds by $2.50. If at any time,
however, Policy Value multiplied by the specified percentage is less than the
Specified Amount plus Policy Value, then the life insurance Proceeds will be the
Specified Amount plus Policy Value.
The above examples describe scenarios which include favorable investment
performance. In addition, the applicable percentage of 250% that is used is for
ages 40 or younger. Because the applicable percentage decreases as the attained
age increases, the impact of the applicable percentage on the death benefit
payment levels will be lessened as the attained age progresses beyond age 40.
DEATH BENEFIT GUARANTEE
Lincoln Life expects payment of the required Death Benefit Guarantee Monthly
Premiums will be sufficient, when combined with Net Investment Results, to pay
for all charges to the Policy during the first three policy years, and thereby
provide life insurance protection on the Insured for that period. In some
situations, however, the combination of poor Net Investment Results and Monthly
Deductions could result in the Net Cash Surrender Value being reduced to zero.
In such situations, Lincoln Life will continue the Policy in force for the first
three policy years, provided the Death Benefit Guarantee Monthly Premium
requirement continues to be met. Lincoln Life makes no charge for this
additional benefit.
POLICY CHANGES
CHANGE IN TYPE OF DEATH BENEFIT. The Owner may also change the Type of Death
Benefit coverage from Type 1 to Type 2 or from Type 2 to Type 1. The request for
such a change must be made in writing on a form suitable to Lincoln Life. The
change will be effective on the first Monthly Anniversary Day on or next
following the day Lincoln Life receives the request. No change in the type of
Death Benefit will be allowed if the resulting Specified Amount would be less
than the Minimum Specified Amount of $50,000.
If the change is from Type 1 to Type 2, the Insured's Specified Amount after
such change will be equal to the Insured's Specified Amount prior to such change
minus the Policy Value on the date of change.
If the change is from Type 2 to Type 1, the Insured's Specified Amount after
such change will be equal to the Insured's Specified Amount prior to such change
plus the Policy value on the date of change.
CHANGES IN AMOUNT OF INSURANCE COVERAGE. In addition to the above changes, the
Owner may request to increase or decrease the Specified Amount at any time.
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<PAGE>
The request for such a change must be from the Owner and in writing on a form
suitable to Lincoln Life. Any decrease will become effective on the first
Monthly Anniversary Day on or next following the day the request is received by
Lincoln Life. Any such decrease will reduce insurance first against insurance
provided by the most recent increase, next against the next most recent
increases successively, and finally against insurance provided under the
original application. The Specified Amount after any requested decrease may not
be less than $50,000. Any request for an increase must be applied for on a
supplemental application. Such increase will be subject to evidence of
insurability satisfactory to Lincoln Life and to its issue rules and limits at
the time of increase. Furthermore, such increase will not be allowed unless the
Net Cash Surrender Value is sufficient to cover the next Monthly Deductions for
the increase. Any increase will become effective on the first Monthly
Anniversary Day on or next following the day the application for the increase is
approved.
EXCHANGE OF POLICY. Within 24 months from the Policy Date the Policy may be
exchanged for a new policy of fixed benefit insurance on the Insured's life. The
new policy will be any flexible premium adjustable life insurance policy offered
by Us, subject to conditions normally applicable to the new policy. It will have
the same Policy Date and will be issued at the same Rate Class and issue age as
this policy. No evidence of insurability will be required.
The new policy will have the same riders as this Policy if they are available.
The Net Cash Surrender Value of the new policy will equal that of this Policy on
the Date of Exchange. Any assignment of this Policy will apply to the new
policy. Subsequently, monthly fees and surrender charges will apply if
appropriate. On the Date of Exchange, the Death Benefit will equal the Death
Benefit of this Policy, or the net amount at risk will equal the net amount at
risk of this Policy, at the Owner's option.
The request for exchange must be in writing on a form acceptable to Us. This
Policy must be surrendered to Us, and be at Our Home Office while this Policy is
in force. The owner of the new policy must be the Owner of this Policy.
The Date of Exchange will be the first Monthly Anniversary Day on or next
following the latest of:
a. the date the Owner requests the exchange to be effective;
b. the date that the request for exchange and the surrendered policy are
received at our Home Office; or
c. the date We receive payment of the cost of exchange or other amounts
due, if any.
POLICY VALUE
The Policy provides for the accumulation of Policy Value, which is calculated as
often as the assets of the Separate Account are valued. The Policy Value will
vary with the investment performance of the General Account and of the Separate
Account, as well as other factors. In particular, Policy Value also depends on
any premiums received, any Policy loans, and any charges and deductions assessed
the Policy. The Policy has no guaranteed minimum Policy Value or Net Cash
Surrender Value.
On the Policy Date, the Policy Value will be the Initial Net Premium, minus the
sum of the following:
a. The Monthly Charge;
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<PAGE>
b. The Cost of Insurance for the first month;
c. Any charges for extra benefits.
On each Monthly Anniversary Day, the Policy Value is equal to the sum of the
following:
a. The Policy Value on the preceding day;
b. Any increase due to Net Investment Results in the value of the
subaccounts to which the Investment Amount is allocated;
c. Interest at not less than the General Account Guaranteed Interest Rate
shown on the Policy Schedule on amounts allocated to the General
Account;
d. Interest at not less than the rate shown on the Policy Schedule on any
outstanding loan amount;
e. Any Net Premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to Net Investment Results in the value of the
subaccounts to which the Investment Amount is allocated;
g. Any withdrawals;
h. Any amount charged against the Investment Amount for federal or
other governmental income taxes;
i. The Monthly Charge;
j. The Cost of Insurance for the following month;
k. Any charges for extra benefits.
On any day other than a Monthly Anniversary Day, the Policy Value is equal to
the sum of the following:
a. The Policy Value on the preceding day;
b. Any increase to Net Investment Results in the value of the subaccounts
to which the Investment Amount is allocated;
c. Interest at not less than the General Account Guaranteed Interest Rate
shown on the Policy Schedule on amounts allocated to the General
Account;
d. Interest at not less than the rate shown on the Policy Schedule on any
outstanding loan amount;
e. Any Net Premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to Net Investment results in the value of the
subaccounts to which the Investment Amount is allocated;
g. Any withdrawals;
h. Any amount charged against the Investment Amount for federal or
other governmental income taxes.
The charges and deductions described above are further discussed in Charges and
Deductions, p. 11.
GROSS INVESTMENT RESULTS. The Gross Investment Results are equal to the change
in the market value of the assets of the subaccount from the previous valuation
day to the current day, plus the investment income on those assets during the
same period.
NET INVESTMENT RESULTS. The Net Investment Results are the Gross Investment
Results minus the Mortality and Expense Risk Charge.
The value of the assets in the funds will be taken at their fair market value in
accordance with accepted accounting practices and applicable laws and
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<PAGE>
regulations.
TRANSFER BETWEEN SUBACCOUNTS
Any time after the Record Date, the Owner may request to transfer an amount from
one subaccount to another. The request to transfer funds must be in writing on a
form suitable to Lincoln Life; transfers may be made by telephone request only
if the owner has previously authorized telephone transfers in writing on a form
suitable to Lincoln Life. Lincoln Life will follow reasonable procedures to
determine that the telephone requester is authorized to request such transfers,
including requiring certain identifying information contained in the written
authorization. If such procedures are followed, Lincoln Life will not be liable
for any loss arising from any telephone transfer. Transfers will take effect on
the date that the request is received at the Home Office of Lincoln Life. A
transfer charge of $10 is made for each transfer and is deducted from the amount
transferred; however, the transfer charge is currently being waived for all
transfers. The minimum amount which may be transferred between subaccounts is
$100. The maximum number of transfers allowed in a policy year is twelve.
TRANSFERS TO AND FROM THE GENERAL ACCOUNT
No amounts may be transferred to the General Account from any of the Subaccounts
unless the entire amount in the General Account will be used for Dollar Cost
Averaging as specified in a form acceptable to Us. Any amounts in the General
Account at the time any Dollar Cost Averaging agreement is terminated will be
transferred to the Subaccounts in accordance with the most recent premium
allocation. A transfer charge of $10 is made for each transfer and may be
deducted from the amount transferred; however, the transfer charge is currently
being waived for all transfers.
LOANS
At any time while the Policy is in force the Owner may make written request for
a loan against the Policy. A written loan agreement will be executed between the
Owner and Lincoln Life. The Policy will be the sole security for the loan, and
the Policy must be assigned to Lincoln Life as part of the loan agreement.
Ordinarily, the loan will be processed within seven days from the date the
request for a loan is received at the Home Office of Lincoln Life. Payments may
be postponed under certain circumstances. (See Postponement of Payments, p. 20.)
A loan taken from, or secured by, a Policy may have Federal income tax
consequences. In particular, adverse tax consequences may occur if the policy
lapses with outstanding loans. (See Federal Tax Matters, page 22.)
LOAN AMOUNT. The amount of all outstanding loans with interest may not exceed
the Policy Value as of the date of the policy loan. If at any time the total of
policy loans plus loan interest equals or exceeds the Policy Value, notice will
be sent to the last known address of the Owner, and any assignee of record, and
the Policy will enter into the grace period. If sufficient payment is not
received within 61 days after notice is mailed, the Policy will lapse and
terminate without value. (See Policy Lapse and Reinstatement, p. 16.)
LOAN INTEREST. Interest on any loan will be payable annually in advance at an
annual rate of 6.0%, which is 6.38% effective annual rate of interest. Any
interest not paid when due will be added to the loan amount and will bear
interest at the same Policy Loan Rate.
DEDUCTION OF LOAN AND LOAN INTEREST. Ordinarily the amount of any loan or unpaid
loan interest will be deducted from the General Account and the
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subaccounts in proportion to the value in each. The deduction may be made by
some other method if the Owner requests, and if such method is acceptable to
Lincoln Life. Amounts deducted from the Separate Account will be transferred to
the Lincoln Life General Account, where they will earn interest at an annual
rate of not less than 4.00%; currently, loaned amounts earn interest at an
annual rate of 5.00%. The amount will remain a part of the Policy Value, but
will not be increased or decreased by investment results in the Separate
Account. Therefore, the Policy Value could be more or less than what it would
have been if the Policy Loan had not been made, depending on the investment
results in the Separate Account compared to the interest credited to the assets
transferred to the General Account to secure the loan. In this way, a loan may
have a permanent effect upon both the Policy Value and the Death Benefit and may
increase or decrease the potential for policy lapse. In addition, outstanding
Policy Loans reduce the Death Benefit.
LOAN REPAYMENTS. Loan repayments will ordinarily be allocated to the subaccounts
in accord with the most recent premium allocation. They may be allocated by some
other method if the Owner requests it, and if such method is acceptable to
Lincoln Life. Any loan not repaid at the time of surrender of the Policy,
maturity, or death of the Insured will be deducted from the amount otherwise
payable.
WITHDRAWALS
Any time after the first policy year, and during the lifetime of the Insured, a
cash withdrawal may be made from the Policy Value. The amount and timing of the
withdrawal is subject to certain limitations. The minimum withdrawal is $500 and
only one withdrawal may be made during a Policy Year. The amount of the
withdrawal may not be more than the Net Cash Surrender Value. Currently, the
withdrawal charge is equal to $10. This charge is guaranteed not to exceed $25
at all times. The Owner should be aware that withdrawals may result in the Owner
incurring a tax liability. (See Federal Tax Matters, p. 22.)
DEDUCTION OF WITHDRAWAL. When a withdrawal is made, the Policy Value will be
reduced by the amount of the withdrawal. The amount will be deducted from the
General Account and the subaccounts in proportion to the values in the General
Account and the subaccounts. The deduction may be made by some other method if
the Owner requests it, and if such method is acceptable to Lincoln Life.
EFFECT OF WITHDRAWALS ON DEATH BENEFIT AND COST OF INSURANCE. A withdrawal may
affect the Death Benefit amount in one of several ways. First, if the Death
Benefit Type is Type 1, the Specified Amount will automatically be reduced by
the amount of the withdrawal, and thus will lower the Death Benefit by the same
amount. If the Death Benefit is Type 2, this reduction in the Specified Amount
does not occur, but the Death Benefit is lowered by the amount the Policy Value
is decreased by the withdrawal. In addition, since the Death Benefit is required
to be at least equal to the specified percentage multiplied times the Policy
Value, a reduction in the Policy Value will sometimes result in a reduction in
the Death Benefit equal to the specified percentage times the reduction in
Policy Value. (See Death Benefit and Death Benefit Types, p. 11.) In such cases,
where the Death Benefit is reduced by an amount greater than the withdrawal, the
subsequent Cost of Insurance will be reduced (under either type of Death
Benefit) to reflect the excess reduction in Death Benefit.
No withdrawal will be allowed if the resulting Insured's Specified Amount would
be less than $50,000. The request for withdrawal must be in writing on a form
suitable to Lincoln Life.
Ordinarily, withdrawals will be processed within seven days from the date the
request for a withdrawal is received at the Home Office of Lincoln Life.
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Payment of the withdrawal amount may be postponed under certain circumstances.
(See Postponement of Payments, p. 20.)
POLICY LAPSE AND REINSTATEMENT
During the first three policy years, insurance coverage under the Policy will be
continued in force as long as the total premiums paid (minus any partial
withdrawals and minus any outstanding loans) equals or exceeds the Death Benefit
Guarantee Monthly Premium times the number of months since the Policy Date,
including the current month. Unless coverage is being continued under the Death
Benefit Guarantee (see Death Benefit Guarantee, p. 12) lapse will occur when the
Policy Value less outstanding loans is insufficient to cover the Monthly
Deductions and a grace period expires without a sufficient payment. Insurance
coverage will continue during the grace period, but the Policy will be deemed to
have no Policy Value for purposes of policy loans and surrenders. Regardless of
premium payments or current Net Cash Surrender Value, coverage will never be
continued beyond the Maturity Date of the Policy.
A grace period of 61 days will begin on the date Lincoln Life sends a notice of
any shortfall to the last known address of the Owner or any assignee. The Owner
must, during the grace period, make a payment sufficient to cover the Monthly
Deductions and any other charges due under the Policy until the end of the grace
period. Failure to make a sufficient payment during the grace period will cause
the Policy to lapse. Any remaining Net Cash Surrender Value will be returned to
the Owner. If the Insured dies during the grace period, regardless of the cause
of the grace period, any due and unpaid Monthly Deductions will be deducted from
the Death Benefit.
A lapsed Policy may be reinstated at any time within five years after the date
of lapse and before the Maturity Date by submitting evidence of insurability
satisfactory to Lincoln Life and a premium sufficient to keep the Policy in
force for two months. The Effective Date of a reinstatement will be the first
Monthly Anniversary Day on or next following the day the application for
reinstatement is approved.
SURRENDER OF THE POLICY
The Owner may surrender the Policy at any time during the lifetime of the
Insured and receive the Net Cash Surrender Value. The Net Cash Surrender Value
is equal to the Policy Value minus any outstanding loan and plus any unearned
loan interest. There is no withdrawal charge imposed on a total surrender of the
Policy. The request must be made in writing on a form suitable to Lincoln Life.
The request will be effective the date the request is received in the Home
Office of Lincoln Life, or at a later date if so requested by the Owner.
Ordinarily, the surrender will be processed within seven days from the date the
request for surrender is received at the Home Office of Lincoln Life. The
surrender of the policy may have tax consequences.
PROCEEDS AND PAYMENT OPTIONS
PROCEEDS. The amount payable under the Policy on the Maturity Date, on the
surrender of the Policy, or upon the death of any insured person is called the
Proceeds of the Policy.
The Proceeds to be paid on the death of the Insured will be the Death Benefit
minus any outstanding policy loan and plus any unearned loan interest. The
Proceeds to be paid on the surrender of the Policy or on the Maturity Date will
be the Net Cash Surrender Value.
Any amount to be paid at the death of the Insured or any other termination of
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this Policy will be paid in one sum unless otherwise provided. Interest will be
paid on this amount from date of death or maturity to date of payment at a
specified rate, not less than that required by law. All or part of the sum of
this amount and such interest credited to date of payment will be applied to any
Payment Option.
To the extent allowed by law, Proceeds are not be to be subject to any claims of
a Beneficiary's creditors.
PAYMENT OPTIONS. Upon written request, all or part of the Proceeds and interest
credited thereon may be applied to any Payment Option available from Lincoln
Life at the time payment is to be made. Under certain conditions, Payment
Options will only be available with the consent of Lincoln Life. Such conditions
will exist if the Proceeds to be settled under any Option are $2,500 or less, or
if any installment or interest payment is $25 or less. In addition, if any payee
is a corporation, partnership, association, trustee, or assignee, approval by
Lincoln Life is needed before any Proceeds can be applied to a Payment Option.
The Owner may elect any Payment Option while the Insured is alive and may change
that election if that right has been reserved. When the Proceeds become payable
to a Beneficiary, the Beneficiary may elect any available Payment Option if the
Proceeds are available to the Beneficiary in one sum.
The Option Date is any date the Policy terminates under the Termination
provision.
Any Proceeds payable under the Policy may also be settled under any other method
of settlement offered by Lincoln Life on the Option Date. Additional interest as
determined by Lincoln Life may be paid or credited from time to time in addition
to the payments guaranteed under a Payment Option.
When Proceeds become payable under a Payment Option, a Payment Contract will be
issued to the payee in exchange for the Policy. Such Payment Contract may not be
assigned. Any change in Payment Option may be made only if it is provided for in
the Payment Contract. Under some of the Payment Options, Proceeds may be
withdrawn under such Payment Option if provided for in the Payment Contract. The
amount to be withdrawn varies by the Payment option.
GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of the Policy plus the application and any
supplemental application, plus any riders, plus any Amendments. The Policy is
issued in consideration of the application and payment of the Initial Premium.
Only statements in the application and any supplemental applications can be used
to contest the validity of the Policy or defend a claim. These statements are
considered representations and not warranties. A change in the Policy will be
binding on Lincoln Life only if the change is in writing and the change is made
by the President, Vice President, Secretary or Assistant Secretary of Lincoln
Life.
The Policy is nonparticipating; it will not share in the profit or surplus
earnings of Lincoln Life.
SUICIDE
If the Insured commits suicide, while sane or insane, within two years from the
Policy Date, the total liability of Lincoln Life under the Policy will be
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the premiums paid, minus any policy loan, plus any unearned loan interest, minus
any prior withdrawals and minus the cost of any riders.
If the Insured commits suicide, while sane or insane, within two years from the
Effective Date of any increase in insurance, our total liability with respect to
such increase will be its cost of insurance and monthly charges.
If the Insured commits suicide, while sane or insane, within two years from the
Effective Date of any reinstatement, our total liability with respect to such
reinstatement will be the premiums paid since the effective date of the
reinstatement, minus any policy loan, plus any unearned loan interest, minus any
prior withdrawals, and minus the cost of any riders.
REPRESENTATIONS AND CONTESTABILITY
All statements made in an application by, or on behalf of, the Insured will, in
the absence of fraud, be deemed representations and not warranties. Statements
may be used to contest a claim or validity of the Policy only if these
statements are contained in the application for issue, reissue, or
reinstatement, or in any supplemental application, and a copy of that
application or supplemental application is attached to the Policy. The Policy
will not be contestable after it has been in force for two years during the
lifetime of the Insured. Also, any increase in coverage or any reinstatement
will not be contestable after that increase or reinstatement has been in force
two years from its Effective Date during the lifetime of the Insured. Any
contest will then be based only on the application for the increase or
reinstatement and will be subject to the same conditions as for contest of the
Policy.
INCORRECT AGE OR SEX
If there is an error in the age or sex of the Insured, the excess of the Death
Benefit over the Policy Value will be adjusted to that which would be purchased
by the most recent cost of insurance at the correct age and sex. The resulting
Death Benefit will not be less than the percentage of the Policy Value required
by the Death Benefit provision at the Insured's correct age.
CHANGE OF OWNER OR BENEFICIARY
The Owner of the Policy is the Owner identified in the application, or a
successor. All rights of the Owner belong to the Owner while the Insured is
alive. The rights pass to the estate of the Owner if the Owner dies before the
Insured. The Owner may transfer all ownership rights and privileges to a new
Owner. The request must be in writing on a form suitable to Lincoln Life. The
change will be effective the day that the request is received in the Home Office
of Lincoln Life. Lincoln Life will not be responsible for any payment or other
action taken before having recorded the transfer. A change of ownership will
not, in and of itself, affect the interest of any Beneficiary. A change of
ownership may have tax consequences.
The Beneficiary is identified in the application for the Policy, and will
receive the Proceeds when the Insured dies. The Beneficiary may be changed by
the Owner while the Insured is alive, and provided that any prior designation
does not prohibit such a change. A change will revoke any prior designation of
the Beneficiary. The request to change Beneficiary must be in writing on a form
suitable to Lincoln Life. Lincoln Life reserves the right to require the Policy
for endorsement of the change of Beneficiary designation.
If not otherwise provided, the interest of any Beneficiary who dies before the
Insured will pass to any other Beneficiaries according to their interest.
Furthermore, if no Beneficiary survives the Insured, the Proceeds will be paid
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in one sum to the Owner, if living. If the Owner is not living, the Proceeds
will be paid to the Owner's estate.
ASSIGNMENT
Any assignment of the Policy will not be binding on Lincoln Life unless it is in
writing on a form suitable to Lincoln Life and is received at the Home Office.
Lincoln Life will not be responsible for the validity of any assignment, and
reserves the right to require the Policy for endorsement of any assignment. An
assignment of the Policy may have tax consequences.
REPORTS AND RECORDS
Lincoln Life will maintain all records relating to the Separate Account.
Lincoln Life will mail to the Owner at least once each year a report, without
charge, which will show the current Policy Value, the current Net Cash Surrender
Value, the current Death Benefit, any current policy loans, any premiums paid,
any Cost of Insurance charges deducted, and any withdrawals made. The report
will also include any other data that may be required where the contract is
delivered.
PROJECTION OF BENEFITS AND VALUES
At the Owner's request, Lincoln Life will provide a report to the Owner which
shows projected future results. The request must be in writing on a form
suitable to Lincoln Life. The report will be comparable in format to those shown
in Appendix C and will be based on assumptions in regard to the Death Benefit as
may be specified by the Owner, planned premium payments as may be specified by
the Owner, and such other assumptions as are necessary and specified either by
the Owner or Lincoln Life. A reasonable fee may be charged for this projection.
POSTPONEMENT OF PAYMENTS
Payments of any amount payable on surrender, loan, or benefits payable at death
or maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary week-end and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the Securities and Exchange
Commission; (ii) the Commission by order permits postponement for the protection
of Owners; or (iii) an emergency exists, as determined by the Commission, as a
result of which disposal of securities is not reasonably practical or it is not
reasonably practical to determine the value of the Separate Account's net
assets. Transfers may also be postponed under such circumstances.
Requests for surrenders or policy loans of Policy Values representing premiums
paid by check may be delayed until such time as the check has cleared the
Owner's bank.
RIDERS
The availability of the Riders listed below is subject to approval by the State
Insurance Department of the State in which the policy is issued, and is also
subject to the current underwriting and issue procedures in place at the time of
the application. The underwriting and issue procedures are subject to change
without notice.
TERM RIDER FOR COVERED INSURED. The spouse and/or children of the primary
Insured may be added as an Other Insured on the base plan. Likewise, other
individuals can be added as an Other Insured. The Term Rider for Covered Insured
is a term rider available for issue ages 0 to 80 and the Cost of
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Insurance is deducted monthly for this benefit. Up to three such riders may be
added to a base policy. The maximum amount which may be issued on any rider
equals the amount of coverage on the Policy multiplied times 19. The minimum
amount is $25,000 for each Other Insured.
CHILDREN'S TERM RIDER. The Children's Term Rider is a term rider available for
children (natural, adopted, or stepchild) of the primary Insured. Children 15
days to age 24 inclusive are covered. The Rider is available in units of $1000,
with a minimum of $2,000 and a maximum of $20,000 per any one family. The Cost
of Insurance for this Rider is deducted monthly.
GUARANTEED INSURABILITY RIDER. This Rider is available for issue ages 0 to 40
and it is available for the primary Insured, and/or those covered under the Term
Rider for Covered Insured. This Rider allows the Covered Insured to purchase,
without evidence of insurability, additional insurance on the Option Dates, or
alternate Option Dates. It can be purchased in units of $1,000, with a minimum
amount of $10,000 and a maximum amount of $100,000 or the Specified Amount, if
less. Total amount of options exercised may not exceed five times the option
amount. There are eight regular Option Dates, beginning at age 25, every three
years thereafter, and the last option is at age 46. An alternate Option Date
will occur three months after marriage, birth of a child, or adoption of a
child. Exercising an alternate Option Date reduces the next regular Option Date.
This Rider is not available for substandard risks. The Cost of Insurance for
this rider is deducted monthly from the Policy Value.
ACCIDENTAL DEATH BENEFIT RIDER. This Rider is available for the primary Insured,
and/or those covered under the Term Rider for Covered Insureds. The Accidental
Death Benefit Rider provides an additional life insurance benefit in the case of
accidental death. It is available for ages 5 through 69. The minimum amount
which can be purchased is $10,000 and the maximum amount is two times the
Specified Amount on the Covered Insured, not to exceed a total of $350,000 in
all policies, in all companies, for that Insured. The Cost of Insurance for this
Rider is deducted monthly from the Policy Value.
WAIVER OF COST OF INSURANCE RIDER. This Rider is available for ages 5 through
64. It waives the total Cost of Insurance for the Policy, the Monthly Charge,
and the cost of any additional benefit Riders, after the primary Insured has
been totally disabled for six consecutive months and the claim for total
disability has been approved. The Cost of Insurance for this Rider is deducted
monthly from the Policy Value.
DISABILITY BENEFIT PAYMENT RIDER. This Rider is available for ages 5 through 64.
If the Covered Insured (Primary Insured or Other Insureds) under this Rider has
been totally disabled for six consecutive months, and the claim for total
disability has been approved, a disability benefit amount will be paid as a
premium to the Policy. The minimum benefit which can be selected is $50 per
month. The maximum is two times the Death Benefit Guarantee Monthly Premium. The
Cost of Insurance for this Rider is deducted monthly from the Policy Value.
CONVALESCENT CARE BENEFIT RIDER. This Rider may be available in several forms
which differ by the amount and duration of benefit payments and also by the
conditions required to receive benefit payments. The rider is available for the
Primary Insured only its availability may stipulate certain minimum or maximum
policy specified amounts. The rider provides benefit payments when the health of
the Insured is such that covered convalescent care services are necessary. The
Cost of Insurance for this Rider is deducted monthly from the Policy Value.
CONTINGENT OPTION RIDER. The Contingent Option Rider is a guaranteed
insurability rider that gives the Owner the right to purchase an additional
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policy without evidence of insurability upon the death of the designated person
(the Option Life). Available to issue ages 0 through 80. The Cost of Insurance
for this Rider is based on the Contingent Option Amount and is deducted monthly
from the Policy Value.
RETIREMENT OPTION RIDER. The Retirement Option Rider is a guaranteed
insurability rider that gives the Owner the right to purchase an additional
policy without evidence of insurability within 60 days after a specific date
(the Option Date). The Option Date, determined at the issue of the rider, may be
the Owner's anticipated retirement date or some other date after which
additional insurance may be needed. Available to issue ages 0 through 70. The
Cost of Insurance for this Rider is based on the Retirement Option Amount and is
deducted monthly from the Policy Value.
ACCELERATED BENEFIT ELECTION RIDER. This rider is available to issue ages 0
through 80 and gives the Owner the right to receive a portion of the Death
Benefit prior to death if the Insured is diagnosed as having an illness which
with reasonable medical certainty will cause death within 12 months. Upon
receipt of proof of loss, up to one-half of the Eligible Death Benefit (as
defined in the Rider) may be advanced to the Owner in cash as an Initial
Accelerated Benefit. A limited amount of Subsequent Accelerated Benefit is also
available to pay premiums and interest charges required on the policy. The
amount of all advanced Accelerated Benefits creates an interest-bearing lien
against the Death Benefit otherwise payable at death. There is no Cost of
Insurance for this Rider, but an Administrative Expense Charge is payable upon
application for benefits.
JOINT LIFE TERM RIDER FOR COVERED INSUREDS. This Rider is available for issue
ages 20 to 80. This Rider provides term insurance for two, three, or four
individuals and pays the Joint Life Term Death Benefit upon the death of the
first to die of the Covered Insureds. The Cost of Insurance and Monthly Charges
for this Rider are deducted monthly from the Policy Value.
LAST SURVIVOR TERM RIDER FOR COVERED INSUREDS. This Rider is available for issue
ages 20 to 85 if the average of the ages does not exceed 80. This Rider provides
term insurance for two, three, or four individuals and pays the Last Survivor
Term Death Benefit upon the death of the last to die of the Covered Insureds.
The Cost of Insurance and Monthly Charges for this Rider are deducted monthly
from the Policy Value. The minimum issue amount is $25,000; the maximum issue
amount is equal to 19 times the Specified Amount of the policy.
LAST SURVIVOR CONTINGENT OPTION INSURABILITY RIDER AND LAST SURVIVOR RETIREMENT
OPTION INSURABILITY RIDER. These Riders are only available if a Last Survivor
Term Rider for Covered Insureds is on the policy. The Last Survivor Contingent
Option Rider is a guaranteed insurability rider that gives the Owner the right
to purchase an additional last survivor policy without evidence of insurability
upon the death of the designated person (the Option Life). The Last Survivor
Retirement Option Insurability Rider grants a similar benefit to be exercised
within 60 days of the Option Date. The Option Date is chosen at issue and cannot
be later than age 80 of the oldest insured. Available to issue ages 20 through
70 of the oldest insured. The Cost of Insurance for this Rider is based on the
Contingent Option Amount and is deducted monthly from the Policy Value. The
minimum issue amount is $100,000; the maximum issue amount is 5 times the
Specified Amount of the Last Survivor Term Rider to which it is attached.
DISTRIBUTION OF THE POLICY
The Policy will be sold by individuals who, in addition to being licensed as
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life insurance agents for Lincoln Life, are also its registered representatives.
Lincoln Life is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers.
FEDERAL TAX MATTERS
The following discussion is intended to provide a general description of the
Federal income tax considerations associated with the Policy. It does not
purport either to be complete or to cover all situations; this discussion is not
intended to be taken as tax advice. Consult a qualified tax adviser for more
complete information. This discussion is based upon Lincoln Life's understanding
of the present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretation by the Internal Revenue Service. Federal tax laws may change
without notice and as a result the taxable consequences to the insured,
policyowner, or beneficiary may be altered.
TAX STATUS OF THE POLICY.
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
includes a definition of a life insurance contract for Federal tax purposes.
This definition can be satisfied by complying with one of two tests set forth in
section 7702. With respect to a Policy which has an "accelerated death benefit
rider", there is some uncertainty as to qualification of the Policy as life
insurance due to the limited guidance provided. Although the Secretary of the
Treasury (the "Treasury") is authorized to prescribe regulations interpreting
the manner in which the tests under section 7702 are to be applied, such
regulations have not been issued. In addition, section 7702 of the Code was
amended by imposing certain modified requirements with respect to the mortality
(i.e., "cost of insurance") and other expense charges that are to be used in
determining compliance of the Policies with section 7702. Guidance as to how
these modified requirements are to be applied is extremely limited. If a policy
was determined not to be a life insurance contract for purposes of section 7702,
such Policy would not provide most of the tax advantages normally provided by a
life insurance policy.
With respect to a Policy (other than a Policy in respect of a smoker) issued on
the basis of a standard rate class or a rate class involving a lower mortality
risk (i.e., preferred basis), while there is some uncertainty due to the lack of
regulations and the limited guidance on the modified section 7702 requirements,
Lincoln Life nonetheless believes that such a Policy should meet the section
7702 definition of a life insurance contract. With respect to a Policy issued on
a substandard basis (i.e., a rate class involving higher than standard mortality
risk), a Policy in respect of a smoker issued on a standard rate class or a rate
class with a lower mortality risk, or a Policy which has a last survivor of
multiple insureds or first to die of multiple insureds feature, there is even
less guidance in particular as to how the modified requirements are to be
applied in determining whether such a Policy meets the section 7702 definition
of a life insurance contract. Thus, it is not clear whether or not such a Policy
would satisfy section 7702, particularly if the Owner pays the full amount of
premiums permitted under the Policy. If it is subsequently determined that a
Policy does not satisfy section 7702, Lincoln Life will take whatever steps are
appropriate and necessary to cause such a Policy to comply with section 7702,
including possibly refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or other earnings on any
premiums refunded as required by law). For these reasons, Lincoln Life reserves
the right to modify the Policy as necessary to qualify it as a life insurance
contract under section 7702.
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Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Separate Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Separate Account, through the
various Funds in which it invests, intends to comply with the diversification
requirements prescribed in Treasury Regulations, which affect how the Fund's
assets may be invested. Although the investment adviser of the Funds is an
affiliate of Lincoln Life, Lincoln Life does not have control over the
investments of such Funds. Nonetheless, Lincoln Life believes that the Funds
will be operated in compliance with the requirements prescribed by the Treasury.
The regulations relating to diversification requirements do not provide guidance
concerning the extent to which policyowners may direct their investments to the
subaccounts of a separate account. When additional guidance is provided, the
Policy may need to be modified to comply with such guidance. It is not clear
what this additional guidance will provide nor whether it will be applied on a
prospective basis only. For these reasons, Lincoln Life reserves the right to
modify the Policy as necessary to prevent the Owner from being considered the
owner of the assets of the Separate Account or otherwise to qualify the Policy
for favorable tax treatment.
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable life contract will not be treated as a life insurance contract
for tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may require
the Company to impose limitations on a Contract Owner's right to control the
investment. It is not known whether any such guidelines would have a retroactive
effect.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS.
1. IN GENERAL. Lincoln Life believes that the proceeds and cash value increases
of a Policy should be treated in a manner consistent with a fixed benefit life
insurance policy for Federal income tax purposes. Thus, the death benefit under
the Policy should be excludable from the gross income of the Beneficiary under
Section 101(a)(1) of the Code.
A change in a Policy's Specified Amount, a change in death benefit option, the
payment of premiums, the addition of additional insurance, a Policy loan, a
partial withdrawal, a lapse with outstanding indebtedness, exchange of a Policy,
or a surrender may have tax consequences depending upon the circumstances. In
addition, Federal estate and generation skipping transfer, and state and local
estate inheritance, and other tax consequences of ownership or receipt of Policy
proceeds depend upon the circumstances of each Owner or Beneficiary. A competent
tax adviser should be consulted for further information. Generally, the Owner
will not be deemed to be in constructive receipt of the cash value, including
increments thereof, under the Policy until there is a distribution. The tax
consequences of distributions from, and loans taken from or secured by, a Policy
depend on whether the Policy is classified as a "modified endowment contract"
under section 7702A.
2. MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as a modified endowment
contract depending upon the amount of premiums paid in relation to the death
benefit provided under such Policy. In addition, if a Policy is "materially
changed," it may be treated as a modified endowment contract depending upon such
relationship after such change. The premium limitation and material change rules
for determining whether a Policy is a modified endowment
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contract are extremely complex. Moreover, due to the Policy's flexibility,
classification of a Policy as a modified endowment contract will depend upon the
circumstances of each Policy. Accordingly, a prospective Owner should contact a
competent tax adviser before purchasing a Policy to determine the circumstances
in which the Policy would be a modified endowment contract. In addition, an
Owner should contact a competent tax adviser before paying any additional
premium or making any other change to, including an exchange of, a Policy to
determine whether such premium payment or change would cause the Policy to be
treated as a modified endowment contract.
Lincoln Life will monitor premiums paid into each Policy after the date of this
Prospectus to determine when a premium payment will exceed the 7-Pay test and
cause the Policy to become a modified endowment contract. If the Owner has given
Lincoln Life instructions that the Policy should not be allowed to become a
modified endowment contract, any premiums in excess of the 7-Pay Limitation will
first be applied to reduce any outstanding loan on the Policy, and any further
excess will be refunded to the owner within 7 days. If the Owner has not given
Lincoln Life instructions to the contrary, however, the premium will be paid
into the Policy and a letter of notification of modified endowment contract
status will be sent to the Owner. The letter of notification will include the
available options, if any, for remedying the modified endowment contract status
of the Policy.
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as modified endowment contracts are subject to the following
tax rules: First, all distributions, including distributions upon surrender and
benefits paid at maturity, from such a Policy are treated as ordinary income
subject to tax up to the amount equal to the excess (if any) of the cash value
immediately before the distribution over the investment in the Policy (described
below) at such time. Second, loans taken from, or secured by, such a Policy are
treated as distributions from such a Policy and taxed accordingly. Third, a 10
percent additional income tax is imposed on the portion of any distribution
from, or loan taken from or secured by, such a Policy that is included in income
except where the distribution or loan is made on or after the Owner attains age
59-1/2, is attributable to the Owner's becoming disabled, or is part of a series
of substantially equal periodic payments for the life of the Owner or the joint
lives of the Owner and the Owner's Beneficiary. Fourth, the Cost of Insurance
for certain riders which are not "qualified additional benefits" such as the
Convalescent Care Rider may be treated as distributions from such a Policy and
taxed accordingly.
4. DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not classified as a modified endowment
contract are generally treated as first recovering the investment in the Policy
(described below) and then, only after the return of all such investment in the
Policy, as distributing taxable income. An exception to this general rule occurs
in the case of a decrease in the Specified Amount, a change in death benefits
from Type 2 to Type 1, or any other change that reduces benefits under the
Policy in the first 15-years after the Policy is issued and that results in a
cash distribution to the Owner in order for the Policy to continue complying
with the section 7702 definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in section 7702.
Loans from, or secured by, a Policy that is not a modified endowment contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
Upon a complete surrender or lapse of a Policy that is not a modified endowment
contract, or when benefits are paid at such a Policy's maturity
29
<PAGE>
date, if the amount received plus the amount of indebtedness exceeds the total
investment in the Policy, the excess will generally be treated as ordinary
income subject to tax.
Finally, neither distributions (including distributions upon surrender or lapse)
nor loans from, or secured by, a Policy that is not a modified endowment
contract are subject to the 10 percent additional income tax.
5. POLICY LOAN INTEREST. Generally, interest paid on any loan under a Policy
which is owned by an individual will not be deductible. In addition, interest on
any loan under a Policy owned by a taxpayer and covering the life of any
individual who is an officer of or is financially interested in the business
carried on by that taxpayer will not be tax deductible to the extent the
aggregate amount of such loans with respect to contracts covering such
individual exceeds $50,000. No amount of Policy loan interest is, however,
deductible if the Policy was deemed for Federal tax purposes to be a single
premium life insurance contract. The Owner should consult a competent tax
adviser as to whether the Policy would be so deemed.
6. INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded from the gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a modified endowment contract, to the extent such amount is
excluded from gross income, will be disregarded), plus, (iii) the amount of any
loan from, or secured by, a Policy that is a modified endowment contract to the
extent that such amount is included in the gross income of the Owner.
7. MULTIPLE POLICIES. All modified endowment contracts that are issued by
Lincoln Life (or its affiliates) to the same Owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includible in gross income under section 72(e) of the Code.
8. TAXATION OF CONVALESCENT CARE BENEFIT RIDER AND ACCELERATED BENEFIT ELECTION
RIDER. The tax treatment of benefits paid under the Convalescent Care Benefit
rider and Accelerated Benefit Election Rider, as well as the tax treatment of a
Policy with such Riders, is uncertain. Future legislation or interpretations may
treat all or part of such payments as taxable distributions from the Policy.
Alternatively, such payments may be excluded from taxable income to the extent
they are used to pay for actual long-term care services or are considered a
death benefit under section 101(a)(1) of the Code. A competent tax adviser
should be consulted for further information.
TAXATION OF THE SEPARATE ACCOUNT
Lincoln Life does not initially expect to incur any income tax upon the earnings
or the realized capital gains attributable to the Separate Account. Based upon
these expectations, no charge is being made currently to the Separate Account
for Federal income taxes which may be attributable to the Separate Account. If,
however, Lincoln Life determines that it may incur such taxes, it may assess a
charge for those taxes from the Separate Account.
VOTING RIGHTS
To the extent required by law, Lincoln Life will vote shares of the funds held
in the Separate Account at regular and special shareholder meetings of the funds
in accordance with instructions received from persons having voting interests in
the Separate Account. If, however, the Investment Company Act of 1940 or any
regulation thereunder should be amended or if the present interpretation thereof
should change, and as a result Lincoln Life determines
30
<PAGE>
that it is permitted to vote the fund shares in its own right, it may elect to
do so.
The number of votes which each policyowner has the right to instruct will be
determined as one vote for each $100 of Policy Value in each subaccount.
Fractional shares will be allocated for amounts less than $100. The number of
votes which the policyowner has the right to instruct will be determined as of
the date coincident with the date established by the various funds for
determining shareholders eligible to vote at the meetings of the funds. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the funds. Lincoln Life will vote
shares of each fund as to which no timely instructions are received in
proportion to the voting instructions which are received with respect to all
Policies participating in that fund. Each person having a voting interest will
receive proxy material, reports and other materials relating to the appropriate
Portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Lincoln Life may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of any of the funds or to approve or
disapprove an investment advisory contract for a fund. In addition, Lincoln Life
itself may disregard voting instructions in favor of changes initiated by a
policyowner in the investment policy or the investment adviser of a fund if
Lincoln Life reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to state law or prohibited
by state regulatory authorities or Lincoln Life determined that the change would
have an adverse effect on its General Account in that the proposed investment
policy for any fund may result in overly speculative or unsound investments. In
the event Lincoln Life does disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next semiannual
report to policyowners.
STATE REGULATION OF LINCOLN LIFE
AND THE SEPARATE ACCOUNT
Lincoln Life, a stock life insurance company organized under the laws of
Indiana, is subject to regulation by the Insurance Department of the State of
Indiana. An annual statement is filed with the Indiana Department of Insurance
("Department") on or before March 1st of each year covering the operations and
reporting on the financial condition of Lincoln Life as of December 31 of the
preceding year. Periodically, the Department examines the liabilities and
reserves of Lincoln Life and the Separate Account and certifies their adequacy,
and a full examination of Lincoln Life's operations is conducted by the
Department at least once every five years.
In addition, Lincoln Life is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the Insurance Department of any other state applies the laws of the
state of domicile in determining permissible investments.
SAFEKEEPING OF THE ACCOUNT'S ASSETS
Lincoln Life holds title to the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from the general account
assets. Records are maintained of all purchases and redemptions of fund shares
held by each Subaccount. Additional protection is provided in the form of a
blanket fidelity bond which covers directors and employees of Lincoln Life. The
bond, which was issued by Fidelity and Deposit Company of
31
<PAGE>
Maryland covers up to $25,000,000.
The funds do not issue certificates. Thus, Lincoln Life holds the Separate
Account's assets in an open account in lieu of stock certificates.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate 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 Separate Account.
EXPERTS
The financial statements of the Separate Account and the consolidated financial
statements and schedules of Lincoln Life appearing in this prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon also appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Denis G.
Schwartz, FSA as stated in the opinion filed as an exhibit to the Registration
Statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, Lincoln Life and the Policy offered
hereby. Statements contained in the prospectus as to the contents of the Policy
and other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed.
32
<PAGE>
APPENDIX A
Base Minimum Premiums (Per $1,000 of Specified Amount)* Male (or
Unisex), Age Last Birthday
<TABLE>
<CAPTION>
AGE Std SM Prf SM Std NS Prf NS AGE Std SM Prf SM Std NS Prf NS
- ----- ------ ------ ------ ------ --- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 ** ** 1.57 **
1 1.02 41 4.58 4.50 2.91 2.50
2 1.00 42 4.97 4.92 3.14 2.72
3 0.97 43 5.39 5.31 3.39 2.89
4 0.92 44 5.86 5.77 3.66 3.06
5 0.87 45 6.41 6.24 3.96 3.27
6 0.83 46 7.00 6.79 4.28 3.48
7 0.80 47 7.68 7.43 4.63 3.78
8 0.79 48 8.40 8.11 5.02 4.03
9 0.81 49 9.21 8.91 5.46 4.37
10 0.87 50 10.06 9.72 5.96 4.75
11 0.94 51 11.03 10.65 6.53 5.26
12 1.04 52 12.05 11.63 7.19 5.81
13 1.19 53 13.07 12.60 7.93 6.37
14 1.36 54 14.09 13.62 8.74 6.96
15 1.53 55 15.19 14.64 9.63 7.64
16 1.70 1.57 1.63 1.49 56 16.42 15.83 10.50 8.40
17 1.74 1.61 1.71 1.53 57 17.74 17.06 11.37 9.12
18 1.82 1.70 1.75 1.53 58 19.14 18.42 12.31 9.93
19 1.87 1.74 1.76 1.53 59 20.63 19.86 13.37 10.82
20 1.91 1.78 1.75 1.53 60 22.28 21.52 14.56 11.84
21 1.91 1.78 1.72 1.53 61 24.11 23.30 15.83 12.94
22 1.95 1.82 1.68 1.53 62 26.19 25.25 17.23 14.18
23 1.99 1.87 1.64 1.53 63 28.35 27.33 18.76 15.53
24 2.04 1.91 1.60 1.53 64 30.64 29.54 20.37 16.98
25 2.04 1.91 1.56 1.53 65 32.98 31.83 22.07 18.55
26 2.08 1.95 1.54 1.53 66 35.35 34.08 23.89 20.24
27 2.12 1.99 1.53 1.53 67 37.81 36.41 25.89 22.11
28 2.16 2.04 1.53 1.53 68 40.40 38.88 28.10 24.15
29 2.21 2.08 1.54 1.53 69 43.16 41.72 30.43 26.36
30 2.29 2.16 1.56 1.53 70 46.13 44.86 32.93 28.82
31 2.38 2.25 1.61 1.57 71 49.36 48.34 35.69 31.53
32 2.46 2.33 1.67 1.61 72 53.05 52.20 38.92 34.84
33 2.55 2.42 1.75 1.70 73 57.29 56.70 42.78 38.71
34 2.67 2.59 1.83 1.78 74 61.88 61.50 47.11 43.12
35 2.84 2.80 1.93 1.91 75 66.63 66.38 51.73 47.92
36 3.06 3.06 2.05 1.99 76 71.26 71.00 56.45 53.05
37 3.31 3.27 2.19 2.04 77 75.93 75.67 61.41 58.53
38 3.56 3.48 2.35 2.12 78 80.64 80.38 66.72 64.47
39 3.86 3.73 2.52 2.21 79 85.52 85.26 72.62 71.21
40 4.20 4.12 2.71 2.38 80 90.69 90.44 79.24 78.56
</TABLE>
* TO DETERMINE THE DEATH BENEFIT GUARANTEE MONTHLY PREMIUM, MULTIPLY THE
SPECIFIED AMOUNT DIVIDED BY 1000 TIMES THE NUMBER SHOWN FOR THE AGE AND
CLASSIFICATION OF THE INSURED, ADD $100.00 PER POLICY AND THEN DIVIDE THE
RESULT BY 12. ADDITIONAL AMOUNTS ARE REQUIRED RIDERS AND/OR SUBSTANDARDS
** THIS CLASSIFICATION IS NOT AVAILABLE BELOW THE AGE OF 16 .
33
<PAGE>
APPENDIX A (CONTINUED)
Base Minimum Premiums (Per $1,000 of Specified Amount)*
Female, Age Last Birthday
<TABLE>
<CAPTION>
AGE Std SM Prf SM Std NS Prf NS AGE Std SM Prf SM Std NS Prf NS
- ----- ------ ------ ------ ------ --- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 ** ** 1.24 **
1 0.85 41 4.02 3.86 2.67 2.33
2 0.82 42 4.36 4.16 2.86 2.46
3 0.80 43 4.71 4.54 3.07 2.55
4 0.78 44 5.07 4.88 3.28 2.67
5 0.76 45 5.44 5.26 3.50 2.84
6 0.75 46 5.84 5.56 3.74 3.01
7 0.73 47 6.25 5.94 4.00 3.18
8 0.72 48 6.70 6.37 4.29 3.40
9 0.72 49 7.19 6.83 4.60 3.65
10 0.74 50 7.72 7.34 4.96 3.99
11 0.77 51 8.31 7.85 5.36 4.33
12 0.81 52 8.95 8.49 5.80 4.71
13 0.85 53 9.62 9.12 6.26 5.05
14 0.88 54 10.29 9.76 6.67 5.39
15 0.92 55 10.90 10.31 7.00 5.64
16 1.11 1.06 0.97 0.85 56 11.50 10.86 7.34 5.90
17 1.16 1.10 1.01 0.89 57 12.05 11.42 7.72 6.20
18 1.21 1.15 1.02 0.89 58 12.65 12.01 8.19 6.62
19 1.23 1.15 1.04 0.93 59 13.28 12.60 8.66 7.09
20 1.26 1.19 1.06 0.98 60 14.09 13.33 9.21 7.55
21 1.28 1.23 1.10 1.02 61 15.19 14.34 9.97 8.19
22 1.32 1.27 1.12 1.02 62 16.55 15.62 10.95 9.04
23 1.35 1.27 1.14 1.02 63 18.08 17.10 12.10 10.02
24 1.39 1.32 1.16 1.06 64 19.65 18.59 13.24 11.03
25 1.43 1.36 1.18 1.10 65 21.22 20.07 14.34 12.01
26 1.48 1.44 1.21 1.15 66 22.75 21.47 15.45 13.03
27 1.53 1.49 1.24 1.15 67 24.23 22.83 16.55 14.09
28 1.60 1.57 1.28 1.15 68 25.80 24.32 17.87 15.32
29 1.66 1.61 1.32 1.15 69 27.54 26.10 19.35 16.81
30 1.74 1.70 1.36 1.15 70 29.71 28.35 21.22 18.59
31 1.82 1.78 1.41 1.19 71 32.34 31.11 23.43 20.71
32 1.91 1.87 1.46 1.23 72 35.52 34.33 26.10 23.34
33 2.02 1.95 1.53 1.32 73 39.21 38.11 29.33 26.53
34 2.15 2.04 1.61 1.40 74 43.46 42.53 33.10 30.34
35 2.32 2.21 1.70 1.49 75 48.00 47.36 37.26 34.55
36 2.53 2.42 1.83 1.57 76 52.71 52.33 41.80 39.26
37 2.77 2.67 1.97 1.66 77 57.63 57.38 46.77 44.52
38 3.05 2.97 2.13 1.82 78 63.15 62.90 52.46 50.63
39 3.35 3.27 2.30 1.99 79 69.22 68.97 58.99 57.76
40 3.69 3.56 2.48 2.21 80 76.01 75.76 66.25 65.57
</TABLE>
* TO DETERMINE THE DEATH BENEFIT GUARANTEE MONTHLY PREMIUM, MULTIPLY THE
SPECIFIED AMOUNT DIVIDED BY 1000 TIMES THE NUMBER SHOWN FOR THE AGE AND
CLASSIFICATION OF THE INSURED, ADD $100.00 PER POLICY AND THEN DIVIDE THE
RESULT BY 12. ADDITIONAL AMOUNTS ARE REQUIRED FOR RIDERS AND/OR SUBSTANDARDS
** THIS CLASSIFICATION IS NOT AVAILABLE BELOW THE AGE OF 16.
34
<PAGE>
APPENDIX B
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
Name, Address and Position(s)
With Registrant Principal Occupations Last Five Years
- --------------------------------- --------------------------------------
<S> <C>
TIMOTHY J. ALFORD Senior Vice President (formerly Vice
Senior Vice President President and Second Vice President),
One Reinsurance Place Lincoln National Life Insurance Co.
1700 Magnavox Way
Fort Wayne, Ind. 46804
NEAL ARNOLD Vice President (formerly Second Vice
Vice President President), Lincoln National Life
Insurance Co.
ROBERT A. ANKER President and Chief Operating
Chairman of the Board, Officer, Lincoln National Corp. and
Chief Executive Officer Chairman and Chief Executive Officer
and Director (formerly President and Chief
200 East Berry Street Operating Officer) Lincoln National
Fort Wayne, Ind. 46802 Life Insurance Co. Formerly:
Chairman; President, American States
Insurance Co.; Executive Vice
President, American States Life
Insurance Co.
CARL L. BAKER Vice President and Deputy General
Vice President and Counsel (formerly Associate General
Deputy General Counsel Counsel); Lincoln National Life
Insurance Co.
ROLAND C. BAKER President, First Penn-Pacific Life
Vice President Insurance Co. Formerly: Chairman and
1801 S. Meyers Road CEO, Baker, Ralish, Shipley &
Oakbrook Terrace, Ill. 60181 Politzer, Inc.
DAVID N. BECKER Vice President, Lincoln National Life
Vice President, Appointed Actuary Insurance Co.
and Valuation Actuary
JOANN E. BECKER Vice President, Lincoln National Life
Vice President Insurance Co. and Lincoln Investment
200 East Berry Street Management Inc.; President, The
Fort Wayne, Ind. 46802 Richard Leahy Corp. And President,
LNC Equity Sales Corp.
JOHN M. BEHRENDT Vice President, Lincoln National Life
Vice President Insurance Co. and Lincoln Financial
Group, Inc. Formerly: President, LNC
Equity Sales Corp.
JON A. BOSCIA President and Chief Operating
President, Director and Officer, Lincoln National Life
Chief Operating Officer Insurance Co. Formerly: President;
Executive Vice President, Lincoln
Investment Management Inc.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CAROLYN P. BORDY Vice President (formerly Second Vice
Vice President President), Lincoln National Life
Insurance Co.
STEVEN R. BRODY Vice President (formerly Executive Vice
Vice President President), Lincoln Investment
200 East Berry Street Management Inc.
Fort Wayne, Ind. 46802
HAROLD B. CARSTENSEN, JR. Vice President, Lincoln National Life
Vice President Insurance Co. Formerly: Software
Director, Magnavox Electronic Systems
Co.
DONALD C. CHAMBERS, M.D. Senior Vice President and Chief
Senior Vice President and Chief Medical Director (formerly Vice
Medical Director President and Chief Medical
One Reinsurance Place Director), Lincoln National Life
1700 Magnavox Way Insurance Co.
Fort Wayne, Ind. 46804
THOMAS L. CLAGG Vice President and Associate General
Vice President and Associate Counsel, Lincoln National Life
General Counsel Insurance Co.
KENNETH J. CLARK Senior Vice President (formerly Vice
Senior Vice President President), Lincoln National Life
One Reinsurance Place Insurance Co.
1700 Magnavox Way
Fort Wayne, Ind. 46804
KELLY D. CLEVENGER Vice President, Lincoln National Life
Vice President Insurance Co.
MARTHA O. D'AMBROSIO Vice President and General Auditor,
Vice President and Lincoln National Corp. and Lincoln
General Auditor National Life Insurance Co. Formerly:
Senior Manager, KPMG Peat Marwick.
ARTHUR W. DETORE, M.D. Vice President (formerly Second Vice
Vice President President), Lincoln National Life
Insurance Co. Formerly: Vice
President, Lincoln National Risk
Management, Inc.
C. LAWRENCE EDRIS Vice President (formerly Senior Vice
Vice President President), Lincoln National Life
Insurance Co.
THOMAS W. FITCH Vice President, First Penn-Pacific
Vice President Life Insurance Co. and Lincoln
1801 S. Meyers Road National Life Insurance Co.
Oakbrook Terrace, Ill. 60181
ELIZABETH A. FREDERICK Vice President (formerly Second Vice
Vice President and Associate President) and Associate General
General Counsel Counsel, Lincoln National Life
Insurance Co.
LUCY D. GASE Vice President and Assistant Secretary
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vice President and (formerly Second Vice President;
Assistant Secretary Assistant Vice President),
Lincoln National Life Insurance Co.
MELANIE T. HALL Vice President (formerly Second Vice
Vice President President; Assistant Vice President),
Lincoln National Life Insurance Co.
PHILLIP A. HARTMAN Vice President, Lincoln National Life
Vice President Insurance Co. and Lincoln Financial
Group, Inc.
J. MICHAEL HEMP Senior Vice President (formerly
Senior Vice President Regional Chief Executive Officer),
Lincoln Dallas RMO
MATTHEW P. HENDERSON Vice President, Lincoln National Life
Vice President Insurance Co. (formerly Vice President,
Second Vice President), Lincoln National
Corp.
DAVID A. HOPPER Vice President, Lincoln National Life
Vice President Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
JAMES R. HOREIN Senior Vice President, Lincoln National
Senior Vice President Life Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
JACK D. HUNTER Executive Vice President and General
Executive Vice President, Counsel, Lincoln National Corp. and
General Counsel and Director Lincoln National Life Insurance Co.
200 East Berry Street
Fort Wayne, Ind. 46802
J. MICHAEL KEEFER Vice President and Associate General
Vice President and Associate Counsel, Lincoln National Corp.
General Counsel
200 East Berry Street
Fort Wayne, Ind. 46802
DONALD E. KELLER Vice President (formerly Second Vice
Vice President President), Lincoln National Life
Insurance Co.
LAWRENCE T. KISSKO Vice President, Lincoln Investment
Vice President Management Inc.
MICHAEL C. LA FRENAIS Vice President, Lincoln National Life
Vice President Insurance Co. Formerly: Assistant Vice
President, Aurora Life Assurance Co.
STEPHEN H. LEWIS Senior Vice President, Lincoln
Senior Vice President National Life Insurance Co. Formerly:
President, First Penn-Pacific Life
Insurance Co.
EDWARD B. MARTIN Vice President (formerly Senior Vice
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vice President President), Lincoln National Life
Insurance Co.; President and CEO
(formerly Executive Vice President
and COO), Corporate Benefit Systems
Services Corp.
H. THOMAS MCMEEKIN President (formerly Executive Vice
Director President, Senior Vice President),
200 East Berry Street Lincoln National Investment
Fort Wayne, Ind. 46802 Management Inc.; Executive Vice
President (formerly Senior Vice
President), Lincoln National Corp.
REED P. MILLER Vice President (formerly Senior Vice
Vice President President), Lincoln National Life
Insurance Co. Formerly: Senior Vice
President; Vice President, Lincoln
National Corp.
OLIVER H. G. NICHOLS Vice President, Lincoln Investment
Vice President Management Inc. Formerly: Vice
200 East Berry Street President, Aetna Life & Casualty Co.
Fort Wayne, Ind. 46802
DAVID M. ONGMAN Vice President, Lincoln National Life
Vice President Insurance Co. Formerly: Consultant,
Computer Horizons Group; Vice
President, The Associated Group;
Consulting Center Manager, James
Martin & Co.
ARTHUR L. PAGE Vice President (formerly Second Vice
Vice President President), Lincoln National Life
Insurance Co.
RAYMOND L. PROSSER Vice President and Associate General
Vice President and Counsel, Lincoln National Life
Associate General Counsel Insurance Co. (formerly Second Vice
One Reinsurance Place President and Director of Claims),
1700 Magnavox Way Lincoln National Life Insurance Co.;
Fort Wayne, Ind. 46804 Associate General Counsel, Lincoln
National Corp. and Lincoln National
Life Insurance Co.
IAN M. ROLLAND Chairman and Chief Executive Officer,
Director Lincoln National Corp. (formerly:
200 East Berry Street Chairman and Chief Executive Officer;
Fort Wayne, Ind. 46802 President), Lincoln National Life
Insurance Co.
ARTHUR S. ROSS Vice President, Lincoln National Life
Vice President Insurance Co. and Lincoln Financial
Group, Inc. Formerly: Director of
PR, Guthrie Group; President and COO,
Quorom Comm.
LAWRENCE T. ROWLAND Senior Vice President (formerly Vice
Senior Vice President President and Second Vice President),
One Reinsurance Place Lincoln National Life Insurance Co.
1700 Magnavox Way
Fort Wayne, Ind. 46804
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
KEITH J. RYAN Vice President, Chief Financial
Vice President, Chief Officer and Assistant Treasurer
Financial Officer and (formerly Controller, Business
Assistant Treasurer Controls Director), Lincoln National
Life Insurance Co.
GABRIEL L. SHAHEEN Executive Vice President (formerly
Executive Vice President and Director Senior Vice President; Vice
One Reinsurance Place President), Lincoln National Life
1700 Magnavox Way Insurance Co.
Fort Wayne, Ind. 46804
JOHN L. STEINKAMP Vice President and Associate General
Vice President and Associate Counsel, Lincoln National Corp.
General Counsel
200 East Berry Street
Fort Wayne, Ind. 46802
CASEY J. TRUMBLE Vice President, Lincoln National Corp.
Vice President Formerly: tax partner, KPMG Peat
200 East Berry Street Marwick.
Fort Wayne, Ind. 46802
JAMES A. TUNIS Vice President, Lincoln National Life
Vice President Insurance Co. (formerly: President),
Lincoln National Information Services,
Inc.
WILLIAM K. TYLER Senior Vice President, Lincoln National
Senior Vice President Life Insurance Co.
and Assistant Treasurer
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
MICHAEL R. WALKER Vice President, Lincoln National Life
Vice President Insurance Co. Formerly: Vice
President, Employers Health Insurance
Co.; Vice President/HR, Baker Hughes,
Inc.
JANET C. WHITNEY Vice President and Treasurer, Lincoln
Vice President and National Life Insurance Co. (formerly
Treasurer Vice President and General Auditor),
200 East Berry Street Lincoln National Corp. and Lincoln
Fort Wayne, Ind. 46802 National Life Insurance Co.
MICHAEL D. WILKENS Vice President and Associate General
Vice President and Counsel, Lincoln National Corp.
Associate General Counsel
200 East Berry Street
Fort Wayne, Ind. 46802
C. SUZANNE WOMACK Secretary and Assistant Vice
Secretary and President, Lincoln National Corp. and
Assistant Vice President Lincoln National Life Insurance Co.
200 East Berry Street
Fort Wayne, Ind. 46802
O. DOUGLAS WORTHINGTON Vice President, Controller and
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vice President, Controller Assistant Treasurer, Lincoln National
and Assistant Treasurer Life Insurance Co. (formerly Vice
President), Lincoln Investment
Management Inc.
MICHAEL L. WRIGHT Senior Vice President, Lincoln National
Senior Vice President Life Insurance Co. Formerly: Executive
Vice President & COO; Senior Vice
President, The Associated Group.
KATHERINE K. WYSS Vice President (formerly Second Vice
Vice President President), Lincoln National Life
Insurance Co.
- ---------------------------
* The principal business address of each person listed, unless otherwise
indicated, is South Clinton Street, P.O. Box 1110, Fort Wayne, Ind. 46801
</TABLE>
40
<PAGE>
APPENDIX C
ILLUSTRATIONS OF POLICY VALUES
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables show Type 1 death benefits,
policy values, and Net Cash Surrender Values for each of the first 10 policy
years, and for every five year period thereafter through the thirtieth policy
year, assuming that the return on the assets invested in the Account were a
uniform, gross, after tax, annual rate of 0%, 6%, and 12%. The actual death
benefits and Net Cash Surrender Values would be different from those shown if
different Policyowner underwriting assumptions were used or if the returns
averaged 0%, 6%, and 12% but fluctuated over and under those averages throughout
the years.
The death benefits and Net Cash Surrender Values shown on pages using current
charges are approximately those likely to be provided under the Policy for the
investment returns indicated, assuming that the current Percent of Premium
Charge is deducted, the current Cost of Insurance Charges are deducted, and the
current Mortality and Expense Risk Charge is deducted. Although the contract
allows for a maximum Percent of Premium Charge, maximum Cost of Insurance
Charges specified in the 1980 Commissioners Standard Ordinary Smoker and
Nonsmoker tables, and a maximum Mortality and Expense Risk Charge of .90%,
Lincoln Life expects that it will continue to charge the current Percent of
Premium Charge, the current Cost of Insurance Charges, and the current Mortality
and Expense Risk Charge for the indefinite future. The figures shown on pages
using guaranteed maximum charges show the death benefits and Net Cash Surrender
Values which would result if the guaranteed maximum Percent of Premium Charge,
the guaranteed maximum Cost of Insurance Charges, and the guaranteed maximum
Mortality and Expense Risk Charge were deducted. However, these are primarily of
interest only to show by comparison the benefits of the lower current charges.
In each of the illustrations, the Gross Investment Result is indicated and the
Net Investment Result is listed below in parentheses. The Net Investment Results
are lower than the Gross Investment Results because the daily Asset Management
Charge and the daily Mortality and Expense Risk Charge are deducted from the
Gross Investment Results. The Gross Investment Results used in the illustrations
are also reduced by other expenses reflected in the value of the net assets of
the funds, including printing, mailing, Directors' fees, etc. For purposes of
the illustrations, this reduction is .18%, which is the estimated recent average
of these expenses. The Asset Management Charge is .62%, which is the current
average charge for the five subaccounts. The Mortality and Expense Risk Charge
is .60% for the current actual charge and .90% for the guaranteed maximum
charge. Thus, for example, based on current charges and expenses a 6% gross
return results in a 4.6% net return. The net return is indicated in parentheses
below the gross return.
41
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35 Standard Nonsmoker $100,000 Specified Amount
$1325 Annual Premium Using Current Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,391 100,000 100,000 100,000 962 1,027 1,093 962 1,027 1,093
2 2,852 100,000 100,000 100,000 1,906 2,098 2,299 1,906 2,098 2,299
3 4,386 100,000 100,000 100,000 2,831 3,213 3,627 2,831 3,213 3,627
4 5,996 100,000 100,000 100,000 3,734 4,370 5,088 3,734 4,370 5,088
5 7,688 100,000 100,000 100,000 4,617 5,575 6,701 4,617 5,575 6,701
6 9,463 100,000 100,000 100,000 5,477 6,826 8,477 5,477 6,826 8,477
7 11,328 100,000 100,000 100,000 6,314 8,125 10,435 6,314 8,125 10,435
8 13,285 100,000 100,000 100,000 7,125 9,474 12,595 7,125 9,474 12,595
9 15,341 100,000 100,000 100,000 7,912 10,874 14,979 7,912 10,874 14,979
10 17,499 100,000 100,000 100,000 8,671 12,327 17,611 8,671 12,327 17,611
15 30,021 100,000 100,000 100,000 12,007 20,435 35,583 12,007 20,435 35,583
20 46,003 100,000 100,000 103,153 14,324 30,065 65,703 14,324 30,065 65,703
25 66,400 100,000 100,000 155,466 15,059 41,371 116,019 15,059 41,371 116,019
30 92,433 100,000 100,000 242,940 13,631 54,984 199,131 13,631 54,984 199,131
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .60% CURRENT MORTALITY
AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES ILLUSTRATED
ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS PREMIUM EXPENSES,
ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35 Standard Nonsmoker $100,000 Specified Amount
$1325 Annual Premium Using Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,391 100,000 100,000 100,000 947 1,012 1,077 947 1,012 1,077
2 2,852 100,000 100,000 100,000 1,874 2,064 2,262 1,874 2,064 2,262
3 4,386 100,000 100,000 100,000 2,779 3,155 3,562 2,779 3,155 3,562
4 5,996 100,000 100,000 100,000 3,660 4,286 4,991 3,660 4,286 4,991
5 7,688 100,000 100,000 100,000 4,519 5,458 6,562 4,519 5,458 6,562
6 9,463 100,000 100,000 100,000 5,351 6,671 8,287 5,351 6,671 8,287
7 11,328 100,000 100,000 100,000 6,158 7,926 10,183 6,158 7,926 10,183
8 13,285 100,000 100,000 100,000 6,938 9,226 12,268 6,938 9,226 12,268
9 15,341 100,000 100,000 100,000 7,690 10,570 14,562 7,690 10,570 14,562
10 17,499 100,000 100,000 100,000 8,414 11,960 17,088 8,414 11,960 17,088
15 30,021 100,000 100,000 100,000 11,544 19,629 34,163 11,544 19,629 34,163
20 46,003 100,000 100,000 100,000 13,615 28,539 62,329 13,615 28,539 62,329
25 66,400 100,000 100,000 145,918 14,010 38,652 108,894 14,010 38,652 108,894
30 92,433 100,000 100,000 225,086 11,650 49,985 184,496 11,650 49,985 184,496
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .90% GUARANTEED MAXIMUM
MORTALITY AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES
ILLUSTRATED ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS
PREMIUM EXPENSE, ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35 Standard Smoker $100,000 Specified Amount
$1650 Annual Premium Using Current Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,759 100,000 100,000 100,000 1,183 1,265 1,346 1,183 1,265 1,346
2 3,605 100,000 100,000 100,000 2,345 2,583 2,831 2,345 2,583 2,831
3 5,544 100,000 100,000 100,000 3,475 3,947 4,458 3,475 3,947 4,458
4 7,580 100,000 100,000 100,000 4,574 5,359 6,245 4,574 5,359 6,245
5 9,718 100,000 100,000 100,000 5,641 6,822 8,210 5,641 6,822 8,210
6 11,693 100,000 100,000 100,000 6,679 8,340 10,375 6,679 8,340 10,375
7 14,320 100,000 100,000 100,000 7,677 9,906 12,752 7,677 9,906 12,752
8 16,794 100,000 100,000 100,000 8,636 11,523 15,367 8,636 11,523 15,367
9 19,393 100,000 100,000 100,000 9,556 13,195 18,249 9,556 13,195 18,249
10 22,121 100,000 100,000 100,000 10,439 14,927 21,431 10,439 14,927 21,431
15 37,951 100,000 100,000 100,000 14,096 24,421 43,106 14,096 24,421 43,106
20 58,155 100,000 100,000 124,605 16,110 35,418 79,367 16,110 35,418 79,367
25 83,940 100,000 100,000 186,268 16,021 48,474 139,006 16,021 48,474 139,006
30 116,849 100,000 100,000 288,850 12,799 64,600 236,762 12,799 64,600 236,762
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .60% CURRENT MORTALITY
AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES ILLUSTRATED
ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS PREMIUM EXPENSE,
ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35 Standard Smoker $100,000 Specified Amount
$1650 Annual Premium Using Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,759 100,000 100,000 100,000 1,147 1,226 1,307 1,147 1,226 1,307
2 3,605 100,000 100,000 100,000 2,261 2,493 2,736 2,261 2,493 2,736
3 5,544 100,000 100,000 100,000 3,340 3,799 4,296 3,340 3,799 4,296
4 7,580 100,000 100,000 100,000 4,382 5,141 6,000 4,382 5,141 6,000
5 9,718 100,000 100,000 100,000 5,382 6,521 7,861 5,382 6,521 7,861
6 11,693 100,000 100,000 100,000 6,339 7,935 9,892 6,339 7,935 9,892
7 14,320 100,000 100,000 100,000 7,250 9,384 12,112 7,250 9,384 12,112
8 16,794 100,000 100,000 100,000 8,112 10,866 14,539 8,112 10,866 14,539
9 19,393 100,000 100,000 100,000 8,924 12,383 17,195 8,924 12,383 17,195
10 22,121 100,000 100,000 100,000 9,682 13,931 20,105 9,682 13,931 20,105
15 37,951 100,000 100,000 100,000 12,604 22,187 39,642 12,604 22,187 39,642
20 58,155 100,000 100,000 112,936 13,624 31,195 71,934 13,624 31,195 71,964
25 93,940 100,000 100,000 166,565 11,688 40,703 124,303 11,688 40,703 124,303
30 116,849 100,000 100,000 254,016 5,017 50,637 208,210 5,017 50,637 208,210
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A 043% ASSET MANAGEMENT CHARGE, A .90% GUARANTEED MAXIMUM
MORTALITY AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES
ILLUSTRATED ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS
PREMIUM EXPENSE, ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 55 Standard Nonsmoker $100,000 Specified Amount
$3300 Annual Premium Using Current Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,465 100,000 100,000 100,000 2,156 2,312 2,469 2,156 2,312 2,469
2 7,103 100,000 100,000 100,000 4,227 4,676 5,146 4,227 4,676 5,146
3 10,923 100,000 100,000 100,000 6,212 7,096 8,057 6,212 7,096 8,057
4 14,935 100,000 100,000 100,000 8,130 9,592 11,250 8,130 9,592 11,250
5 19,146 100,000 100,000 100,000 9,972 12,165 14,754 9,972 12,165 14,754
6 23,569 100,000 100,000 100,000 11,722 14,801 18,592 11,722 14,801 18,592
7 28,212 100,000 100,000 100,000 13,384 17,511 22,815 13,384 17,511 22,815
8 33,088 100,000 100,000 100,000 14,949 20,296 27,471 14,949 20,296 27,471
9 38,207 100,000 100,000 100,000 16,412 23,158 32,619 16,421 23,158 32,619
10 43,582 100,000 100,000 100,000 17,766 26,101 38,326 17,766 26,101 38,326
15 74,770 100,000 100,000 100,000 22,743 42,354 78,829 22,743 42,354 78,829
20 114,574 100,000 100,000 160,994 23,695 62,418 150,462 23,695 62,418 150,462
25 165,374 100,000 100,000 283,664 16,839 89,940 270,156 16,839 89,940 270,156
30 230,211 0 135,762 489,052 0 129,297 465,764 0 129,297 465,764
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .60% CURRENT MORTALITY
AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES ILLUSTRATED
ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS PREMIUM EXPENSES,
ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 55 Standard Nonsmoker $100,000 Specified Amount
$3300 Annual Premium Using Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,465 100,000 100,000 100,000 2,122 2,276 2,431 2,122 2,276 2,431
2 7,103 100,000 100,000 100,000 4,152 4,596 5,059 4,152 4,596 5,059
3 10,923 100,000 100,000 100,000 6,091 6,961 7,907 6,091 6,961 7,907
4 14,935 100,000 100,000 100,000 7,932 9,368 10,996 7,932 9,368 10,996
5 19,146 100,000 100,000 100,000 9,669 11,814 14,349 9,669 11,814 14,349
6 23,569 100,000 100,000 100,000 11,294 14,296 17,997 11,294 14,296 17,997
7 28,212 100,000 100,000 100,000 12,800 16,810 21,971 12,800 16,810 21,971
8 33,088 100,000 100,000 100,000 14,173 19,348 26,307 14,173 19,348 26,307
9 38,207 100,000 100,000 100,000 15,399 21,903 31,050 15,399 21,903 31,050
10 43,582 100,000 100,000 100,000 16,465 24,469 36,255 16,465 24,469 36,255
15 74,770 100,000 100,000 100,000 18,943 37,430 72,299 18,943 37,430 72,299
20 114,574 100,000 100,000 146,005 13,951 50,200 136,453 13,951 50,200 136,453
25 165,374 100,000 100,000 254,381 0 62,368 242,268 0 62,368 242,268
30 230,211 0 100,000 430,954 0 75,776 410,432 0 75,776 410,432
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .90% GUARANTEED
MORTALITY AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES
ILLUSTRATED ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS
PREMIUM EXPENSES, ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 55 Standard Smoker $100,000 Specified Amount
$4300 Annual Premium Using Current Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94% (-1.06% (4.94% (10.94%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,515 100,000 100,000 100,000 2,605 2,803 3,001 2,605 2,803 3,001
2 9,256 100,000 100,000 100,000 5,116 5,679 6,267 5,116 5,679 6,267
3 14,234 100,000 100,000 100,000 7,526 8,628 9,829 7,526 8,628 9,829
4 19,460 100,000 100,000 100,000 9,841 11,663 13,732 9,841 11,663 13,732
5 24,948 100,000 100,000 100,000 12,055 14,786 18,019 12,055 14,786 18,019
6 30,711 100,000 100,000 100,000 14,163 18,001 22,743 14,163 18,001 22,743
7 36,761 100,000 100,000 100,000 16,171 21,326 27,975 16,171 21,326 27,975
8 43,114 100,000 100,000 100,000 18,055 24,749 33,773 18,055 24,749 33,773
9 49,785 100,000 100,000 100,000 19,809 28,281 40,228 19,809 28,281 40,228
10 56,789 100,000 100,000 100,000 21,421 31,929 47,442 21,421 31,929 47,442
15 97,427 100,000 100,000 116,427 27,436 52,870 100,368 27,436 52,870 100,368
20 149,293 100,000 100,000 204,648 29,288 81,757 191,260 29,288 81,757 191,260
25 215,488 100,000 130,433 360,321 23,664 124,222 343,163 23,664 124,222 343,163
30 299,971 100,000 185,936 620,629 4,461 177,082 591,075 4,461 177,082 591,075
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .60% CURRENT MORTALITY
AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES ILLUSTRATED
ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS PREMIUM EXPENSE,
ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
VARIABLE UNIVERSAL LIFE LEADERSHIP SERIES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 55 Standard Smoker $100,000 Specified Amount
$4300 Annual Premium Using Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Premiums ------------------------------ ------------------------------- -------------------------------
End Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Of at 5% Gross (and Net) Gross (and Net) Gross (and Net)
Pol. Interest Annual Annual Annual
Year Per Year Investment Return of Investment Return of Investment Return of
- ---- ----------- ------------------------------- ------------------------------- -------------------------------
0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
(-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64% (-1.36% (4.64% (10.64%
Net) Net) Net) Net) Net) Net) Net) Net) Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,515 100,000 100,000 100,000 2,303 2,490 2,678 2,303 2,490 2,678
2 9,256 100,000 100,000 100,000 4,472 4,995 5,542 4,472 4,995 5,542
3 14,234 100,000 100,000 100,000 6,507 7,515 8,617 6,507 7,515 8,617
4 19,460 100,000 100,000 100,000 8,404 10,052 11,931 8,404 10,052 11,931
5 24,948 100,000 100,000 100,000 10,158 12,605 15,516 10,158 12,605 15,516
6 30,711 100,000 100,000 100,000 11,758 15,167 19,405 11,758 15,167 19,405
7 36,761 100,000 100,000 100,000 13,186 17,728 23,633 13,186 17,728 23,633
8 43,114 100,000 100,000 100,000 14,423 20,277 28,245 14,423 20,277 28,245
9 49,785 100,000 100,000 100,000 15,447 22,801 33,297 15,447 22,801 33,297
10 56,798 100,000 100,000 100,000 16,238 25,294 38,865 16,238 25,294 38,865
15 97,427 100,000 100,000 100,000 16,144 37,370 78,992 16,144 37,370 78,992
20 149,293 100,000 100,000 162,976 5,346 48,479 152,314 5,346 48,479 152,314
25 215,488 0 100,000 286,295 0 57,603 272,662 0 57,603 272,662
30 299,971 0 100,000 485,828 0 64,773 462,694 0 64,773 462,694
</TABLE>
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0.00%, 6.00%
AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
LINCOLN LIFE OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. VALUES
ILLUSTRATED ARE NET OF A .43% ASSET MANAGEMENT CHARGE, A .90% GUARANTEED MAXIMUM
MORTALITY AND EXPENSE RISK CHARGE AND OTHER EXPENSES ESTIMATED AT .03%. VALUES
ILLUSTRATED ARE ALSO NET OF ANY OTHER APPLICABLE CONTRACT CHARGES, SUCH AS
PREMIUM EXPENSE, ADMINISTRATION, AND COST OF INSURANCE CHARGES.
<PAGE>
APPENDIX D
DEFINITIONS
SEPARATE ACCOUNT--The Lincoln Life Flexible Premium Variable Life Account D, a
separate account established by Lincoln Life to receive and invest net premiums
paid under the Policy.
AGE--The age at the Insured's last birthday on the Policy Date.
ATTAINED AGE--The age of the Insured on the Policy anniversary on or next
preceding any Monthly Anniversary Day.
BASE MINIMUM PREMIUM--A premium per $1,000 of Specified Amount used in the
calculation of the Death Benefit Guarantee Monthly Premium.
BENEFICIARY--The Beneficiary is designated by the Owner in the application. If
changed, the Beneficiary is as shown in the latest change filed with Lincoln
Life. If no Beneficiary survives the Insured, the Owner or the Owner's estate
will receive the benefit.
COST OF INSURANCE CHARGE--A charge deducted monthly from the Policy Value to
provide the life insurance protection for the Insured.
DEATH BENEFIT GUARANTEE--The guarantee that, provided the Death Benefit
Guarantee Monthly Premium requirements are met, the Policy will not lapse during
the first three policy years due to negative Net Cash Surrender Value.
DEATH BENEFIT GUARANTEE MONTHLY PREMIUM--The minimum monthly premium which must
be paid each month or in advance during the first policy year and which must
continue to be paid in the second and third policy years if the Policy does not
have positive Net Cash Surrender Value. Failure to pay this premium when
required will result in the Policy lapsing at the end of the Grace Period.
FREE LOOK PERIOD--The period of time in which the Owner may cancel the Policy
and receive a refund. The Owner may cancel the Policy within 10 days of receipt,
or 45 days after Part 1 of the application is signed, or within 10 days after
mailing or personal delivery of the Notice of Withdrawal Right.
<PAGE>
FUND--Any of the funds in which the Separate Account may invest.
GENERAL ACCOUNT--The assets of Lincoln Life other than those allocated to the
Separate Account or any other separate account.
GROSS INVESTMENT RESULTS--The Gross Investment Results are equal to the change
in the market value of the assets of a fund from the previous valuation day to
the current day, plus the investment income on those assets during the same
period.
INSURED--The person upon whose life the Policy is issued, and who is so named on
the Policy Schedule.
INVESTMENT AMOUNT--The portion of the Policy Value invested in the Separate
Account, and equal in amount to the Policy Value minus amounts invested in the
General Account (including any outstanding loans).
LINCOLN LIFE (we, our, us) -- Lincoln National Life Insurance co.
MATURITY DATE--The Policy Anniversary following the Insured's 99th birthday, if
living. It is the last date insurance coverage can remain in force and the date
any remaining Net Cash Surrender Value will be payable.
MORTALITY AND EXPENSE RISK CHARGE--A daily charge deducted from the assets of
the Separate Account to provide for the risks of excessive mortality and
expense.
MONTHLY ANNIVERSARY DAY--The same date in each month as the Policy Date.
NET CASH SURRENDER VALUE--The amount payable to the Owner upon surrender of the
Policy. It is equal to the Policy Value minus any Surrender Charge, minus any
outstanding loan and plus any unearned loan interest.
NET INVESTMENT RESULTS--The Gross Investment Results of a fund minus the Asset
Management Charges and any miscellaneous fund expenses, and minus the Mortality
and Expense Risk Charge.
OPTION DATE--Any date the Policy terminates under the Termination Provision. The
term Option Date may also be used with certain riders.
<PAGE>
OWNER (you, your)--The person so designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Owner. A collateral assignee is not the Owner.
PLANNED PERIODIC PREMIUM--A scheduled premium of a level amount at a fixed
interval over a specified period of time.
POLICY--The Flexible Premium Variable Life Insurance Policy offered by Lincoln
Life and described in this prospectus.
POLICY DATE--The date set forth in the Policy that is used to determine Policy
years and Policy months. Policy anniversaries are measured from the Policy Date.
The Policy Date is ordinarily the earlier of the date the full initial premium
is received from the Owner or the date on which the Policy is approved for
issue.
POLICY VALUE--The sum of all values in the Separate Account and in the General
Account at any time, irrespective of outstanding loans or Surrender Charge.
PROCEEDS--The amount payable on the Maturity Date, or on surrender of the
Policy, or after the death of any insured person. The Proceeds will be different
on each of these events.
RECORD DATE--The Record Date is the date the Policy is recorded on the books of
Lincoln Life as an in-force policy. Ordinarily, the policy will be recorded as
in-force within three business days after the later of the date we receive the
last outstanding requirement or the date of underwriting approval. The Record
Date controls the timing of the transfer of initial assets from the General
Account to the various subaccounts.
SPECIFIED AMOUNT--The minimum Death Benefit payable under the Policy so long as
the Policy remains in force. The Death Benefit Proceeds will be reduced by any
outstanding loan and any due and unpaid charges, and increased by any unearned
loan interest.
SUBACCOUNT--A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a specified fund.
SURRENDER CHARGE--A charge deducted from Policy Value upon surrender of the
Policy. There are no Surrender Charges for this policy.
<PAGE>
Lincoln Life Flexible Premium Variable Life Account D
Statement of assets and liability
December 31, 1995
<TABLE>
<CAPTION>
Lincoln
Lincoln National
Percent National Growth and
of Net Bond Income
Assets Combined Account Account
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
Lincoln National Bond Fund, Inc.
29,969 shares at $12.25 per share
(cost-$354,055) 6.1% $ 367,016 $367,016
Lincoln National Growth and Income Fund, Inc.
91,666 shares at $29.76 per share
(cost-$1,993,506) 45.4% 2,727,644 $2,727,644
Lincoln National Managed Fund, Inc.
95,519 shares at $15.89 per share
(cost-$1,257,275) 25.3% 1,518,250
Lincoln National Money Market Fund, Inc.
82,867 shares at $10.00 per share
(cost-$828,671) 13.8% 828,671
Lincoln National Special Opportunities Fund, Inc.
13,292 shares at $27.38 per share
(cost-$302,297) 6.1% 363,963
----- ---------- -------- ----------
TOTAL INVESTMENTS (Cost-$4,735,804) 96.7% 5,805,544 367,016 2,727,644
Dividends receivable 3.4% 205,439 25,345 64,275
----- ---------- -------- ----------
TOTAL ASSETS 100.1% 6,010,983 392,361 2,791,919
LIABILITY-Payable to Lincoln National Life
Insurance Co. 0.1% 3,056 199 1,421
----- ---------- -------- ----------
NET ASSETS 100.0% $6,007,927 $392,162 $2,790,498
===== ========== ======== ==========
UNITS OUTSTANDING 192,472 901,858
======== ==========
NET ASSET VALUE PER UNIT $ 2.038 $ 3.094
======== ==========
</TABLE>
<TABLE>
<CAPTION>
Lincoln Lincoln
Lincoln National National
National Money Special
Managed Market Opportunities
Account Account Account
-------- --------- -------------
<S> <C> <C> <C>
ASSETS
Investments at net asset value:
Lincoln National Bond Fund, Inc.
29,969 shares at $12.25 per share
(cost-$354,055)
Lincoln National Growth and Income Fund, Inc.
91,666 shares at $29.76 per share
(cost-$1,993,506)
Lincoln National Managed Fund, Inc.
95,519 shares at $15.89 per share
(cost-$1,257,275) $1,518,250
Lincoln National Money Market Fund, Inc.
82,867 shares at $10.00 per share
(cost-$828,671) $828,671
Lincoln National Special Opportunities Fund, Inc.
13,292 shares at $27.38 per share
(cost-$302,297) $363,963
---------- -------- --------
TOTAL INVESTMENTS (Cost-$4,735,804) $1,518,250 828,671 363,963
Dividends receivable 58,751 48,323 8,745
---------- -------- --------
TOTAL ASSETS 1,577,001 876,994 372,708
LIABILITY-Payable to Lincoln National Life
Insurance Co. 799 444 193
---------- -------- --------
NET ASSETS $1,576,202 $876,550 $372,515
========== ======== ========
UNITS OUTSTANDING 655,381 558,923 110,381
========== ======== ========
NET ASSET VALUE PER UNIT $2.405 $1.568 $3.375
========== ======== ========
</TABLE>
See accompanying Notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Lincoln Life Flexible Premium Variable Life Account D
Statements of operations
Lincoln Lincoln Lincoln
Lincoln National Lincoln National National
National Growth and National Money Special
Bond Income Managed Market Opportunities
Combined Account Account Account Account Account
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Net Investment Income:
Dividends from investment income $ 166,018 $ 36,612 $ 56,088 $ 41,615 $ 21,637 $ 10,066
Dividends from net realized
gain on investments 211,316 8,201 61,766 27,663 - 113,686
Mortality and expense risk charge (30,376) (3,752) (13,149) (6,009) (4,788) (2,678)
---------- -------- --------- --------- --------- --------
NET INVESTMENT INCOME 346,958 41,061 104,705 63,269 16,849 121,074
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on investments 64,551 13,445 60,946 6,614 - (16,454)
Net change in unrealized appreciation
or depreciation on investments 104,360 15,610 88,108 34,192 - (33,550)
---------- -------- --------- --------- --------- --------
NET GAIN (LOSS) ON INVESTMENTS 168,911 29,055 149,054 40,806 - (50,004)
---------- -------- --------- --------- --------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 515,869 $ 70,116 $ 253,759 $ 104,075 $ 16,849 $ 71,070
========== ======== ========= ========= ========= ========
Year Ended December 31, 1994
Net Investment Income:
Dividends from investment income $ 178,134 $ 25,083 $ 59,497 $ 51,715 $ 33,549 $ 8,290
Dividends from net realized
gain on investments 187,638 23,417 96,361 41,588 - 26,272
Mortality and expense risk charge (29,600) (2,439) (12,701) (7,105) (5,338) (2,017)
---------- -------- --------- --------- --------- --------
NET INVESTMENT INCOME 336,172 46,061 143,157 86,198 28,211 32,545
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on investments 38,699 (5,868) 37,889 1,997 - 4,681
Net change in unrealized appreciation
or depreciation on investments (384,756) (63,225) (165,980) (116,026) - (39,525)
---------- -------- --------- --------- --------- --------
NET LOSS ON INVESTMENTS (346,057) (69,093) (128,091) (114,029) - (34,844)
---------- -------- --------- --------- --------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (9,885) $(23,032) $ 15,066 $ (27,831) $ 28,211 $ (2,299)
========== ======== ========= ========= ========= ========
Year Ended December 31, 1995
Net Investment Income:
Dividends from investment income $ 205,439 $ 25,345 $ 64,275 $ 58,751 $ 48,323 $8,745
Dividends from net realized
gain on investments 135,960 - 119,476 1,852 - 14,632
Mortality and expense risk charge (32,938) (2,290) (14,814) (8,369) (5,264) (2,201)
---------- -------- --------- --------- --------- --------
NET INVESTMENT INCOME 308,461 23,055 168,937 52,234 43,059 21,176
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on investments 70,291 (357) 50,135 11,153 - 9,360
Net change in unrealized appreciation
or depreciation on investments 943,614 41,367 553,121 281,837 - 67,289
---------- -------- --------- --------- --------- --------
NET GAIN ON INVESTMENTS 1,013,905 41,010 603,256 292,990 - 76,649
---------- -------- --------- --------- --------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,322,366 $ 64,065 $ 772,193 $ 345,224 $ 43,059 $ 97,825
========== ======== ========= ========= ========= ========
</TABLE>
See accompanying Notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Lincoln Life Flexible Premium Variable Life Account D
Statements of changes in net assets
Lincoln Lincoln Lincoln
Lincoln National Lincoln National National
National Growth and National Money Special
Bond Income Managed Market Opportunities
Combined Account Account Account Account Account
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1993 $ 4,937,424 $ 362,301 $2,483,215 $ 836,809 $492,040 $ 763,059
Changes from operations:
Net investment income 346,958 41,061 104,705 63,269 16,849 121,074
Net realized gain (loss) on investments 64,551 13,445 60,946 6,614 - (16,454)
Net change in unrealized appreciation or
depreciation on investments 104,360 15,610 88,108 34,192 - (33,550)
----------- --------- ---------- ---------- -------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 515,869 70,116 253,759 104,075 16,849 71,070
Net increase (decrease) from
unit transactions (387,564) 153,654 (510,670) 132,826 265,894 (429,268)
----------- --------- ---------- ---------- -------- ---------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 128,305 223,770 (256,911) 236,901 282,743 (358,198)
----------- --------- ---------- ---------- -------- ---------
NET ASSETS AT DECEMBER 31, 1993 5,065,729 586,071 2,226,304 1,073,710 774,783 404,861
Changes from operations:
Net investment income 336,172 46,061 143,157 86,198 28,211 32,545
Net realized gain (loss) on investments 38,699 (5,868) 37,889 1,997 - 4,681
Net change in unrealized appreciation or
depreciation on investments (384,756) (63,225) (165,980) (116,026) - (39,525)
----------- --------- ---------- ---------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (9,885) (23,032) 15,066 (27,831) 28,211 (2,299)
Net increase (decrease) from
unit transactions (208,838) (214,334) (159,955) 149,372 96,921 (80,842)
----------- --------- ---------- ---------- -------- ---------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (218,723) (237,366) (144,889) 121,541 125,132 (83,141)
----------- --------- ---------- ---------- -------- ---------
NET ASSETS AT DECEMBER 31, 1994 4,847,006 348,705 2,081,415 1,195,251 899,915 321,720
Changes from operations:
Net investment income 308,461 23,055 168,937 52,234 43,059 21,176
Net realized gain (loss) on investments 70,291 (357) 50,135 11,153 - 9,360
Net change in unrealized appreciation or
depreciation on investments 943,614 41,367 553,121 281,837 - 67,289
----------- --------- ---------- ---------- -------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,322,366 64,065 772,193 345,224 43,059 97,825
Net increase (decrease) from
unit transactions (161,445) (20,608) (63,110) 35,727 (66,424) (47,030)
----------- --------- ---------- ---------- -------- ---------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 1,160,921 43,457 709,083 380,951 (23,365) 50,795
----------- --------- ---------- ---------- -------- ---------
NET ASSETS AT DECEMBER 31,1995 $ 6,007,927 $ 392,162 $2,790,498 $1,576,202 $876,550 $ 372,515
=========== ========= ========== ========== ======== =========
</TABLE>
See accompanying Notes to financial statements.
<PAGE>
Lincoln Life Flexible Premium Variable Life Account D
Notes to financial statements
December 31, 1995
1. Accounting policies
The Separate Account: Lincoln Life Flexible Premium Variable Life Account D
(Separate Account) was established as a segregated investment account of Lincoln
National Life Insurance Co. (Lincoln Life) on September 1, 1986. The Separate
Account was registered on October 31, 1986, under the Investment Company Act of
1940, as amended, as a unit investment trust, and commenced investment activity
on February 6, 1987.
Investments: The Separate Account invests in Lincoln National Bond Fund, Inc.,
Lincoln National Growth and Income Fund, Inc., Lincoln National Managed Fund,
Inc., Lincoln National Money Market Fund, Inc., and Lincoln National Special
Opportunities Fund, Inc. (Funds). Investments in the Funds are stated at the
closing net asset values per share on December 31, 1995. The Funds are
registered as open-end management investment companies.
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by the average cost method.
Dividends: Dividends paid to the Separate Account are automatically reinvested
in shares of the Funds on the payable date.
Federal Income Taxes: Operations of the Separate Account form a part of and are
taxed with operations of Lincoln Life, which is taxed as a "life insurance
company" under the Internal Revenue Code. Using current law, no federal income
taxes are payable with respect to the Separate Account's net investment income
and the net realized gain on investments.
2. Mortality and expense risk charge and other transactions with affiliate
Percent of Premium Charge: Prior to allocation of net premiums to the Separate
Account, premiums paid are reduced by a percent of premium charge equal to 7.5%
of the premium. Amounts retained during 1995, 1994 and 1993 by Lincoln Life for
such charges were $36,522, $21,298 and $32,137, respectively.
Separate Account Charges: Amounts are charged daily to the Separate Account by
Lincoln Life for a mortality and expense risk charge at a current annual rate of
.60% of the average daily net asset value of the Separate Account. These charges
are made in return for Lincoln Life's assumption of risks associated with
adverse mortality experience or excess administrative expenses in connection
with policies issued.
Other Charges: Other charges, which are paid to Lincoln Life by redeeming
Separate Account units, are for monthly administrative charges, the cost of
insurance, transfer and withdrawal charges, and contingent surrender charges.
These other charges for 1995, 1994 and 1993 amounted to $316,334, $329,985 and
$335,889, respectively.
The monthly administrative charge amounts to $4 for each policy in force and is
intended to compensate Lincoln Life for continuing administration of the
policies, premium billings, overhead expenses, and other miscellaneous expenses.
Lincoln Life assumes the responsibility for providing the insurance benefits
included in the policy. The cost of insurance is determined each month based
upon the applicable insurance rate and the current death benefit. The cost of
insurance can vary from month to month since the determination of both the
insurance rate and the current death benefit depends upon a number of variables
as described in the Separate Account's prospectus.
The transfer charge amounts to $5 each time a policyowner transfers funds from
one account to another; however, the transfer charge is currently being waived
for all transfers. The withdrawal charge amounts to $10 for each withdrawal from
the policy value by the policyowner.
<PAGE>
Lincoln Life Flexible Premium Variable Life Account D
Notes to financial statements continued
3. Net assets
Net Assets at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
Lincoln National Lincoln National National
National Growth and National Money Special
Bond Income Managed Market Opportunities
Combined Account Account Account Account Account
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Unit Transactions $2,143,703 $82,186 $881,245 $755,397 $585,890 ($161,015)
Accumulated net
investment income 2,572,601 265,030 1,095,961 527,974 290,660 392,976
Accumulated net realized gain
on investments 221,883 31,985 79,154 31,856 - 78,888
Net unrealized appreciation
on investments 1,069,740 12,961 734,138 260,975 - 61,666
---------- -------- ---------- ---------- -------- ---------
$6,007,927 $392,162 $2,790,498 $1,576,202 $875,550 $372,515
========== ======== ========== ========== ======== =========
</TABLE>
4. Summary of changes from unit transactions
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
----------------------- ----------------------- -----------------------
Units Amount Units Amount Units Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lincoln National Bond Account:
Purchases 41,434 $77,821 37,353 $65,196 219,948 $366,108
Redemptions (51,570) (98,429) (158,802) (279,530) (119,553) (212,454)
---------- ---------- ---------- ---------- ---------- ----------
(10,136) (20,608) (121,449) (214,334) 100,395 153,654
Lincoln National Growth and Income Account:
Purchases 137,988 368,475 168,533 377,734 151,376 316,934
Redemptions (161,133) (431,585) (240,367) (537,689) (405,955) (827,604)
---------- ---------- ---------- ---------- ---------- ----------
(23,145) (63,110) (71,834) (159,955) (254,579) (510,670)
Lincoln National Managed Account:
Purchases 91,438 194,929 165,474 313,289 151,300 271,191
Redemptions (74,606) (159,202) (86,683) (163,917) (75,692) (138,365)
---------- ---------- ---------- ---------- ---------- ----------
16,832 35,727 78,791 149,372 75,608 132,826
Lincoln National Money Market Account:
Purchases 21,832 33,465 181,428 264,368 529,936 753,215
Redemptions (65,513) (99,889) (114,247) (167,447) (341,800) (487,321)
---------- ---------- ---------- ---------- ---------- ----------
(43,681) (66,424) 67,181 96,921 188,136 265,894
Lincoln National Special Opportunities Account:
Purchases 27,121 79,309 37,960 99,500 20,751 49,582
Redemptions (41,628) (126,339) (67,946) (180,342) (209,799) (478,850)
---------- ---------- ---------- ---------- ---------- ----------
(14,507) (47,030) (29,986) (80,842) (189,048) (429,268)
---------- ---------- ----------
NET DECREASE FROM UNIT TRANSACTIONS ($161,445) ($208,838) ($387,564)
========== ========== ==========
</TABLE>
<PAGE>
Lincoln Life Flexible Premium Variable Life Account D
Notes to financial statements continued
5. Purchases and sales of investments
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1995:
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
--------- ----------
<S> <C> <C>
Lincoln National Bond Account $ 91,245 $ 89,038
Lincoln National Growth and Income Account 382,223 280,800
Lincoln National Managed Account 204,961 123,840
Lincoln National Money Market Account 58,063 96,215
Lincoln National Special Opportunities Account 81,924 108,201
-------- --------
$818,416 $698,094
======== ========
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Assets
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost: 1995-$18,852,837;
1994-$18,193,928) $20,414,785 $17,692,214
Equity (cost: 1995-$480,261; 1994-$416,351) 598,435 456,333
Mortgage loans on real estate 3,147,783 2,795,914
Real estate 746,023 679,512
Policy loans 565,325 528,731
Other investments 241,219 158,196
Total investments 25,713,570 22,310,900
Cash and invested cash 802,743 990,880
Property and equipment 53,830 54,989
Deferred acquisition costs 953,834 1,736,526
Premiums and fees receivable 117,634 123,494
Accrued investment income 352,301 367,370
Assets held in separate accounts 18,461,629 13,000,540
Federal income taxes -- 134,463
Amounts recoverable from reinsurers 2,940,976 2,069,292
Goodwill 5,149 3,385
Other assets 185,398 233,708
Total assets $49,587,064 $41,025,547
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Liabilities and shareholder's equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits, claims and
claims expenses $ 8,435,019 $ 7,540,772
Unearned premiums 55,174 61,472
Total policy liabilities and accruals 8,490,193 7,602,244
Contractholder funds 18,171,822 17,028,628
Liabilities related to separate accounts 18,461,629 13,000,540
Federal income taxes 166,430 --
Short-term debt 124,783 153,656
Long-term debt 40,827 54,794
Other liabilities 1,412,534 1,264,730
Total liabilities 46,868,218 39,104,592
Shareholder's equity:
Common stock, $2.50 par value:
Authorized, issued and outstanding
shares-10 million (owned by Lincoln
National Corporation) 25,000 25,000
Additional paid-in capital 809,557 791,605
Retained earnings 1,440,994 1,428,969
Net unrealized gain (loss) on
securities available-for-sale 443,295 (324,619)
Total shareholder's equity 2,718,846 1,920,955
Total liabilities and shareholder's equity $49,587,064 $41,025,547
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Revenue:
Insurance premiums $ 846,873 $1,099,480 $1,972,630
Insurance fees 450,423 390,384 425,083
Net investment income 1,899,630 1,673,981 1,823,459
Realized gain (loss) on investments 136,195 (138,522) 92,150
Gain (loss) on sale of affiliates -- 68,954 (98,500)
Other 3,405 20,946 35,781
Total revenue 3,336,526 3,115,223 4,250,603
Benefits and expenses:
Benefits and settlement expenses 2,122,616 2,194,047 3,033,139
Underwriting, acquisition,
insurance and other expenses 764,346 660,363 881,703
Interest expense 67 615 96
Total benefits and expenses 2,887,029 2,855,025 3,914,938
Income before Federal income taxes
and cumulative effect of
accounting change 449,497 260,198 335,665
Federal income taxes 127,472 40,400 142,544
Income before cumulative
effect of accounting change 322,025 219,798 193,121
Cumulative effect of accounting
change (postretirement benefits) -- -- 45,582
Net income $ 322,025 $ 219,798 $ 147,539
Earnings per share:
Income before cumulative
effect of accounting change $ 32.20 $ 21.98 $ 19.31
Cumulative effect of accounting
change (postretirement benefits) -- -- (4.56)
Net income $ 32.20 $ 21.98 $ 14.75
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Shareholder's Equity
Year ended December 31
1995 1994 1993
(000's omitted)
Common stock-balance
at beginning and end of year $ 25,000 $ 25,000 $ 25,000
Additional paid-in capital:
Balance at beginning of year 791,605 791,444 791,223
Contribution from Lincoln
National Corporation 17,952 161 221
Balance at end of year 809,557 791,605 791,444
Retained earnings:
Balance at beginning of year 1,428,969 1,334,171 1,198,632
Net income 322,025 219,798 147,539
Dividends declared (310,000) (125,000) (12,000)
Balance at end of year 1,440,994 1,428,969 1,334,171
Net unrealized gain (loss) on
securities available-for-sale:
Balance at beginning of year (324,619) 621,161 47,303
Cumulative effect of
accounting change -- -- 564,153
Other change during the year 767,914 (945,780) 9,705
Balance at end of year 443,295 (324,619) 621,161
Total shareholder's equity
at end of year $2,718,846 $1,920,955 $2,771,776
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from operating activities
Net income $ 322,025 $ 219,798 $ 147,539
Adjustments to reconcile net income
to net cash provided
by operating activities:
Deferred acquisition costs 124,526 (171,063) (92,183)
Premiums and fees receivable 6,082 10,755 80,582
Accrued investment income 15,069 (54,434) (18,827)
Policy liabilities and accruals 621,603 114,038 345,142
Contractholder funds 1,335,625 1,769,240 1,248,058
Amounts recoverable from reinsurers (883,425) (884,388) (700,622)
Federal income taxes 95,745 8,364 (130,308)
Provisions for depreciation 39,089 38,870 41,516
Amortization of discount and premium (86,653) 7,928 (100,274)
Realized loss (gain) on investments (244,995) 219,682 (115,881)
Loss (gain) on sale of affiliates -- (68,954) 98,500
Cumulative effect of
accounting change -- -- 45,582
Other 458,542 (4,599) 51,369
Net adjustments 1,481,208 985,439 752,654
Net cash provided by
operating activities 1,803,233 1,205,237 900,193
Cash flows from investing activities
Securities available-for-sale:
Purchases (13,549,807) (12,100,213) (7,171,684)
Sales 12,163,673 9,326,809 7,139,781
Maturities 929,018 958,065 42,707
Fixed maturity securities
held for investment:
Purchases -- -- (5,903,805)
Sales -- -- 2,805,980
Maturities -- -- 1,639,739
Purchases of other investments (1,711,427) (1,421,321) (1,936,013)
Sale or maturity of other investments 1,198,536 1,457,157 1,142,872
Sale of affiliates -- 520,340 --
Decrease in cash collateral
on loaned securities (39,681) (163,872) (40,454)
Other (213,708) (37,606) 83,751
Net cash used in
investing activities (1,223,396) (1,460,641) (2,197,126)
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from financing activities
Principal payments on long-term debt $ (13,967) $ (200) $ (1,138)
Issuance of long-term debt -- -- 10,314
Net increase (decrease) in
short-term debt (28,873) 3,629 13,047
Universal life and investment
contract deposits 1,716,239 2,381,829 2,418,037
Universal life and
investment contract withdrawals (2,149,325) (1,604,450) (1,503,105)
Capital contribution from
Lincoln National Corporation 17,952 161 221
Dividends paid to shareholder (310,000) (125,000) (12,000)
Net cash provided by
(used in) financing activities (767,974) 655,969 925,376
Net increase (decrease) in cash (188,137) 400,565 (371,557)
Cash at beginning of year 990,880 590,315 961,872
Cash at end of year $ 802,743 $ 990,880 $ 590,315
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include The Lincoln National
Life Insurance Company ("Company") and its majority-owned subsidiaries. The
Company and its subsidiaries operate multiple insurance businesses. Operations
are divided into two business segments (see Note 9). These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles.
Use of Estimates
The nature of the insurance business requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investments
The Company classifies its fixed maturity securities and equity securities
(common and non-redeemable preferred stocks) as available-for-sale and,
accordingly, such securities are carried at fair value. The cost of fixed
maturity securities is adjusted for amortization of premiums and discounts.
The cost of fixed maturity and equity securities is adjusted for declines in
value that are other than temporary.
For the mortgage-backed securities portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When estimates of prepayments change, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the securities. This adjustment is reflected in net investment
income.
Mortgage loans on real estate are carried at outstanding principal balances
less unaccrued discounts and net of reserves for declines that are other than
temporary. Investment real estate is carried at cost less allowances for
depreciation. Such real estate is carried net of reserves for declines in
value that are other than temporary. Real estate acquired through foreclosure
proceedings is recorded at fair value on the settlement date which establishes
a new cost basis. If
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
a subsequent periodic review of a foreclosed property indicates the fair
value, less estimated costs to sell, is lower than the carrying value at the
settlement date, the carrying value is adjusted to the lower amount. Policy
loans are carried at the aggregate unpaid balances. Any changes to the
reserves for mortgage loans on real estate and real estate are reported as a
realized gain (loss) on investments.
Cash and invested cash are carried at cost and include all highly liquid debt
instruments purchased with a maturity of three months or less, including
participation in a short-term investment pool administered by Lincoln National
Corporation ("LNC"), the Company's parent.
Realized gain (loss) on investments is recognized in net income, net of
related amortization of deferred acquisition costs, using the specific
identification method. Changes in the fair values of securities carried at
fair value are reflected directly in shareholder's equity after deductions for
related adjustments for deferred acquisition costs and amounts required to
satisfy policyholder commitments that would have been recorded if these
securities would have been sold at their fair value, and after deferred taxes
or credits to the extent deemed recoverable.
Derivatives
The Company hedges certain portions of its exposure to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risk by entering into derivative
transactions. A description of the Company's accounting for its hedge of such
risks is discussed in the following two paragraphs.
The premium paid for an interest rate cap is deferred and amortized to net
investment income on a straight-line basis over the term of the interest rate
cap. Any settlement received in accordance with the terms of the interest
rate caps is recorded as investment income. Spread-lock agreements, interest
rate swaps and financial futures, which hedge fixed maturity securities
available-for-sale, are carried at fair value with the change in fair value
reflected directly in shareholder's equity. Realized gain (loss) from the
settlement of such derivatives is deferred and amortized over the life of the
hedged assets as an adjustment to the yield. Foreign exchange forward
contracts, foreign currency options and foreign currency swaps, which hedge
some of the foreign exchange risk of investments in fixed maturity securities
denominated in foreign currencies, are carried at fair value with the change
in fair value reflected in earnings. Realized gain (loss) from the settlement
of such derivatives is also reflected in earnings.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate fluctuations,
the widening of bond yield spreads over comparable maturity U.S. Government
obligations and foreign exchange risk; and the derivatives used are designated
as a hedge and reduce the indicated risk by having a high correlation of
changes in the value of the derivatives and the items being hedged at both the
inception of the hedge and throughout the hedge period. Should such criteria
not be met, the change in value of the derivatives is included in net income.
Property and Equipment
Property and equipment owned for company use is carried at cost less
allowances for depreciation.
Premiums and Fees
Revenue for universal life and other interest-sensitive life insurance policies
consists of policy charges for cost of insurance, policy initiation and
administration, and surrender charges that have been assessed. Traditional
individual life-health and annuity premiums are recognized as revenue over the
premium-paying period of the policies. Group health premiums are prorated over
the contract term of the policies.
Assets Held in Separate Accounts/Liabilities Related to Separate Accounts
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable life
and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's consolidated statements of
income.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
Deferred Acquisition Costs
Commissions and other costs of acquiring universal life insurance, variable
universal life insurance, traditional life insurance, annuities and group
health insurance which vary with and are primarily related to the production
of new business, have been deferred to the extent recoverable. Acquisition
costs for universal and variable universal life insurance policies are being
amortized over the lives of the policies in relation to the incidence of
estimated gross profits from surrender charges and investment, mortality and
expense margins, and actual realized gain (loss) on investments. That
amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of policies are revised. The
traditional life-health and annuity acquisition costs are amortized over the
premium-paying period of the related policies using assumptions consistent
with those used in computing policy reserves.
Expenses
Expenses for universal and variable universal life insurance policies include
interest credited to policy account balances and benefit claims incurred
during the period in excess of policy account balances. Interest crediting
rates associated with funds invested in the Company's general account during
1993 through 1995 ranged from 6.1% to 8.25%.
Goodwill
The cost of acquired subsidiaries in excess of the fair value of net assets
(goodwill) is amortized using the straight-line method over periods that
generally correspond with the benefits expected to be derived from the
acquisitions. Goodwill is amortized over 40 years. The carrying value of
goodwill is reviewed periodically for indicators of impairment in value.
Policy Liabilities and Accruals
The liabilities for future policy benefits and expenses for universal and
variable universal life insurance policies consist of policy account balances
that accrue to the benefit of the policyholders, excluding surrender charges.
The liabilities for future policy benefits and expenses for traditional life
policies and immediate and deferred paid-up annuities are computed using a net
level premium method and assumptions for investment yields, mortality and
withdrawals based principally on Company experience projected at the time of
policy issue, with provision for possible adverse deviations. Interest
assumptions for traditional direct individual life reserves for all policies
range from 2.3% to 11.7% graded to 5.7% after 30 years depending on time of
policy issue. Interest rate assumptions for reinsurance reserves range from
5.0% to 11.0% graded to 8.0% after 20 years. The interest assumptions for
immediate and deferred paid-up annuities range from 4.5% to 8.0%.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
With respect to its policy liabilities and accruals, the Company carries on a
continuing review of its 1) overall reserve position, 2) reserving techniques
and 3) reinsurance arrangements, and as experience develops and new
information becomes known, liabilities are adjusted as deemed necessary. The
effects of changes in estimates are included in the operating results for the
period in which such estimates occur.
Reinsurance
The Company enters into reinsurance agreements with other companies in the
normal course of their business. The Company may assume reinsurance from
unaffiliated companies and/or cede reinsurance to such companies.
Assets/liabilities and premiums/benefits from certain reinsurance contracts
which grant statutory surplus to other insurance companies have been netted on
the balance sheets and income statements, respectively, since there is a right
of offset. All other reinsurance agreements are reported on a gross basis.
Depreciation
Provisions for depreciation of investment real estate and property and
equipment owned for Company use are computed principally on the straight-line
method over the estimated useful lives of the assets.
Postretirement Medical and Life Insurance Benefits
The Company accounts for its postretirement medical and life insurance
benefits using the full accrual method.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company and eligible subsidiaries have elected to file consolidated
Federal and state income tax returns with their parent, LNC. Pursuant to an
intercompany tax sharing agreement with LNC, the Company and its eligible
subsidiaries provide for income taxes on a separate return filing basis. The
tax sharing agreement also provides that the Company and eligible subsidiaries
will receive benefit for net operating losses, capital losses and tax credits
which are not usable on a separate return basis to the extent such items may
be utilized in the consolidated income tax returns of LNC.
The Company uses the liability method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax return purposes. The Company
establishes a valuation allowance for any portion of its deferred tax assets
which are unlikely to be realized.
2. Changes in Accounting Principles and Changes in Estimates
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company changed its method of accounting for
postretirement medical and life insurance benefits for its eligible employees
and agents from a pay-as-you-go method to a full accrual method in accordance
with Financial Accounting Standards No. 106 entitled "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("FAS 106"). This full
accrual method recognizes the estimated obligation for retired employees and
agents and active employees and agents who are expected to retire in the
future. The effect of the change was to increase net periodic postretirement
benefit cost by $7,800,000 and decrease income before cumulative effect of
accounting change by $5,100,000 ($0.51 per share). The implementation of FAS
106 resulted in a one-time charge to the first quarter 1993 net income of
$45,600,000 or $4.56 per share ($69,000,000 pre-tax) for the cumulative effect
of the accounting change. See Note 6 for additional disclosures regarding
postretirement benefits other than pensions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Accounting by Creditors for Impairment of a Loan
Financial Accounting Standards No. 114 entitled "Accounting by Creditors for
Impairment of a Loan" ("FAS 114") issued in May 1993, was adopted by the
Company effective January 1, 1993. FAS 114 requires that if an impaired
mortgage loan's fair value as described in Note 3 is less than the recorded
investment in the loan, the difference is recorded in the mortgage loan
allowance for losses account. The adoption of FAS 114 resulted in additions
to the mortgage loan allowance for losses account and reduced first quarter
1993 income before cumulative effect of accounting change and net income by
$37,700,000 or $3.77 per share ($57,200,000 pre-tax). See Note 3 for further
mortgage loan disclosures. Most of the effect of this change in accounting
was within the Life Insurance and Annuities business segment.
Accounting for Certain Investments in Debt and Equity Securities
Financial Accounting Standards No. 115 entitled "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115") issued in May 1993, was
adopted by the Company as of December 31, 1993. In accordance with the rules,
the prior year financial statements have not been restated to reflect the
change in accounting principle. Under FAS 115, securities can be classified
as available-for-sale, trading or held-to-maturity according to the holder's
intent. The Company classified its entire fixed maturity securities portfolio
as "available-for-sale." Securities classified as available-for-sale are
carried at fair value and unrealized gains and losses on such securities are
carried as a separate component of shareholder's equity. The ending balance
of shareholder's equity at December 31, 1993 was increased by $564,200,000
(net of $377,500,000 of related adjustments to deferred acquisition costs,
$50,700,000 of policyholder commitments and $303,700,000 in deferred income
taxes, all of which would have been recognized if those securities would have
been sold at their fair value, net of amounts applicable to Security-
Connecticut Corporation) to reflect the net unrealized gain on fixed maturity
securities classified as available-for-sale previously carried at amortized
cost. Prior to the adoption of FAS 115, the Company carried a portion of its
fixed maturity securities at fair value with unrealized gains and losses
carried as a separate component of shareholder's equity. The remainder of
such securities were carried at amortized cost.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Change in Estimate for Net Investment Income Related to Mortgage-Backed
Securities
At December 31, 1993, the Company had $5,942,100,000 invested in mortgage-
backed securities. As indicated in Note 1, the Company recognizes income on
these securities using a constant effective yield based on anticipated
prepayments. With the implementation of new investment software in December
1993, the Company was able to significantly refine its estimate of the
effective yield on such securities to better reflect actual prepayments and
estimates of future prepayments. This resulted in an increase in the
amortization of purchase discount on these securities of $58,000,000 and,
after related amortization of deferred acquisition costs ($18,300,000) and
income taxes ($14,300,000), increased 1993's income before cumulative effect
of accounting change and net income by $25,500,000 or $2.55 per share. Most
of the effect of this change in estimate was within the Life Insurance and
Annuities business segment.
Change in Estimate for Disability Income Reserves
During the fourth quarter of 1993, income before cumulative effect of
accounting change and net income decreased by $15,500,000 or $1.55 per share
as the result of strengthening reinsurance disability income reserves by
$23,900,000. The need for this reserve increase within the Reinsurance
segment was identified as the result of management's assessment of current
expectations for morbidity trends and the impact of lower investment income
due to lower interest rates.
During the fourth quarter of 1995, the Company completed an in-depth review of
the experience of its disability income business. As a result of this study,
and based on the assumption that recent experience will continue in the
future, income before cumulative effect of accounting change and net income
decreased by $33,500,000 or $3.35 per share ($51,500,000 pre-tax) as a result
of strengthening disability income reserves by $15,200,000 and writing-off
deferred acquisition costs of $36,300,000 in the Reinsurance segment.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $1,549.4 $1,357.4 $1,497.6
Equity securities 8.9 7.4 4.3
Mortgage loans on real estate 268.3 271.3 294.2
Real estate 110.0 97.8 75.2
Policy loans 35.4 32.7 36.0
Invested cash 55.4 46.4 24.8
Other investments 15.8 7.3 8.0
Investment revenue 2,043.2 1,820.3 1,940.1
Investment expenses 143.6 146.3 116.6
Net investment income $1,899.6 $1,674.0 $1,823.5
</TABLE>
The realized gain (loss) on investments is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Gross gain $239.6 $ 69.6 $ 91.1
Gross loss (87.8) (294.1) (8.4)
Equity securities available-for-sale:
Gross gain 82.3 50.2 88.3
Gross loss (31.3) (50.5) (33.7)
Fixed maturity securities held for investment:
Gross gain -- -- 209.9
Gross loss -- -- (69.5)
Other investments 42.2 5.1 (161.8)
Related restoration or amortization
of deferred acquisition costs and
provision for policyholder
commitments (108.8) 81.2 (23.7)
Total $136.2 $(138.5) $ 92.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Provisions (credits) for write-downs and net changes in provisions for losses,
which are included in realized gain (loss) on investments shown above, are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $10.4 $14.2 $ 55.6
Equity securities 3.3 6.8 --
Mortgage loans on real estate 14.7 19.5 136.7
Real estate (7.2) 13.0 21.8
Other long-term investments (1.5) .3 3.9
Guarantees (2.2) 4.3 1.7
Total $17.5 $58.1 $219.7
</TABLE>
The change in unrealized appreciation (depreciation) on investments in fixed
maturity and equity securities is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities
available-for-sale $2,063.7 $(1,903.7) $1,387.1
Equity securities available-for-sale 78.1 (26.0) 9.2
Fixed maturity securities
held for investment -- -- (959.7)
Total $2,141.8 $(1,929.7) $ 436.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost, gross unrealized gain and loss and fair value of securities
available-for-sale are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $12,412.1 $1,141.0 $28.7 $13,524.4
U.S. Government bonds 569.6 83.9 .1 653.4
Foreign governments bonds 927.9 70.3 .6 997.6
Mortgage-backed securities:
Mortgage pass-through securities 1,072.5 41.0 3.2 1,110.3
Collateralized mortgage obligations 3,816.3 262.5 7.4 4,071.4
Other mortgage-backed securities 2.8 .3 -- 3.1
State and municipal bonds 12.3 .1 -- 12.4
Redeemable preferred stocks 39.3 2.9 -- 42.2
Total fixed maturity securities 18,852.8 1,602.0 40.0 20,414.8
Equity securities 480.3 123.6 5.5 598.4
Total $19,333.1 $1,725.6 $45.5 $21,013.2
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $11,519.3 $143.3 $514.4 $11,148.2
U.S. Government bonds 1,048.4 6.9 25.5 1,029.8
Foreign governments bonds 541.2 4.7 12.5 533.4
Mortgage-backed securities:
Mortgage pass-through securities 1,176.8 3.0 44.1 1,135.7
Collateralized mortgage obligations 3,835.5 85.8 148.6 3,772.7
Other mortgage-backed securities 5.0 .1 .1 5.0
State and municipal bonds 16.3 .4 -- 16.7
Redeemable preferred stocks 51.4 .2 .9 50.7
Total fixed maturity securities 18,193.9 244.4 746.1 17,692.2
Equity securities 416.3 56.4 16.4 456.3
Total $18,610.2 $300.8 $762.5 $18,148.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Future maturities of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Fair
Cost Value
(in millions)
<S> <C> <C>
Due in one year or less $ 278.4 $ 282.6
Due after one year through five years 2,955.7 3,102.1
Due after five years through ten years 4,918.2 5,265.9
Due after ten years 5,808.9 6,579.4
Subtotal 13,961.2 15,230.0
Mortgage-backed securities 4,891.6 5,184.8
Total $18,852.8 $20,414.8
</TABLE>
The foregoing data is based on stated maturities. Actual maturities will
differ in some cases because borrowers may have the right to call or pre-pay
obligations.
At December 31, 1995, the current par, amortized cost and estimated fair value
of investments in mortgage-backed securities summarized by interest rates of
the underlying collateral are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Current Fair
Par Cost Value
(in millions)
<S> <C> <C> <C>
Below 7% $ 292.6 $ 290.5 $ 293.6
7%-8% 1,302.8 1,276.9 1,318.2
8%-9% 1,607.0 1,564.7 1,669.8
Above 9% 1,810.5 1,759.5 1,903.2
Total $5,012.9 $4,891.6 $5,184.8
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The quality ratings of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
<S> <C>
Treasuries and AAA 34.1%
AA 8.0
A 25.9
BBB 24.5
BB 3.9
Less than BB 3.6
100.0%
</TABLE>
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When the Company determines that a loan is impaired, a provision
for loss is established for the difference between the carrying value of the
mortgage loan and the estimated value. Estimated value is based on either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral. The provision for losses is reported as realized gain (loss) on
investments. Mortgage loans deemed to be uncollectible are charged against
the provision for losses and subsequent recoveries, if any, are credited to
the provision for losses.
The provision for losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the provision for losses is based on the
Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of the
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently
subjective as it requires estimating the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Impaired loans along with the related allowance for losses are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Impaired loans with allowance for losses $144.7 $246.0
Allowance for losses (28.5) (56.6)
Impaired loans with no allowance for losses 2.1 2.2
Net impaired loans $118.3 $191.6
</TABLE>
Impaired loans with no allowance for losses are a result of direct write-downs
or for collateral dependent loans where the fair value of the collateral is
greater than the recorded investment in such loans.
A reconciliation of the mortgage loan allowance for losses for these impaired
mortgage loans is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Balance at beginning of year $56.6 $220.7 $129.1
Provisions for losses 14.7 19.5 79.5
Provision for adoption of FAS 114 -- -- 57.2
Releases due to write-downs (12.0) -- --
Releases due to sales (15.9) (164.7) (12.2)
Releases due to foreclosures (14.9) (18.9) (32.9)
Balance at end of year $28.5 $ 56.6 $220.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Average recorded investment in impaired loans $181.7 $467.5 $703.6
Interest income recognized on impaired loans 16.6 36.1 47.3
</TABLE>
All interest income on impaired loans was recognized on the cash basis of
income recognition.
As of December 31, 1995 and 1994, the Company had restructured loans of
$62,500,000 and $36,200,000, respectively. The Company recorded $6,300,000
and $800,000 interest income on these restructured loans in 1995 and 1994,
respectively. Interest income in the amount of $6,600,000 and $3,900,000
would have been recorded on these loans according to their original terms in
1995 and 1994, respectively. As of December 31, 1995 and 1994, the Company
had no outstanding commitments to lend funds on restructured loans.
As of December 31, 1995, the Company's investment commitments for fixed
maturity securities (primarily private placements), mortgage loans on real
estate and real estate were $543,100,000.
Fixed maturity securities available-for-sale, mortgage loans on real estate
and real estate with a combined carrying value at December 31, 1995 of
$1,300,000 were non-income producing for the year ended December 31, 1995.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost information for mortgage loans on real estate, real estate and other
long-term investments are net of allowances for losses. The balance sheet
account for other liabilities includes a reserve for guarantees of third-party
debt. The amount of allowances and a reserve for such items is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Mortgage loans on real estate $28.5 $56.6
Real estate 46.6 65.2
Other long-term investments 11.8 13.5
</TABLE>
Details underlying the balance sheet caption "Net Unrealized Gain (Loss) on
Securities Available-for-Sale," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Fair value of securities available-for-sale $21,013.2 $18,148.5
Cost of securities available-for-sale 19,333.1 18,610.2
Unrealized gain (loss) 1,680.1 (461.7)
Adjustments to deferred acquisition costs (492.1) 158.2
Amounts required to satisfy
policyholder commitments (510.1) 8.6
Deferred income credits (taxes) (234.6) 105.9
Valuation allowance for deferred tax assets -- (135.6)
Net unrealized gain (loss) on
securities available-for-sale $ 443.3 $ (324.6)
</TABLE>
Adjustments to deferred acquisition costs and amounts required to satisfy
policyholder commitments are netted against the Deferred Acquisition Costs
asset account and included with the Future Policy Benefits, Claims and Claims
Expense liability account on the balance sheet, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes
The Federal income tax expense (benefit) before cumulative effect of
accounting change is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Current $172.5 $(93.4) $261.3
Deferred (45.0) 133.8 (118.8)
Total $127.5 $ 40.4 $142.5
</TABLE>
Cash paid for Federal income taxes in 1995, 1994 and 1993 was $27,500,000,
$41,400,000 and $272,600,000, respectively. The cash paid in 1995 is net of a
$146,900,000 cash refund related to the carryback of 1994 capital losses to
prior years.
The effective tax rate on pre-tax income before cumulative effect of
accounting change is lower than the prevailing corporate Federal income tax
rate. A reconciliation of this difference is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Tax rate times pre-tax income $157.3 $91.1 $117.5
Effect of:
Tax-exempt investment income (22.0) (21.5) (16.2)
Participating policyholders' share 5.4 3.4 4.1
Loss (gain) on sale of affiliates -- (24.1) 34.5
Other items (13.2) (8.5) 2.6
Provision for income taxes $127.5 $40.4 $142.5
Effective tax rate 28.4% 15.5% 42.5%
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Federal income tax recoverable (liability) is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Current $ (25.0) $118.2
Deferred (141.4) 16.3
Total $(166.4) $134.5
</TABLE>
Significant components of the Company's net deferred tax asset (liability) are
as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Deferred tax assets:
Policy liabilities and accruals
and contractholder funds $ 694.5 $430.9
Loss on investments -- 16.8
Net unrealized loss on
securities available-for-sale -- 161.6
Postretirement benefits other than pensions 25.3 24.2
Other 39.5 34.6
Total deferred tax assets 759.3 668.1
Valuation allowance for deferred tax assets -- (135.6)
Net deferred tax assets 759.3 532.5
Deferred tax liabilities:
Deferred acquisition costs 218.8 475.5
Net unrealized gain on
securities available-for-sale 579.6 --
Gain on investments 7.7 --
Other 94.6 40.7
Total deferred tax liabilities 900.7 516.2
Net deferred tax (liability) asset $(141.4) $ 16.3
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Company is required to establish a "valuation allowance" for any portion
of its deferred tax assets which are unlikely to be realized. At December 31,
1994, $161,600,000 of deferred tax assets relating to net unrealized capital
losses on fixed maturity and equity securities available-for-sale were
available to be recorded in shareholder's equity before considering a
valuation allowance. For Federal income tax purposes, capital losses may only
be used to offset capital gains in the current year or during a three year
carryback and five year carryforward period. Due to these restrictions, and
the uncertainty at that time of future capital gains, these deferred tax
assets were substantially offset by a valuation allowance of $135,600,000. By
December 31, 1995, the fair values of fixed maturity and equity securities
available-for-sale were greater than the cost basis resulting in unrealized
capital gains. Accordingly, no valuation allowance was established as of
December 31, 1995 since management believes it is more likely than not that
the Company will realize the benefit of its deferred tax assets.
Prior to 1984, a portion of the life companies' current income was not subject
to current income tax, but was accumulated for income tax purposes in a
memorandum account designated as "policyholders' surplus." The total of the
life companies' balances in their respective "policyholders' surplus" accounts
at December 31, 1983 of $204,800,000 was "frozen" by the Tax Reform Act of
1984 and, accordingly, there have been no additions to the accounts after that
date. That portion of current income on which income taxes have been paid
will continue to be accumulated in a memorandum account designated as
"shareholder surplus," and is available for dividends to the shareholder
without additional payment of tax. The December 31, 1995 total of the life
companies' account balances for their "shareholder surplus" was
$1,554,000,000. Should dividends to the shareholder for each life company
exceed its respective "shareholder surplus," amounts would need to be
transferred from its respective "policyholders' surplus" and would be subject
to Federal income tax at that time. In connection with the 1993 sale of a
life insurance affiliate (see Note 10), $8,800,000 was transferred from
policyholders' surplus to shareholder surplus and current income tax of
$3,100,000 was paid. Under existing or foreseeable circumstances, the Company
neither expects nor intends that distributions will be made from the remaining
balance in "policyholders' surplus" of $196,000,000 that will result in any
such tax. Accordingly, no provision for deferred income taxes has been
provided by the Company on its "policyholders' surplus" account. In the event
that such excess distributions are made, it is estimated that income taxes of
approximately $68,600,000 would be due.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data
The balance sheet captions, "Real Estate," "Other Investments" and "Property
and Equipment," are shown net of allowances for depreciation as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate $ 51.6 $ 37.0
Other investments 14.6 12.2
Property and equipment 100.7 104.7
</TABLE>
Details underlying the balance sheet caption, "Contractholder Funds," are as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Premium deposit funds $17,886.9 $16,770.3
Undistributed earnings on participating business 91.9 63.6
Other 193.0 194.7
Total $18,171.8 $17,028.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
Details underlying the balance sheet captions, "Short-term and Long-term
Debt," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Short-term debt:
Short-term notes $123.5 $150.8
Current portion of long-term debt 1.3 2.9
Total short-term debt $124.8 $153.7
Long-term debt less current portion:
7% mortgage note payable, due 1996 $ -- $ 4.9
9.48% mortgage note payable, due 1996 -- 7.7
12% mortgage note payable, due 1996 -- .2
8.42% mortgage note payable, due 1997 7.0 7.2
8.25% mortgage note payable, due 1997 10.1 10.2
8% mortgage note payable, due 1997 2.1 --
8.75% mortgage note payable, due 1998 18.4 18.8
9.75% mortgage note payable, due 2002 3.2 5.8
Total long-term debt $ 40.8 $ 54.8
</TABLE>
Future maturities of long-term debt are as follows (in millions):
1996 -- $ 1.3 1998 -- $18.4 2000 -- $ --
1997 -- 19.2 1999 -- -- Thereafter -- 3.2
Cash paid for interest for 1995, 1994 and 1993 was $67,000, $615,000 and
$96,000, respectively.
Reinsurance transactions included in the income statement caption, "Insurance
Premiums," are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Insurance assumed $777.6 $910.8 $807.5
Insurance ceded 441.7 716.7 568.6
Net reinsurance premiums $335.9 $194.1 $238.9
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
The income statement caption, "Benefits and Settlement Expenses," is net of
reinsurance recoveries of $456,000, $524,000 and $438,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The income statement caption, "Underwriting, Acquisition, Insurance and Other
Expenses," includes amortization of deferred acquisition costs of
$399,700,000, $115,200,000 and $241,000,000 for the years ended December 31,
1995, 1994 and 1993, respectively. An additional $(85,200,000), $81,200,000
and ($23,700,000) of deferred acquisition costs was restored (amortized) and
netted against "Realized Gain (Loss) on Investments" for the years ended
December 31, 1995, 1994 and 1993, respectively.
6. Employee Benefit Plans
Pension Plans
LNC maintains funded defined benefit pension plans for most of its employees
and, prior to January 1, 1995, full-time agents. The benefits for employees
are based on total years of service and the highest 60 months of compensation
during the last 10 years of employment. The benefits for agents were based on
a percentage of each agent's yearly earnings. The plans are funded by
contributions to tax-exempt trusts. The Company's funding policy is
consistent with the funding requirements of Federal laws and regulations.
Contributions are intended to provide not only the benefits attributed to
service to date, but also those expected to be earned in the future. Plan
assets consist principally of listed equity securities and corporate
obligations and government bonds.
All benefits applicable to the funded defined benefit plan for agents were
frozen as of December 31, 1994. The curtailment of this plan did not have a
significant effect on net pension cost for 1994. Effective January 1, 1995,
pension benefits for agents have been provided by a new defined contribution
plan. Contributions to this plan will be based on 2.3% of an agent's earnings
up to the social security wage base and 4.6% of any excess.
LNC also administers two types of unfunded, nonqualified, defined benefit
plans for certain employees and agents. A supplemental retirement plan
provides defined benefit pension benefits in excess of limits imposed by
Federal tax law. A salary continuation plan provides certain officers of the
Company defined pension benefits based on years of service and final monthly
salary upon death or retirement.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The status of the funded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(162.1) $(130.5)
Nonvested benefits (9.2) (7.3)
Accumulated benefit obligation (171.3) (137.8)
Effect of projected future compensation increases (37.2) (24.3)
Projected benefit obligation (208.5) (162.1)
Plan assets at fair value 196.4 159.3
Projected benefit obligations in
excess of plan assets (12.1) (2.8)
Unrecognized net loss (gain) 12.6 (.5)
Unrecognized prior service cost 1.2 1.1
Prepaid (accrued) pension cost
included in other liabilities $ 1.7 $ (2.2)
</TABLE>
The status of the unfunded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(7.0) $(5.4)
Nonvested benefits (1.5) (1.0)
Accumulated benefit obligation (8.5) (6.4)
Effect of projected future compensation increases (2.4) (2.5)
Projected benefit obligation (10.9) (8.9)
Unrecognized transition obligation -- --
Unrecognized net loss (gain) 1.0 (.3)
Unrecognized prior service cost .8 .8
Accrued pension costs included in other liabilities $(9.1) $(8.4)
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The determination of the projected benefits obligation for the defined benefit
plans was based on the following assumptions:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 8.0% 7.0%
Rate of increase in compensation:
Salary continuation plan 6.0 6.5 6.0
All other plans 5.0 5.0 5.0
Expected long-term rate of return on plan assets 9.0 9.0 9.0
</TABLE>
The components of net pension cost for the defined benefit pension plans are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 5.0 $ 8.9 $ 8.5
Interest cost on projected benefit obligation 13.2 12.9 12.4
Actual return on plan assets (36.3) 4.7 (20.1)
Net amortization (deferral) 22.9 (18.6) 6.1
Net pension cost $ 4.8 $ 7.9 $ 6.9
</TABLE>
401(k)
LNC and the Company sponsor contributory defined contribution plans for
eligible employees and agents. The Company's contributions to the plans are
equal to each participant's pre-tax contribution, not to exceed 6% of base
pay, multiplied by a percentage, ranging from 25% to 150%, which varies
according to certain incentive criteria as determined by LNC's Board of
Directors. Expense for these plans amounted to $8,000,000, $13,200,000 and
$11,800,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
Postretirement Medical and Life Insurance Benefit Plans
LNC sponsors unfunded defined benefit plans that provide postretirement
medical and life insurance benefits to full-time employees and agents who,
depending on the plan, have worked for the Company 10 to 15 years and attained
age 55 to 60. Medical benefits are also available to spouses and other
dependents of employees and agents. For medical benefits, limited
contributions are required from individuals retired prior to November 1, 1988;
contributions for later retirees, which can be adjusted annually, are based on
such items as years of service at retirement and age at retirement. The life
insurance benefits are noncontributory, although participants can elect
supplemental contributory benefits.
The status of the postretirement medical and life insurance benefit plans and
the amounts recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(39.8) $(34.9)
Fully eligible active plan participants (9.9) (7.0)
Other active plan participants (20.8) (15.0)
Accumulated postretirement benefit obligation (70.5) (56.9)
Unrecognized net gain (.8) (5.5)
Accrued plan cost included in other liabilities $(71.3) $(62.4)
</TABLE>
The components of periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost $1.5 $1.7 $2.6
Interest cost 4.4 4.2 4.6
Amortization cost (credit) (.8) .1 --
Net periodic postretirement benefit cost $5.1 $6.0 $7.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The calculation of the accumulated postretirement benefit obligation assumes a
weighted-average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) of 9.5% for 1996 gradually
decreasing to 5.5% by 2004 and remaining at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point each year would increase the accumulated postretirement
benefit obligation as of December 1995 and 1994 by $5,100,000 and $4,100,000,
respectively, and the aggregate of the estimated service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1995 by $488,000. The calculation assumes a long-term rate of
increase in compensation of 5.0% for both December 31, 1995 and 1994. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 8.0% at December 31, 1995 and
1994, respectively.
7. Restrictions, Commitments and Contingencies
Shareholder's Equity Restrictions
Net income as determined in accordance with statutory accounting practices for
the Company and its insurance subsidiaries in 1995, 1994 and 1993 was
$284,500,000, $366,700,000 and $237,000,000, respectively. The Company's
shareholder's equity as determined in accordance with statutory accounting
practices at December 31, 1995 and 1994 was $1,732,900,000 and $1,679,700,000,
respectively.
The Company is subject to certain insurance department regulatory restrictions
as to the transfer of funds and payments of dividends to LNC. In 1996, the
Company can transfer up to $284,500,000 without seeking prior approval from
the insurance regulators.
Disability Income Claims
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1995 and 1994 is a net
liability of $602,600,000 and $441,700,000, respectively, excluding deferred
acquisition costs. The bulk of the increase to this liability relates to the
assumption of a large block of disability claim reserves and related assets
during the third quarter of 1995. In addition, as indicated in Note 2, the
Company strengthened its disability income reserves and wrote off certain
related deferred acquisition costs in the fourth quarter of 1995. The
reserves were established on the assumption that the recent experience will
continue in the future. If incidence levels or claim termination rates vary
significantly from these assumptions, further adjustments to reserves may be
required in the future. It is not possible to provide a meaningful estimate
of a range of possible outcomes at this time. The Company reviews and updates
the level of these reserves on an on-going basis.
Compliance of Qualified Annuity Plans
Tax authorities continue to focus on compliance of qualified annuity plans
marketed by insurance companies. If sponsoring employers cannot demonstrate
compliance and the insurance company is held responsible due to its marketing
efforts, the Company and other insurers may be subject to potential liability.
It is not possible to provide a meaningful estimate of the range of potential
liability at this time. Management continues to monitor this matter and to
take steps to minimize any potential liability.
Group Pension Annuities
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold, are supported by a single portfolio of assets
which attempts to match the duration of these liabilities. Due to the very
long-term nature of group pension annuities and the resulting inability to
exactly match cash flows, a risk exists that future cash flows from
investments will not be reinvested at rates as high as currently earned by the
portfolio. This situation could cause losses which would be recognized at
some future time.
Leases
The Company and certain of its subsidiaries lease their home office properties
through sale-leaseback agreements. The agreements provide for a 25 year lease
period with options to renew for six additional terms of five years each. The
agreements also provide the Company with the right of first refusal to
purchase the properties during the term of the lease, including renewal
periods, at a price as defined in the agreements. In addition, the Company
has the option to purchase the leased properties at fair market value as
defined in the agreements on the last day of the initial 25 year lease period
ending in 2009 or the last day of any of the renewal periods.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Total rental expense under operating leases in 1995, 1994 and 1993 was
$24,400,000, $21,700,000 and $27,100,000. Future minimum rental commitments
are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 20.9
1997 19.5
1998 18.3
1999 18.3
2000 17.7
Thereafter 172.4
Total $267.1
</TABLE>
Insurance Ceded and Assumed
The Company cedes insurance to other companies, including certain affiliates.
The portion of risks exceeding each companys retention limit is reinsured
with other insurers. The Company seeks reinsurance coverage within the
business segment that sells life insurance that limits its liabilities on an
individual insured to $3,000,000. To cover products other than life
insurance, the Company acquires other insurance coverages with retentions and
limits which management believes are appropriate for the circumstances. The
accompanying financial statements reflect premiums, benefits and settlement
expenses and deferred acquisition costs, net of insurance ceded (see Note 5).
The Company and its subsidiaries remain liable if their reinsurers are unable
to meet their contractual obligations under the applicable reinsurance
agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1995, the Company has provided $92,700,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receivables
from the ceding company, which are secured by future profits on the reinsured
business. However, the Company is subject to the risk that the ceding company
may become insolvent and the right of offset would not be permitted.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Vulnerability from Concentrations
At December 31, 1995, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
Also at December 31, 1995, the Company did not have a concentration of 1)
business transactions with a particular customer, lender or distributor, 2)
revenues from a particular product of service, 3) sources of supply of labor
or services used in the business or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a serve
impact to the Company's financial condition.
Other Contingency Matters
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In some
instances, these proceedings include claims for punitive damages and similar
types of relief in unspecified or substantial amounts, in addition to amounts
for alleged contractual liability or requests for equitable relief. After
consultation with counsel and a review of available facts, it is management's
opinion that these proceedings ultimately will be resolved without materially
affecting the consolidated financial statements of the Company.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or rehabilitated
companies. Mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. The Company has accrued for
expected assessments net of estimated future premium tax deductions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Guarantees
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-balance-
sheet risks, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
Notional or
Contract Amounts
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate partnerships $ 3.3 $17.6
Mortgage loan pass-through certificates 63.6 78.2
Total $66.9 $95.8
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans. In some cases, the terms of these arrangements involve
guarantees by each of the partners to indemnify the mortgagor in the event a
partner is unable to pay its principal and interest payments. In addition,
the Company has sold commercial mortgage loans through grantor trusts which
issued pass-through certificates. The Company has agreed to repurchase any
mortgage loans which remain delinquent for 90 days at a repurchase price
substantially equal to the outstanding principal balance plus accrued interest
thereon to the date of repurchase. It is management's opinion that the value
of the properties underlying these commitments is sufficient that in the event
of default the impact would not be material to the Company. Accordingly, both
the carrying value and fair value of these guarantees is zero at December 31,
1995 and 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Derivatives
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risks. In addition, the Company
is subject to the risks associated with changes in the value of its
derivatives; however, such changes in the value generally are offset by
changes in the value of the items being hedged by such contracts. Outstanding
derivatives with off-balance-sheet risks, shown in notional or contract
amounts along with their carrying value and estimated fair values, are as
follows:
<TABLE>
<CAPTION>
Assets (Liabilities)
Notional or Carrying Fair Carrying Fair
Contract Amounts Value Value Value Value
December 31 December 31 December 31
1995 1994 1995 1995 1994 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate
cap agreements $5,110.0 $4,400.0 $22.7 $5.3 $23.3 $34.4
Spread-lock
agreements 600.0 1,300.0 (.9) (.9) 3.2 3.2
Financial
futures contracts -- 382.5 -- -- (7.5) (7.5)
Interest rate swaps 5.0 5.0 .2 .2 .2 .2
5,715.0 6,087.5 22.0 4.6 19.2 30.3
Foreign currency
derivatives:
Foreign exchange
forward contracts 15.7 21.2 (.6) (.6) .2 .2
Foreign currency
options 99.2 -- 1.9 1.4 -- --
Foreign currency
swaps 15.0 -- .4 .4 -- --
129.9 21.2 1.7 1.2 .2 .2
$5,844.9 $6,108.7 $23.7 $5.8 $19.4 $30.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts is as follows:
<TABLE>
<CAPTION>
Interest Rate Caps Spread Locks
December 31 December 31
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $4,400.0 $3,800.0 $1,300.0 $1,700.0
New contracts 710.0 600.0 800.0 --
Terminations and maturities -- -- (1,500.0) (400.0)
Balance at end of year $5,110.0 $4,400.0 $ 600.0 $1,300.0
</TABLE>
<TABLE>
<CAPTION>
Financial Futures
Contracts Options
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $ 382.5 $ 33.1 $ -- $ --
New contracts 810.5 1,087.7 181.6 308.0
Terminations and maturities (1,193.0) (738.3) (181.6) (308.0)
Balance at end of year $ -- $ 382.5 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Derivatives
Foreign
Exchange Foreign Foreign
Forward Currency Currency
Contracts Options Swaps
1995 1994 1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 21.2 $ -- $ -- $-- $ -- $--
New contracts 131.2 38.5 356.6 -- 15.0 --
Terminations and maturities (136.7) (17.3) (257.4) -- -- --
Balance at end of year $ 15.7 $21.2 $ 99.2 $-- $15.0 $--
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Interest Rate Caps
The interest rate cap agreements, which expire in 1997 through 2003, entitle
the Company to receive payments from the counterparties on specified future
reset dates, contingent on future interest rates. For each cap, the amount of
such quarterly payments, if any, is determined by the excess of a market
interest rate over a specified cap rate times the notional amount divided by
four. The purpose of the Company's interest rate cap agreement program is to
protect its annuity line of business from the effect of fluctuating interest
rates. The premium paid for the interest rate caps is included in other
assets ($22,700,000 and $23,400,000 as of December 31, 1995 and 1994,
respectively) and is being amortized over the terms of the agreements and is
included in net investment income.
Spread Locks
Spread-lock agreements in effect at December 31, 1995 all expire in 2005.
Spread-lock agreements provide for a lump sum payment to or by the Company
depending on whether the spread between the swap rate and a specified U.S.
Treasury note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity U.S. Treasury
security and the price sensitivity of the swap at that time, expressed in
dollars per basis point. The purpose of the Company's spread-lock program is
to protect a portion of its fixed maturity securities against widening of
spreads.
Financial Futures
The Company uses exchange-traded financial futures contracts and options on
those financial futures to hedge against interest rate risks and to manage
duration of a portion of its fixed maturity securities. Financial futures
contracts obligate the Company to buy or sell a financial instrument at a
specified future date for a specified price and may be settled in cash or
through delivery of the financial instrument. Cash settlements on the change
in market values of financial futures contracts are made daily. Options on
financial futures give the Company the right, but not the obligation, to
assume a long or short position in the underlying futures at a specified price
during a specified time period.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Foreign Currency Derivatives
The Company uses a combination of foreign exchange forward contracts, foreign
currency options and foreign currency swaps, all of which are traded over-the-
counter, to hedge some of the foreign exchange risk of investments in fixed
maturity securities denominated in foreign currencies. The foreign currency
forward contracts obligate the Company to deliver a specified amount of
currency at a future date at a specified exchange rate. Foreign currency
options give the Company the right, but not the obligation, to buy or sell a
foreign currency at a specific exchange rate during a specified time period.
A foreign currency swap is a contractual agreement to exchange the currencies
of two different countries pursuant to an agreement to reexchange the two
currencies at the same rate of exchange at a specified future date.
Additional Derivative Information
Expenses for the agreements and contracts described above amounted to
$5,600,000 and $5,400,000 in 1995 and 1994, respectively. Deferred losses of
$21,800,000 as of December 31, 1995, resulting from 1) terminated and expired
spread-lock agreements, 2) financial futures contracts and 3) options on
financial futures, are included with the related fixed maturity securities to
which the hedge applied and are being amortized over the life of such
securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, spread-lock agreements,
interest rate swaps, foreign exchange forward contracts, foreign currency
options and foreign currency swaps, but the Company does not anticipate
nonperformance by any of these counterparties. The credit risk associated
with such agreements is minimized by purchasing such agreements from financial
institutions with long-standing, superior performance records. The amount of
such exposure is essentially the net replacement cost or market value for such
agreements with each counterparty if the net market value is in the Company's
favor. At December 31, 1995, the exposure was $6,900,000.
8. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair value of the Company's financial instruments.
Considerable judgment is required to develop these fair values and,
accordingly, the estimates shown are not necessarily indicative of the amounts
that would be realized in a one time, current market exchange of all of the
Company's financial instruments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Fixed Maturity and Equity Securities
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services
or, in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the coupon rate,
credit quality and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
Mortgage Loans on Real Estate
The estimated fair value of mortgage loans on real estate was established
using a discounted cash flow method based on credit rating, maturity and
future income when compared to the expected yield for mortgages having similar
characteristics. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service coverage,
loan to value, caliber of tenancy, borrower and payment record. Fair values
for impaired mortgage loans are measured based either on the present value of
expected future cash flows discounted at the loan's effective interest rate,
at the loan's market price or the fair value of the collateral if the loan is
collateral dependent.
Policy Loans
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using Treasury interest rates consistent
with the maturity durations assumed. These durations were based on historical
experience.
Other Investments and Cash and Invested Cash
The carrying value for assets classified as other investments and cash and
invested cash in the accompanying balance sheets approximates their fair
value.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Investment Type Insurance Contracts
The balance sheet captions, "Future Policy Benefits, Claims and Claims
Expenses" and "Contractholder Funds," include investment type insurance
contracts (i.e., deposit contracts and guaranteed interest contracts). The
fair values for the deposit contracts and certain guaranteed interest
contracts are based on their approximate surrender values. The fair values
for the remaining guaranteed interest and similar contracts are estimated
using discounted cash flow calculations based on interest rates currently
being offered on similar contracts with maturities consistent with those
remaining for the contracts being valued.
The remainder of the balance sheet captions, "Future Policy Benefits, Claims
and Claims Expenses" and "Contractholder Funds," that do not fit the
definition of "investment type insurance contracts" are considered insurance
contracts. Fair value disclosures are not required for these insurance
contracts and have not been determined by the Company. It is the Company's
position that the disclosure of the fair value of these insurance contracts is
important in that readers of these financial statements could draw
inappropriate conclusions about the Company's shareholder's equity determined
on a fair value basis if only the fair value of assets and liabilities defined
as financial instruments are disclosed. The Company and other companies in
the insurance industry are monitoring the related actions of the various rule-
making bodies and attempting to determine an appropriate methodology for
estimating and disclosing the "fair value" of their insurance contract
liabilities.
Short-Term and Long-Term Debt
Fair values for long-term debt issues are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for similar
types of borrowing arrangements. For short-term debt, the carrying value
approximates fair value.
Guarantees
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on historical
performance where repurchases have been negligible and the current status,
which indicates none of the loans are delinquent, the fair value liability for
the guarantees related to the mortgage loan pass-through certificates is
insignificant. Fair values for all other guarantees are based on fees that
would be charged currently to enter into similar agreements, taking into
consideration the remaining terms of the agreements and the counterparties'
credit standing.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Derivatives
The Company's derivatives include interest rate cap agreements, spread-lock
agreements, foreign currency exchange contracts, financial futures contracts,
options on financial futures, interest rate swaps, foreign currency options
and foreign currency swaps. Fair values for these contracts are based on
current settlement values. The current settlement values are based on quoted
market prices for the foreign currency exchange contracts, financial future
contracts and options on financial futures and on brokerage quotes, which
utilized pricing models or formulas using current assumptions, for all other
swaps and agreements.
Investment Commitments
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real estate
are based on the difference between the value of the committed investments as
of the date of the accompanying balance sheets and the commitment date, which
would take into account changes in interest rates, the counterparties' credit
standing and the remaining terms of the commitments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
Carrying Fair Carrying Fair
Assets (Liabilities) Value Value Value Value
(in millions)
<S> <C> <C> <C> <C>
Fixed maturity securities $20,414.8 $20,414.8 $17,692.2 $17,692.2
Equity securities 598.4 598.4 456.3 456.3
Mortgage loans on real estate 3,147.8 3,330.5 2,795.9 2,720.6
Policy loans 565.3 557.4 528.7 508.1
Other investments 241.2 241.2 158.2 158.2
Cash and invested cash 802.7 802.7 990.9 990.9
Investment type
insurance contracts:
Deposit contracts and
certain guaranteed
interest contracts (15,390.8) (15,179.1) (14,294.7) (14,052.5)
Remaining guaranteed
interest and similar
contracts (2,470.9) (2,396.5) (2,485.5) (2,423.9)
Short-term debt (124.8) (124.8) (153.7) (153.7)
Long-term debt (40.8) (36.7) (54.8) (57.0)
Derivatives 23.7 5.8 19.4 30.5
Investment commitments -- (.8) -- (.5)
</TABLE>
As of December 31, 1995 and 1994, the carrying value of the deposit contracts
and certain guaranteed contracts is net of deferred acquisition costs of
$333,797,000 and $399,000,000, respectively, excluding adjustments for
deferred acquisition costs applicable to changes in fair value of securities.
The carrying values of these contracts are stated net of deferred acquisition
costs in order that they be comparable with the fair value basis.
9. Segment Information
The Company has two major business segments: Life Insurance and Annuities and
Reinsurance. The Life Insurance and Annuities segment offers universal life,
pension products and other individual coverages through a network of career
agents, independent general agencies and insurance agencies located within a
variety of financial institutions. These products are sold throughout the
United States by the Company. Reinsurance sells reinsurance products and
services to insurance companies, HMOs, self-funded employers and other primary
risk accepting organizations in the U.S. and economically attractive
international markets. Effective in the fourth quarter of 1995, operating
results of the direct disability income business previously included in the
Life Insurance and Annuities segment is now included in the Reinsurance
segment. This direct disability income business, which is no longer being
sold, is now managed by the Reinsurance segment along with its disability
income business. Prior to the sale of 100% of the ownership of its primary
underwriter of employee life-health benefit coverages in 1994 (see Note 10),
the Employee Life-Health Benefits segment distributed group life and health
insurance, managed health care and other related coverages through career
agents and independent general agencies. Activity which is not included in
the major business segments is shown as "Other Operations."
"Other Operations" includes operations not directly related to the business
segments and unallocated corporate items (i.e., corporate investment income,
interest expense on corporate debt and unallocated corporate overhead
expenses).
The revenue, pre-tax income and assets by segment for 1993 through 1995 are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Revenue:
Life Insurance and Annuities $2,569.2 $2,065.3 $2,341.9
Reinsurance 751.2 660.4 610.7
Employee Life-Health Benefits -- 314.9 1,326.8
Other Operations 16.1 74.6 (28.8)
Total $3,336.5 $3,115.2 $4,250.6
Income (loss) before income taxes and
cumulative effect of accounting change:
Life Insurance and Annuities $ 361.0 $ 75.6 $ 265.3
Reinsurance 83.5 93.9 31.6
Employee Life-Health Benefits -- 22.9 83.0
Other Operations 5.0 67.8 (44.2)
Total $ 449.5 $ 260.2 $ 335.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Segment Information (continued)
<TABLE>
<CAPTION>
December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Assets:
Life Insurance and Annuities $45,280.0 $37,675.9 $36,021.0
Reinsurance 3,383.5 2,311.5 2,328.9
Employee Life-Health Benefits -- -- 588.5
Other Operations 923.6 1,038.1 770.0
Total $49,587.1 $41,025.5 $39,708.4
</TABLE>
Provisions for depreciation and capital additions were not material.
10. Sale of Affiliates
In December 1993, the Company recorded a provision for loss of $98,500,000
(also $98,500,000 after-tax) in the "Other Operations" segment for the sale of
Security-Connecticut Life Insurance Company ("Security-Connecticut"). The
sale was completed on February 2, 1994 through an initial public offering and
the Company received cash and notes, net of related expenses, totaling
$237,700,000. The loss on sale and disposal expenses did not differ
materially from the estimate recorded in the fourth quarter of 1993. For the
year ended December 31, 1993, Security-Connecticut, which operated in the Life
Insurance and Annuities segment, had revenue of $274,500,000 and net income of
$24,000,000.
In 1994, the Company completed the sale of 100% of the common stock of
EMPHESYS (parent company of Employers Health Insurance Company, which
comprised the Employee Life-Health Benefits segment) for $348,200,000 of cash,
net of related expenses, and a $50,000,000 promissory note. A gain on sale of
$69,000,000 (also $69,000,000 after-tax) was recognized in 1994 in "Other
Operations". For the year ended December 31, 1993, EMPHESYS had revenues of
$1,304,700,000 and net income of $55,300,000. EMPHESYS had revenue and net
income of $314,900,000 and $14,400,000, respectively, during the three months
of ownership in 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
11. Subsequent Event
In January 1996, LNC announced that it had signed a definitive agreement to
acquire the group tax-sheltered annuity business of UNUM Corporation's
affiliates. This purchase is expected to be completed in the form of a
reinsurance transaction with an initial ceding commission of approximately
$70,000,000. This ceding commission represents the present value of business
in-force and, accordingly, will be classified as other intangible assets upon
the close of this transaction. This transaction, which is expected to close
in the third quarter of 1996, will increase LNC's assets and policy
liabilities and accruals by approximately $3,200,000,000.
12. Transactions With Affiliates
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"), has
a nearly exclusive general agents contract with the Company under which it
sells the Company's products and provides the service that otherwise would be
provided by a home office marketing department and regional offices. For
providing these selling and marketing services, the Company paid LFGI override
commissions and operating expense allowances of $81,900,000, $78,500,000 and
$74,500,000 in 1995, 1994 and 1993, respectively. LFGI incurred expenses of
$10,400,000, $10,700,000 and $10,500,000 in 1995, 1994 and 1993, respectively,
in excess of the override commission and operating expense allowances received
from the Company, which the Company is not required to reimburse.
Cash and invested cash at December 31, 1995 and 1994 include the Company's
participation in a short-term investment pool with LNC of $333,800,000 and
$428,300,000, respectively. Related investment income amounted to
$22,500,000, $17,100,000 and $9,100,000 in 1995, 1994 and 1993, respectively.
Short-term debt at December 31, 1995 and 1994 includes $67,000,000 and
$68,600,000, respectively, borrowed from LNC. The Company paid interest to
LNC of $24,000, $8,000 and $137,000 in 1995, 1994 and 1993, respectively.
The Company provides services to and receives services from affiliated
companies which resulted in a net receipt of $7,500,000, $13,900,000 and
$18,900,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Transactions With Affiliates (continued)
The Company both cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income includes reinsurance
transactions with affiliated companies as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1995 1994
(in millions)
<S> <C> <C>
Insurance assumed $ 17.6 $ 19.8
Insurance ceded 214.4 481.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Future policy benefits and claims assumed $ 344.8 $341.3
Future policy benefits and claims ceded 1,344.5 857.7
Amounts recoverable on paid and unpaid losses 65.9 36.8
Reinsurance payable on paid losses 5.5 3.5
Funds held under reinsurance treaties-net liability 712.3 238.4
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit aggregating
$340,800,000 and $308,200,000 at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, LNC had guaranteed $275,300,000 and $298,200,000,
respectively, of these letters of credit. At December 31, 1995, the Company
has a receivable (included in the foregoing amounts) from affiliated insurance
companies in the amount of $241,900,000 for statutory surplus relief received
under financial reinsurance ceded agreements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Lincoln
National Life Insurance Company, a wholly owned subsidiary of Lincoln National
Corporation, as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995. Our audits also included the
financial statement schedules listed on B- . These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Lincoln
National Life Insurance Company at December 31, 1995, and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions, accounting for impairment of loans and accounting for certain
investments in debt and equity securities.
/S/ ERNST & YOUNG LLP
Fort Wayne, Indiana
February 7, 1996
<PAGE>
FINANCIAL SCHEDULES
The following consolidated financial statement schedules of The Lincoln National
Life Insurance Company and subsidiaries are included on Pages B- through
B- .
I Summary of Investments Other than Investments in Related Parties December
31, 1995
III Supplementary Insurance Information Years ended December 31, 1995, 1994 and
1993
IV Reinsurance Years ended December 31, 1995, 1994 and 1993
V Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and
1993
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or the required information is included
in the consolidated financial statements, and therefore have been omitted.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Amount at
Which
Shown in
the Balance
Type of Investment Cost Value Sheet
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
United States Government and
government agencies and authorities $ 569,552 $ 653,444 $ 653,444
States, municipalities
and political subdivisions 12,325 12,375 12,375
Mortgage-backed securities 4,891,521 5,184,751 5,184,751
Foreign governments 927,901 997,567 997,567
Public utilities 2,572,309 2,772,990 2,772,990
Convertibles and bonds
with warrants attached 181,431 199,658 199,658
All other corporate bonds 9,658,371 10,551,770 10,551,770
Redeemable preferred stocks 39,427 42,230 42,230
Total fixed maturity securities 18,852,837 20,414,785 20,414,785
Equity securities available-for-sale:
Common stocks:
Public utilities 8,980 10,989 10,989
Banks, trust and insurance companies 74,897 89,197 89,197
Industrial, miscellaneous and all other 345,434 436,556 436,556
Nonredeemable preferred stocks 50,950 61,693 61,693
Total equity securities 480,261 598,435 598,435
Mortgage loans on real estate 3,176,275 3,147,783 (A)
Real estate:
Investment properties 635,135 635,135
Acquired in satisfaction of debt 157,441 110,888 (A)
Policy loans 565,325 565,325
Other investments 253,015 241,219 (A)
Total investments $24,120,189 $25,713,570
</TABLE>
(A) Investments which are deemed to have declines in value that are other than
temporary are written down or reserved for to reduce their carrying value to
their estimated realizable value.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Future Policy
Benefits, Other Policy
Deferred Claims and Claims and
Acquisition Claim Unearned Benefits Premium
Segment Costs Expenses Premiums Payable Revenue (A)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $ 713,213 $6,530,475 $ 9,145 $-- $ 685,258
Reinsurance 247,921 1,855,039 45,951 -- 611,416
Other (including consolidating
adjustments) (7,300) 49,505 78 -- 622
Total $ 953,834 $8,435,019 $ 55,174 $-- $1,297,296
Year ended December 31, 1994:
Life insurance and annuities $1,427,692 $5,888,581 $ 11,201 $-- $ 647,416
Reinsurance 304,913 1,626,033 51,618 -- 542,034
Employee life-health benefits -- -- -- -- 299,338
Other (including consolidating
adjustments) 3,921 26,158 (1,347) -- 1,076
Total $1,736,526 $7,540,772 $ 61,472 $-- $1,489,864
Year ended December 31, 1993:
Life insurance and annuities $ 999,126 $6,782,207 $ 5,188 $-- $ 662,353
Reinsurance 298,787 1,616,088 54,157 -- 491,397
Employee life-health benefits -- 228,892 -- -- 1,243,576
Other (including consolidating
adjustments) -- 171,043 315 -- 387
Total $1,297,913 $8,798,230 $ 59,660 $-- $2,397,713
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information (continued)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column G Column H Column I Column J Column K
Amortization
Benefits, of Deferred
Net Claims and Policy Other
Investment Claim Acquisition Operating Premium
Segment Income (B) Expenses Costs Expenses (B) Written
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $1,741,231 $1,649,119 $298,020 $261,016 $--
Reinsurance 134,000 472,198 101,729 93,750 --
Other (including consolidating
adjustments) 24,399 1,299 -- 9,898 --
Total $1,899,630 $2,122,616 $399,749 $364,664 $--
Year ended December 31, 1994:
Life insurance and annuities $1,542,552 $1,554,479 $ 85,697 $349,529 $--
Reinsurance 116,957 419,266 29,477 117,238 --
Employee life-health benefits (C) 10,838 218,672 -- 73,355 --
Other (including consolidating
adjustments) 3,634 1,630 -- 5,682 --
Total $1,673,981 $2,194,047 $115,174 $545,804 $--
Year ended December 31, 1993:
Life insurance and annuities $1,676,163 $1,615,883 $197,363 $268,066 $--
Reinsurance 115,582 467,824 38,351 72,840 --
Employee life-health benefits 54,513 943,235 -- 300,648 --
Other (including consolidating
adjustments) (22,799) 6,197 5,275 (744) --
Total $1,823,459 $3,033,139 $240,989 $640,810 $--
(A) Includes insurance fees on universal life and other interest sensitive products.
(B) The allocation of expenses between investments and other operations are based on a number of assumptions and estimates.
Results would change if different methods were applied.
(C) Includes data through the March 21, 1994 date of sale of the direct writer of employee life-health coverages.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance (A)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force $ 51,570,782 $17,612,782 $142,794,000 $176,752,000 80.8%
Premiums:
Health insurance 302,463 299,222 273,572 276,813 98.8
Life insurance (B) 658,936 142,523 504,070 1,020,483 49.4
Total $ 961,399 $ 441,745 $ 777,642 $ 1,297,296
Year ended December 31, 1994:
Life insurance in force $ 79,802,000 $45,822,000 $125,640,000 $159,620,000 78.7%
Premiums:
Health insurance 666,609 496,090 359,659 530,178 67.8
Life insurance (B) 629,185 220,678 551,179 959,686 57.4
Total $ 1,295,794 $ 716,768 $ 910,838 $ 1,489,864
Year ended December 31, 1993:
Life insurance in force $135,401,000 $61,401,000 $109,257,000 $183,257,000 59.6%
Premiums:
Health insurance 1,387,414 217,705 262,171 1,431,880 18.3
Life insurance (B) 771,408 350,907 545,332 965,833 56.5
Total $ 2,158,822 $ 568,612 $ 807,503 $ 2,397,713
(A) Special-purpose bulk reinsurance transactions have been excluded.
(B) Includes insurance fees on universal life and other interest sensitive products.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule V
Valuation and Qualifying Accounts
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Charged
Charged to
Balance at to Other Balance at
Beginning Costs and Accounts- Deductions- End of
of Period Expenses (A) Describe Describe (B) Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $ 56,614 $ 2,659 $-- $ (30,781) $ 28,492
Reserve for real estate 65,186 (7,227) -- (11,406) 46,553
Reserve for other long-term investments 13,492 (1,541) -- (155) 11,796
Year ended December 31, 1994:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $220,671 $ 19,464 $-- $(183,521) $ 56,614
Reserve for real estate 121,427 13,058 -- (69,299) 65,186
Reserve for other long-term investments 26,730 262 -- (13,500) 13,492
Included in other liabilities:
Investment guarantees 1,804 4,280 -- (6,084) --
Year ended December 31, 1993:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $129,093 $136,717 $-- $ (45,139) $220,671
Reserve for real estate 114,178 21,776 -- (14,527) 121,427
Reserve for other long-term investments 31,582 3,905 -- (8,757) 26,730
Included in other liabilities:
Investment guarantees 12,550 1,674 -- (12,420) 1,804
(A) Exclude charges for the direct write-off of assets. The negative amounts represent improvements in the underlying assets for
which valuation accounts had previously been established.
(B) Deductions reflect sales or foreclosures of the underlying holdings.
</TABLE>
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
Reconciliation and Tie-in Sheet
The Prospectus consisting of _____ pages
The signatures
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of The Lincoln National Life
Insurance Company and related documents authorizing establishment
of the Account.*
(2) Not applicable.
(3) (a) Not applicable.
(b) Form of Dealer Agreement.*
(c) Commission schedule.*
(4) Not applicable.
(5) Proposed form of Policy.*
(6) (a) Articles of Incorporation of The Lincoln National Life
Insurance Company.*
(b) Bylaws of The Lincoln National Life Insurance Company.*
(7) Not applicable.
(8) Proposed form of Agreement to Purchase Shares.*
(9) Not applicable.
(10) See Exhibit 1(5).
2. See Exhibit 1(5).
3. Opinion and consent of Counsel.**
4. Not applicable.
5. Not applicable.
6. Opinion and consent of Denis G. Schwartz, F.S.A.*
7. Consent of Ernst & Young LLP, Independent Autitors
________________________________________________________________________________
*Previously filed as an exhibit to the registration statement.
**To be filed by Amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, The Lincoln National Life Insurance Company has duly
caused this Post-Effective Amendment No. 1 to Registration No. 33-90406 to be
signed on its behalf by the undersigned hereunto duly authorized, in the City of
Fort Wayne, State of Indiana, on April 30, 1996.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY on its
own behalf and on behalf of LINCOLN LIFE
FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT D
By: /S/ REED P. MILLER
------------------------------
Reed P. Miller, Vice President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ IAN M. ROLLAND Director 4/30/96
- --------------------------
Ian M. Rolland
/S/ ROBERT A. ANKER Chairman, Chief Executive 4/30/96
- -------------------------- Officer and Director
Robert A. Anker (Principal Executive
Officer)
/S/ JON A. BOSCIA President, Chief Operating 4/30/96
- -------------------------- Officer and Director
Jon A. Boscia
/S/ JACK D. HUNTER Executive Vice President 4/30/96
- -------------------------- General Counsel and
Jack D. Hunter Director
/S/ RICHARD C. VAUGHAN Director 4/30/96
- --------------------------
Richard C. Vaughan
/S/ GABRIEL SHAHEEN Executive Vice President and
- -------------------------- Director
Gabriel Shaheen
/S/ KEITH J. RYAN Vice President, Assistant 4/30/96
- -------------------------- Treasurer and Chief Financial
Keith J. Ryan Officer (Principal Financial
Officer)
/S/ H. THOMAS MCMEEKIN Director
- -------------------------
H. Thomas McMeekin
/S/ O. DOUGLAS WORTHINGTON Vice President, Controller 4/30/96
- ------------------------- and Assistant Treasurer
O. Douglas Worthington (Chief Accounting Officer)
</TABLE>
<PAGE>
Exhibit 7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Post-Effective Amendment No. 1 to the Registration Statement (Form S-6 No.
33-90406) and related Prospectus pertaining to the Lincoln National Flexible
Premium Variable Life Account D and to the use therein of our reports (a) dated
February 7, 1996 with respect to the consolidated financial statements of The
Lincoln National Life Insurance Company and (b) dated March 13, 1996 with
respect to the financial statements of Lincoln National Flexible Premium
Variable Life Account D.
/S/ ERNST & YOUNG LLP
Fort Wayne, Indiana
April 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JAN-01-1995
<INVESTMENTS-AT-COST> 4,735,804
<INVESTMENTS-AT-VALUE> 5,805,544
<RECEIVABLES> 205,439
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,010,983
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,056
<TOTAL-LIABILITIES> 3,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,143,703
<SHARES-COMMON-STOCK> 2,419,015
<SHARES-COMMON-PRIOR> 2,493,652
<ACCUMULATED-NII-CURRENT> 2,572,601
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 221,883
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,069,740
<NET-ASSETS> 6,007,927
<DIVIDEND-INCOME> 341,399
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 32,938
<NET-INVESTMENT-INCOME> 308,461
<REALIZED-GAINS-CURRENT> 70,291
<APPREC-INCREASE-CURRENT> 943,614
<NET-CHANGE-FROM-OPS> 1,322,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 319,813
<NUMBER-OF-SHARES-REDEEMED> 394,450
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,160,921
<ACCUMULATED-NII-PRIOR> 2,264,140
<ACCUMULATED-GAINS-PRIOR> 151,592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32,938
<AVERAGE-NET-ASSETS> 5,427,467
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
