<PAGE>
Registration No. 33-14692
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
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POST-EFFECTIVE AMENDMENT NO. 14 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
(Formerly: LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F)
(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)
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Name and complete address
of agent for service: Copy to:
Carl L. Baker, Esquire Brian Burke, Esquire
Vice President & 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
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It is proposed that this filing will become effective (check appropriate
box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
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Title of securities being registered: Flexible Premium Variable
Life Insurance Policies.
Approximate date of proposed public offering: As soon as practicable after
April 30, 1998.
[_] Check box if it is proposed that this filing will become
effective on (date) at (time) pursuant to Rule 487.
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<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
FOR LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
N8B-2 ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Not applicable
4 Lincoln Life
5 Lincoln Life
6 The Separate Account
7 Not applicable
8 Not applicable
9 Legal Proceedings
10 The Separate Account; Surrender of the Policy; The Policy;
Premium Payment and Allocation of Premiums; Policy Lapse and
Reinstatement; Voting Rights; Policy Changes; Addition,
Deletion, and Substitution of Investments; Guaranteed Death
Benefit
11 Lincoln Life; The Separate Account
12 Lincoln Life; The Separate Account
13 Charges and Deductions
14 Requirements for Issuance of Policy
15 Premium Payment and Allocation of Premiums
16 Premium Payment and Allocation of Premiums
17 Surrender of the Policy
18 The Separate Account
19 Reports and Records; Projections of Benefits & Values
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 Co.
29 Lincoln Life
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 Distribution of The Policy
36 Not applicable
<PAGE>
N8B-2 ITEM CAPTION IN PROSPECTUS
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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; Charges
Against the Separate Account
52 Addition, Deletion and Substitution of Investments
53 Federal Tax Matters
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Not applicable
<PAGE>
LINCOLN LIFE -Registered Trademark-
AMERICAN
LEGACY LIFE
PROSPECTUS
Variable Life Account F
May 1, 1998
<PAGE>
AMERICAN LEGACY LIFE
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F INDIVIDUAL FLEXIBLE
PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY:
Lincoln National Life Insurance Co.
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Ind. 46801
800-4LINCOLN (800-454-6265)
The flexible premium variable life insurance policy (POLICY) offered by Lincoln
National Life Insurance Co. (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 (ages 81-85 by exception only) and only for an initial
premium of $10,000 or more. The OWNER may pay a single premium, or subject to
certain restrictions, vary the frequency and amount of premium payments. The
level of life insuranc benefits payable under the POLICY may also be increased
or decreased subject to certain restrictions.
An OWNER may allocate amounts to Lincoln Life Flexible Premium Variable Life
Account F (SEPARATE ACCOUNT). Amounts allocated to the SEPARATE ACCOUNT may be
invested in the American Variable Insurance Series, which has ten FUNDS
available:
- - Global Small Capitalization Fund
- - Global Growth Fund
- - Growth Fund
- - International Fund
- - Growth-Income Fund
- - Asset Allocation Fund
- - High-Yield Bond Fund
- - Bond Fund
- - U.S. Government/AAA-Rated Securities Fund
- - Cash Management Fund
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 on loans held in 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 6.
It may not be advantageous to purchase a POLICY:
(1) as 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.
The POLICY is or may be a Modified Endowment Contract. A life insurance POLICY
becomes a Modified Endowment Contract if the premiums paid for the POLICY exceed
certain limits referred to as the 7-pay limitation. Because the ISSUE PREMIUM
normally exceeds the 7-pay limitation, the POLICY will likely be a Modified
Endowment Contract unless it is purchased with cash values transferred from a
pre-existing life insurance policy which is not a Modified Endowment Contract
and the transfer meets the requirements for a tax-free exchange. The taxation of
loans from, or surrenders of, a Modified Endowment Contract is generally less
favorable than applies to such distributions from a life insurance policy that
is not a Modified Endowment Contract. In particular, loans or surrenders made
from a Modified Endowment Contract are normally reportable income to the extent
of any gain in the POLICY and such income will also be subject to an additional
10% income tax if the loan is taken before the OWNER attains age 59 1/2.
This prospectus is valid only if accompanied or preceded by a prospectus for
American Variable Insurance SERIES.
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 April 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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SUMMARY OF THE POLICY 1
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LINCOLN LIFE AND THE SEPARATE ACCOUNT
Lincoln Life 3
The Separate Account 3
The investment advisor 4
Addition, deletion, or substitution of
investments 4
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THE POLICY
Requirements for issuance of a policy 4
Units and unit values 4
Premium payment and allocation of premiums 5
Dollar cost averaging program 6
Effective date 6
Right to examine policy 6
Policy termination 6
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CHARGES AND DEDUCTIONS
Surrender charges 6
Cost of insurance charges 7
Charges against the Separate Account 7
Reduction of charges 8
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POLICY BENEFITS
Death benefit 8
Guaranteed death benefit 9
Policy changes 9
Policy value 10
Transfer between subaccounts 11
Loans 11
Policy lapse and reinstatement 11
Surrender of the policy 12
Proceeds and payment options 12
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<CAPTION>
PAGE
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<S> <C>
GENERAL PROVISIONS
The contract 12
Suicide 13
Representations and contestability 13
Incorrect age or sex 13
Change of owner or beneficiary 13
Assignment 13
Reports and records 13
Projection of benefits and values 13
Postponement of payments 14
Accelerated Benefit Election Rider 14
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DISTRIBUTION OF THE POLICY 14
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FEDERAL TAX MATTERS
Tax status of the policy 14
Tax treatment of policy benefits 15
Taxation of the Separate Account 17
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VOTING RIGHTS 17
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STATE REGULATION OF LINCOLN LIFE AND THE
SEPARATE ACCOUNT 17
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SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS 18
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LEGAL PROCEEDINGS 18
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EXPERTS 18
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PREPARING FOR YEAR 2000 18
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ADDITIONAL INFORMATION 19
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APPENDIX A:Executive Officers & Directors of
Lincoln National Life Insurance
Co. 20
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APPENDIX B:Illustrations of policy values 22
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APPENDIX C:Definitions for Separate Account F 29
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FINANCIAL STATEMENTS 32
</TABLE>
<PAGE>
SUMMARY OF THE POLICY
The following summary is intended to give you only a brief explanation of the
most important features of your policy. Therefore, you should read the entire
prospectus and Appendices carefully before making a decision to purchase.
Throughout this prospectus, in order to make the following documents more
understandable, we have italicized the special terms.
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
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.
So long as your policy remains in force, the minimum death benefit will be the
current SPECIFIED AMOUNT. Death benefit PROCEEDS are reduced by any outstanding
loan and any due and unpaid charges. Under certain conditions, a GUARANTEED
DEATH BENEFIT on the life of the INSURED in an amount equal to the sum of all
premiums paid will be provided until the MATURITY DATE despite the lapse of the
POLICY.
You also have flexibility to adjust the death benefit prior to the MATURITY DATE
by increasing or decreasing the SPECIFIED AMOUNT of the POLICY. During the first
two policy years, the INSURED may apply for an increase equal to the lesser of
10% of the original SPECIFIED AMOUNT or $25,000, without evidence of
insurability.
HOW ARE THE PREMIUMS FLEXIBLE?
The OWNER may choose to pay a single premium or may have flexibility concerning
the amount and frequency of premium payments. An ISSUE PREMIUM approximately
equal to 80% of the federal maximum premium limitation (as defined in Section
7702 of the Internal Revenue Code of 1986, as amended) is required to issue the
POLICY. An OWNER who has not paid the federal maximum premium limitation may,
subject to certain restrictions, make premium payments at any time and in any
amount and at any frequency.
WHAT MAKES MY POLICY VARIABLE?
Your policy is described as variable because the death benefit may, and the
POLICY VALUE will 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?
You have the option to allocate amounts to one or more SUBACCOUNTS of the
SEPARATE ACCOUNT. Currently the American Variable Insurance SERIES consists of
ten FUNDS available for investment by the SUBACCOUNTS:
The GLOBAL SMALL CAPITALIZATION FUND seeks long-term growth of capital by
investing primarily in equity securities of companies domiciled around the world
with relatively small market capitalizations (share price times the number of
equity securities outstanding). The FUND may also invest in securities
convertible into common stocks, straight debt securities, government securities
or nonconvertible preferred stocks. [PLEASE NOTE: AS OF THE DATE OF THIS
PROSPECTUS, THE GLOBAL SMALL CAPITALIZATION FUND IS NOT YET AVAILABLE IN ALL
STATES. PLEASE CONTACT YOUR INVESTMENT DEALER FOR MORE INFORMATION.
The GLOBAL GROWTH FUND seeks long-term growth of capital by investing primarily
in common stocks or securities with common stock characteristics of issuers
domiciled around the world.
The GROWTH FUND seeks growth of capital by investing primarily in common stocks
or securities with common stock characteristics, such as convertible preferred
stock, which demonstrate the potential for appreciation.
The INTERNATIONAL FUND seeks long-term growth of capital by investing primarily
in securities of issuers domiciled outside the United States.
The GROWTH-INCOME FUND seeks high growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
The ASSET ALLOCATION FUND seeks high total return (including income and capital
gains) consistent with preservation of capital over the long term through a
diversified portfolio that can include common stocks and other equity-type
securities, bonds and other intermediate and long-term fixed-income securities
and money market instruments in any combination.
The HIGH-YIELD BOND FUND seeks high current income and secondarily seeks capital
appreciation by investing primarily in intermediate and long term corporate
obligations, with emphasis on higher yielding, higher risk, lower rated or
unrated securities. IN ADDITION TO OTHER RISKS, HIGH-YIELD, HIGH-RISK BONDS
(ALSO KNOWN AS "JUNK BONDS") ARE SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND
RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN ARE
INVESTMENTS IN LOWER YIELDING, HIGHER RATED BONDS. FOR FURTHER INFORMATION ON
THE RISKS ASSOCIATED WITH SUCH SECURITIES, PLEASE REFER TO THE PROSPECTUS FOR
THE AMERICAN VARIABLE INSURANCE SERIES,
1
<PAGE>
WHICH MUST ACCOMPANY OR PRECEDE THIS PROSPECTUS AND WHICH SHOULD BE READ
CAREFULLY.
The BOND FUND seeks a high level of current income as is consistent with the
preservation of capital by investing in a broad variety of fixed income
securities.
The U.S. GOVERNMENT/AAA-RATED SECURITIES FUND seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the United
States Government and other debt securities rated AAA or Aaa.
The CASH MANAGEMENT FUND seeks high current yield while preserving capital by
investing in a diversified selection of money market instruments.
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. Prior to the
RECORD DATE, net premiums are automatically allocated to the Cash Management
Fund. After the RECORD DATE, the POLICY VALUE and all subsequent net premiums
will automatically be invested in the SUBACCOUNTS of the SEPARATE ACCOUNT in
accord 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 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.
In addition to these rights, during the first 24 policy months, the OWNER may
exchange this POLICY for a POLICY of fixed-benefit insurance on the INSURED'S
life under any compatible flexible premium adjustable life policy offered by us.
DO I HAVE ACCESS TO THE POLICY VALUES?
You may access the NET CASH SURRENDER VALUE through loans. You may borrow the
NET CASH SURRENDER VALUE at any time. Loans 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?
SURRENDER CHARGE. During the first 10 years of the POLICY, a contingent deferred
sales charge, called the SURRENDER CHARGE, will be deducted from your POLICY
VALUE upon lapse or voluntary surrender 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. The initial SURRENDER CHARGE is calculated as 9% of total
premiums paid in the first policy year. Lower sales charges will result if
payment of premium in excess of the ISSUE PREMIUM (but subject to federal
maximum premium limitations) is deferred until after the first POLICY year. The
SURRENDER CHARGE will not exceed $56 per $1000 of SPECIFIED AMOUNT. The
SURRENDER CHARGE will equal the amounts shown below.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
PREMIUMS
PAID IN FIRST POLICY
DURING POLICY YEAR YEAR
<S> <C>
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1 9.0%
2 8.5%
3 8.0%
4 7.0%
5 6.0%
6 5.0%
7 4.0%
8 3.0%
9 2.0%
10 1.0%
</TABLE>
COST OF INSURANCE CHARGE. The POLICY VALUE will be reduced on each monthly
anniversary by the cost of insurance charge. See page 7 for more detailed
information.
CHARGES AGAINST THE SEPARATE ACCOUNT. A daily mortality and expense risk charge
equivalent to an annual rate of .85% of the daily net assets of the SEPARATE
ACCOUNT is imposed for the first ten years. In subsequent years, this charge is
reduced to an annual rate of .75%. In addition, a daily administrative charge
equal to an annual rate of .30% of the daily net assets of the SEPARATE ACCOUNT
is imposed for the first ten years; in subsequent years, this charge is reduced
to .10%. Finally, a daily charge equivalent to an annual rate of .10% of the
daily net assets of the SEPARATE ACCOUNT is imposed for the first ten years for
the assumption of the GUARANTEED DEATH BENEFIT risk.
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 Advisor and other miscellaneous
expenses incurred by those FUNDS. It is estimated that, in the aggregate, such
fees and expenses for the
2
<PAGE>
FUNDS, expressed as an annual percentage of each FUND'S net assets, will range
from .37% to .86%. See page 8 for more detailed information.
HOW IS 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" on pages 14-17. You should
note in particular that the taxation of loans and surrenders of a life insurance
policy that becomes a Modified Endowment Contract is generally less favorable
than applies to such 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 (see pages 15-16). Because the ISSUE PREMIUM normally exceeds the
7-pay limitation, your policy will likely be a Modified Endowment Contract
unless you purchase the POLICY with cash values transferred from a pre-existing
life insurance policy which is not a Modified Endowment Contract and the
transfer meets the requirements for a tax-free exchange. You should note, in
particular, that loans or surrenders made from a Modified Endowment Contract are
normally reportable income to the extent of any gain in the POLICY and such
income will also be subject to an additional 10% income tax if the loan is taken
before you attain age 59 1/2. A qualified tax advisor should be able to help you
determine the tax status of your policy.
LINCOLN LIFE 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 contracts, 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 Commonwealth of the Northern Mariana
Islands.
Lincoln Life is wholly owned by Lincoln National Corp., 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, Ind. 46802. The Principal office of Lincoln National Corp. is located at
200 East Berry Street, Fort Wayne, Ind. 46802. Through its affiliated companies,
Lincoln National Corp. provides wealth accumulation and protection products and
services -- including annuities, life insurance, 401(k) plans, life-health
reinsurance, institutional investment management and mutual funds.
THE SEPARATE ACCOUNT
Lincoln Life Flexible Premium Variable Life Account F (SEPARATE ACCOUNT) was
established by Lincoln Life as a separate account on May 29, 1987. 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 regular 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, Martin Luther King Day, Presidents'
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 ten SUBACCOUNTS. Each SUBACCOUNT invests
exclusively in shares of one of the FUNDS comprising the American Variable
Insurance Series: the Global Small Capitalization Fund, the Global Growth Fund,
the Growth Fund, the International Fund, the Growth-Income Fund, the Asset
Allocation Fund, the High-Yield Bond Fund, the Bond Fund, the U.S.
Government/AAA-Rated Securities Fund, and the Cash Management Fund. 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. Should Lincoln Life become aware of any material irreconcilable
conflict, either potential or existing, between its variable annuity and
variable life insurance contractowners, Lincoln Life has agreed to notify the
Series' Board of Trustees and to remedy, at Lincoln Life's own expense, any such
conflict. Each FUND has two classes of shares, designated as class 1 shares and
class 2 shares. Class 1 and class 2 differ in that class 2 (but not class 1)
shares are subject to a 12b-1 plan for the payment by the FUND of certain
distribution-related expenses. Only class 1 shares are available under the
POLICY.
3
<PAGE>
There is no assurance that any FUND of the American Variable Insurance Series
will achieve its stated investment objective. For a complete description of the
American Variable Insurance Series, please refer to the prospectus for the
SERIES which must accompany or precede this prospectus and which should be read
carefully.
THE INVESTMENT ADVISOR
Capital Research and Management Co., an investment management organization
founded in 1931, is the investment advisor to the SERIES and other mutual funds,
including those in The American Funds Group. Capital Research and Management Co.
is located at 333 South Hope Street, Los Angeles, Calif. 90071 and 135 South
State College Boulevard, Brea, Calif. 92821. Capital Research and Management is
registered with the Securities and Exchange Commission as an investment adviser.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Lincoln Life does not control the investment advisor and therefore cannot
guarantee that the American Variable Insurance Series or 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 to
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 policyowners.
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 policyowners 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.
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, Ind. 46802. The minimum
acceptable premium is $10,000. A policy will generally be issued only to
insureds 80 years of age or younger (ages 81-85 by exception only) 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.
UNITS AND UNIT VALUES
The value of POLICY monies invested in each SUBACCOUNT is accounted for through
the use of UNITS and UNIT VALUES. A UNIT is an accounting unit of measure used
to calculate the value of an investment in a specified SUBACCOUNT. A UNIT VALUE
is the dollar value of a UNIT in a specified SUBACCOUNT on a specified valuation
date. Whenever an amount is invested in a SUBACCOUNT (due to net premium
payments, loan payments, or transfer of values into a SUBACCOUNT), the amount
purchases UNITS in that SUBACCOUNT; the number of UNITS purchased is determined
by dividing the dollar amount of the transaction by the UNIT VALUE on the day
the transaction is made. Similarly, whenever an amount is redeemed from a
SUBACCOUNT (due to loans and loan interest charges, surrenders and SURRENDER
CHARGES, transfers of values out of a SUBACCOUNT, income tax deductions (if
any), or cost of insurance charges), UNITS are redeemed from that SUBACCOUNT;
the number of units redeemed is determined by dividing the dollar amount of the
transaction by the UNIT VALUE on the day the transaction is made.
The UNIT VALUE is also used to measure the NET INVESTMENT RESULTS in a
SUBACCOUNT. The POLICY VALUE on any valuation day is the sum of the values in
each SUBACCOUNT in which POLICY VALUES are allocated, plus any amounts held in
the GENERAL ACCOUNT as reserves for loans. The value of each
4
<PAGE>
SUBACCOUNT on each valuation day is determined by multiplying the number of
UNITS held by a POLICY in each SUBACCOUNT by the UNIT VALUE for that SUBACCOUNT
as determined for that valuation day.
The UNIT VALUE for a SUBACCOUNT on a specified valuation date is determined by
dividing the value of all assets owned by that SUBACCOUNT, net of the
SUBACCOUNT'S liabilities (including any accrued but unpaid daily mortality and
expense risk charges, administrative charges and GUARANTEED DEATH BENEFIT risk
charges), by the total number of UNITS held by POLICIES in that SUBACCOUNT. NET
INVESTMENT RESULTS do not increase or decrease the number of UNITS held by the
SUBACCOUNT.
As discussed under Charges against the Separate Account, on page 7, there is a
reduction in daily asset charges applicable to POLICIES that have been in
existence for more than ten years. To reflect that reduction, the preceding
paragraphs are applied by considering such policies to be funded through
separate SUBACCOUNTS, the interests in which are reflected in a separately
computed and maintained series of UNITS and UNIT VALUES. The NET INVESTMENT
RESULTS applicable to those UNITS will be higher because of the reduction in
daily charges applicable to them.
PREMIUM PAYMENT AND
ALLOCATION OF PREMIUMS
Subject to certain limitations, an OWNER has considerable flexibility in
determining the frequency and amount of premiums. The first year ISSUE PREMIUM
is the only premium payment required under the POLICY, although additional
premiums may be necessary to keep the POLICY in force. Payment of the ISSUE
PREMIUM will not guarantee that the POLICY will remain in force. The amount of
the first year ISSUE PREMIUM is based on the INSURED'S issue age and the
SPECIFIED AMOUNT of the POLICY and is approximately equal to 80% of the federal
maximum premium limitation at issue, as described below. The OWNER must pay the
ISSUE PREMIUM in full on or before the RECORD DATE and may pay as much as 100%
of the federal maximum premium limitation at issue.
Any OWNER who has not chosen to pay the federal maximum premium limitation at
issue will also define a PLANNED PERIODIC PREMIUM schedule that provides for
payment of a level premium (which may be zero) 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 guarantee that the
POLICY will remain in force. The policy will lapse any time outstanding loans
exceed POLICY VALUE less SURRENDER CHARGE or POLICY VALUE less outstanding loans
and less SURRENDER CHARGE is insufficient to pay certain monthly deductions, and
a grace period expires without a sufficient payment. (See Policy lapse and
reinstatement, page 11.) Subject to the first year ISSUE PREMIUM requirements
and the 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 exceed certain limits referred to as the 7-pay limitation.
Because the ISSUE PREMIUM normally exceeds the 7-pay limitation, the POLICY will
likely be a Modified Endowment Contract unless it has been purchased with cash
values transferred from a pre-existing life insurance policy which is not a
Modified Endowment Contract and the transfer meets the requirements for a
tax-free exchange. The taxation of life insurance death benefits and
distributions is complex and is discussed in detail under "Federal tax matters"
on pages 14-17. Of particular note is the fact that the taxation of loans and
surrenders of a life insurance policy that becomes a Modified Endowment Contract
is generally less favorable than applies to such distributions from a life
insurance policy that is not a Modified Endowment Contract.
NET PREMIUMS. The net premium equals the premium paid.
ALLOCATION OF NET PREMIUMS. In the application for a POLICY, the OWNER can
allocate net premiums or portions thereof to the various SUBACCOUNTS of the
SEPARATE ACCOUNT. Notwithstanding the allocation in the application, all net
premiums received prior to the record date will initially be allocated to the
Cash Management Fund. Net
5
<PAGE>
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. Net premiums will continue to be
allocated to the Cash Management Fund 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 Cash Management Fund 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 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. 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 Cash Management
Fund 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 ($5,000 minimum) to be transferred from the
Cash Management Fund to the chosen 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 Cash Management Fund 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 ISSUE 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 ISSUE 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.
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, 2) the
POLICY is surrendered, 3) the INSURED dies, or 4) the POLICY matures. Under
certain defined conditions, Lincoln Life will continue until the MATURITY DATE a
death benefit on the life of the INSURED in an amount equal to the premiums paid
(See Guaranteed death benefit, page 9).
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 in the following.
SURRENDER CHARGES
Sales charges may be deducted in the form of contingent deferred sales charges
(referred to as the SURRENDER CHARGE) as compensation for distribution expenses
6
<PAGE>
incurred by Lincoln Life. These expenses include sales commissions, the cost of
printing the prospectus and sales literature, and any advertising costs.
Expressed as a percentage of premiums, the total sales charges imposed under the
POLICY during the first twelve policy months will depend on the policy's
SPECIFIED AMOUNT, the INSURED'S ATTAINED AGE, the INSURED'S underwriting class,
and the amount of actual premium paid during that period, but in no event will
sales charges exceed 9.0% of the total premium paid in the first policy year.
The following table shows the surrender charge as percent of total premiums paid
during the first policy year. Lower sales charges will result if payment of
premium in excess of the ISSUE PREMIUM (total premium must be less than the
federal maximum premium limitation) is deferred until after the first policy
year. The SURRENDER CHARGE will not exceed $56 per $1,000 of specified amount.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
PREMIUMS
PAID IN FIRST POLICY
DURING POLICY YEAR YEAR
<S> <C>
- --------------------------------------------------
1 9.0%
2 8.5%
3 8.0%
4 7.0%
5 6.0%
6 5.0%
7 4.0%
8 3.0%
9 2.0%
10 1.0%
</TABLE>
The sales charge in any policy year is not necessarily related to actual
distribution expenses incurred in that year. Instead, Lincoln Life expects to
incur the majority of distribution expenses in the first policy year and to
recover any deficiency over the life of the POLICY from sales charges in
subsequent years.
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 the values in 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. It will depend, among other
things, on the amount for which Lincoln Life is at risk to pay in the event of
the insured's death. 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, and rate class
of the person insured. 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 and rate class 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 l980
Commissioner's Standard Ordinary Mortality Table, Age Last Birthday. 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 three categories: preferred plus, preferred and standard. Insureds
who are preferred plus or preferred will generally incur a lower cost of
insurance than those insureds who are standard.
Lincoln Life also reserves the right to deduct from the POLICY VALUE any amounts
charged for federal or other Governmental income taxes that might result from a
change in the current tax laws. Current tax laws do not charge income taxes on
the POLICY VALUE.
CHARGES AGAINST THE SEPARATE ACCOUNT
Several charges are made directly or indirectly against the SEPARATE ACCOUNT and
have the effect of reducing net investment results credited to the SUBACCOUNTS.
FUND CHARGES AND EXPENSES. The investment advisor for each of the FUNDS deducts
a daily charge as a percent of the net assets in each FUND as an asset
management charge. The charge has the effect of reducing the investment results
credited to the SUBACCOUNTS.
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. The asset management charges, miscellaneous expenses
and total expenses for each of the FUNDS are currently estimated, on the basis
of their most recent fiscal year experience where applicable, to be as follows:
7
<PAGE>
<TABLE>
<CAPTION>
ASSET MISC.
FUND MGT. CHARGE* EXPENSES* TOTAL*
- -------------------------------------------------------------------
<S> <C> <C> <C>
Global Small
Capitalization** .80% .06% .86%
Global Growth*** .71% .05% .76%
Growth .41% .01% .42%
International .58% .09% .67%
Growth-Income .36% .01% .37%
Asset Allocation .45% .02% .47%
High-Yield Bond .50% .02% .52%
Bond .53% .02% .55%
U.S. Gov't/AAA-Rated .51% .02% .53%
Cash Management .45% .02% .47%
</TABLE>
*Expressed as an annual percentage of each FUND'S average daily net assets.
**New FUND, with no prior fiscal year experience.
***Annualized figures based on operations for the period April 30, 1997 to
November 30, 1997.
See the FUNDS' prospectus for more complete information about the expenses of
the 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. The daily rate charged is equal to an annual rate of .85% of the value
of the net assets of the SEPARATE ACCOUNT for the first 10 policy years, and
.75% for policy years thereafter. This deduction will not increase for the
duration of the POLICY.
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.
GUARANTEED DEATH BENEFIT CHARGE. For the first ten POLICY years Lincoln Life
deducts a daily charge as a percent of the assets of the SEPARATE ACCOUNT as a
charge for the guaranteed death benefit. The daily rate charged is equal to an
annual rate of .10% of the value of the net assets of the SEPARATE ACCOUNT. This
charge compensates Lincoln Life for the risk that the combination of cost of
insurance deductions and poor NET INVESTMENT RESULTS may reduce net cash
surrender values to zero and require Lincoln Life to continue until the MATURITY
DATE a death benefit on the life of the INSURED in an amount equal to the sum of
premiums paid.
ADMINISTRATIVE CHARGE. Lincoln Life deducts a daily charge as a percent of the
assets of the SEPARATE ACCOUNT as an administrative charge. The daily rate
charged is equal to an annual rate of .30% of the value of the net assets of the
SEPARATE ACCOUNT for the first ten policy years, and .10% for policy years
thereafter. This charge compensates Lincoln Life for underwriting, issue, and
other administrative expenses incurred in issuing and maintaining the POLICY in
force. Although most of these expenses are incurred in the first policy year,
the administrative charge is assessed over the life of the POLICY. This charge
will not increase for the duration of the POLICY. Lincoln Life does not
anticipate any profit resulting from this charge.
REDUCTION OF CHARGES
The SURRENDER CHARGE set forth in this prospectus may be reduced because of
special circumstances that result in lower sales or administrative expenses. In
particular, the SURRENDER CHARGE will not be deducted on policies issued to
employees and registered representatives of any member of the selling group and
their spouses and minor children, or to officers, directors, trustees or
bonafide full-time employees of Lincoln National Corp. or The Capital Group,
Inc. or their affiliated or managed companies (based on the OWNER'S status at
the time the POLICY was purchased). The amounts of any reductions will reflect
the reduced sales effort and administrative expenses resulting from, or the
differences in expected death claims 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.
POLICY BENEFITS
DEATH BENEFIT
The initial death benefit is equal to the SPECIFIED AMOUNT chosen by the OWNER,
subject to certain limitations. The minimum SPECIFIED AMOUNT per $1,000 of
premium results from paying the federal maximum premium limitation at issue. The
maximum SPECIFIED AMOUNT per $1,000 of premium results from paying only the
required ISSUE PREMIUM (approximately equal to 80% of the federal maximum
premium limitation at issue) for that SPECIFIED AMOUNT.
As long as the POLICY remains in force (see Policy lapse and reinstatement, page
11), Lincoln Life will, upon proof of the INSURED'S death, pay the death benefit
PROCEEDS of the POLICY to the named BENEFICIARY. The PROCEEDS may be paid in
cash or under one or more of the payment options set forth in the POLICY. (See
Proceeds and payment options, page 12.) The death benefit PROCEEDS payable will
be increased by any unearned cost of insurance charge, and will be reduced by
any outstanding loan and any due and unpaid charges. (See Policy lapse and
reinstatement, page 11.)
8
<PAGE>
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.
* 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 this example, assume that the INSURED is under the age of 40 and
that there is no outstanding POLICY loan. A POLICY with a SPECIFIED AMOUNT of
$250,000 will generally pay $250,000 in life insurance death benefits. However,
because the life insurance death benefit cannot be less than 250% (the
applicable specified percentage) of POLICY VALUE, any time the POLICY VALUE of
this POLICY exceeds $100,000, the life insurance death benefit 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
death benefit 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 a life
insurance death benefit of $500,000 (250% x $200,000); a POLICY VALUE of
$300,000 will yield a life insurance death benefit of $750,000 (250% x
$300,000); a POLICY VALUE of $500,000 will yield a life insurance death benefit
of $1,250,000 (250% x $500,000). Similarly, so long as POLICY VALUE exceeds
$100,000, each dollar taken out of POLICY VALUE will reduce the life insurance
death benefit by $2.50. If at any time the POLICY VALUE multiplied by the
specified percentage is less than the SPECIFIED AMOUNT, the life insurance death
benefit will equal the SPECIFIED AMOUNT of the POLICY.
The above example describes a scenario which includes 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.
GUARANTEED DEATH BENEFIT
Lincoln Life expects that the ISSUE PREMIUM will ordinarily be sufficient, when
combined with the NET INVESTMENT RESULTS, to pay for all charges to the POLICY
and thereby provide life insurance protection on the INSURED until age 99. In
some situations, however, the combination of poor NET INVESTMENT RESULTS and
cost of insurance deductions could result in the NET CASH SURRENDER VALUE being
reduced to zero. In such situations, the OWNER may make additional premium
payments into the POLICY, subject to federal limitations, sufficient to pay for
cost of insurance deductions to keep the POLICY in force. Alternatively,
provided that no outstanding loans exist on the POLICY, the OWNER may allow the
POLICY to lapse and take advantage of the GUARANTEED DEATH BENEFIT described
below. The presence of any outstanding POLICY loan voids the GUARANTEED DEATH
BENEFIT until the loan is repaid.
The GUARANTEED DEATH BENEFIT provides that Lincoln Life will continue until the
MATURITY DATE a death benefit on the life of the INSURED in an amount equal to
the sum of premiums paid into the POLICY, provided no outstanding POLICY loans
exist and provided the POLICY entered the grace period due to insufficient NET
CASH SURRENDER VALUE and the grace period has expired. No cash value will be
available to the OWNER of the lapsed policy. Lincoln Life will provide the death
benefit until the INSURED reaches the ATTAINED AGE of 99, when all coverage will
terminate.
POLICY CHANGES
EXCHANGES OF POLICY. Before the second anniversary the policy may be exchanged
for a new policy of fixed benefit insurance on the INSURED'S life. The new
policy will be any compatible Flexible Premium Adjustable Life policy offered by
Lincoln Life, subject to any conditions normally applicable to the new policy.
It will have the same POLICY DATE and be issued at the same rating class and
issue age as this policy. No evidence of insurability will be required. The NET
CASH SURRENDER VALUE of the new policy will equal that of this policy on the
date of exchange. The SURRENDER CHARGE of the new policy will equal that of this
policy on the date of exchange. On the date of exchange, the death benefit of
the new policy will equal the death benefit of this policy, or the net amount at
risk on the new policy will equal the net amount at risk on this policy, at the
OWNER'S option. If the total premiums paid into this policy exceed the federal
maximum premium limitation of the new policy, the death benefit of the new
policy will be increased (without evidence of insurability) to the minimum death
benefit which will allow compliance with that limitation.
9
<PAGE>
The request for exchange of the policy must be in writing on a form suitable to
Lincoln Life. This POLICY must be surrendered to Lincoln Life, and be at the
Home Office while the 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 the date the OWNER requests the change to be effective,
the date that the request for exchange and the surrendered policy are received
at the Home Office, or the date the cost of exchange or any other amount due is
paid. The POLICY may also be exchanged after a material change in the investment
policy of any FUND or SERIES of a FUND. In that event, a notice of the change of
investment policy will be sent to the OWNER. Within 60 days after receipt of the
notice, or within 60 days after the effective date of the change, if later, the
POLICY may be exchanged for a new policy of fixed-benefit insurance on the
INSURED'S life. The conditions for such exchange and the specifications for the
new policy are the same as those for an exchange of policy before the second
anniversary, as described above.
The exchange of the policy for a new policy may have federal tax implications.
(See Federal tax matters, pages 14-17).
CHANGES IN AMOUNT OF INSURANCE COVERAGE. The OWNER may request to increase the
SPECIFIED AMOUNT anytime during the first two years or decrease the SPECIFIED
AMOUNT at any time. The SPECIFIED AMOUNT may not be increased after the second
anniversary of the POLICY. The request for such a change must be from the OWNER
and in writing on a form suitable to Lincoln Life. Any request for an increase
must be applied for on a supplemental application during the first two policy
years; other evidence of insurability will not be required for the increase. The
total of all requested increases may not exceed the lesser of 10% of the initial
SPECIFIED AMOUNT or $25,000. Any increase will become effective on the first
MONTHLY ANNIVERSARY DAY on or next following the date the application for the
increase is approved. All rights to return or exchange the POLICY will apply
anew to the amount of the increase. 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 $10,000.
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
cost of insurance for the first month.
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 rate shown on the POLICY schedule on any
outstanding loan amount;
d. Any net premiums received since the preceding day.
Minus the sum of the following:
e. Any decrease due to NET INVESTMENT RESULTS in the value of the SUBACCOUNTS
to which the INVESTMENT AMOUNT is allocated;
f. Any amount charged against the INVESTMENT AMOUNT for federal or other
governmental income taxes;
g. The cost of insurance for the following month.
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 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 rate shown on the POLICY schedule on any
outstanding loan amount;
d. Any net premiums received since the preceding day.
Minus the sum of the following:
e. Any decrease due to NET INVESTMENT RESULTS in the value of the SUBACCOUNTS
to which the INVESTMENT AMOUNT is allocated;
f. 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, page 6.
NET INVESTMENT RESULTS. The NET INVESTMENT RESULTS are the changes in the unit
values of the subaccounts from the previous valuation day to the current day.
The NET
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INVESTMENT RESULTS are equal to the per unit change in the market value of each
FUND'S assets, reduced by the per unit share of the asset management charge, any
miscellaneous expenses incurred by the FUND, the mortality and expense risk
charge, the GUARANTEED DEATH BENEFIT charge, and the administrative charge, for
the period, and increased by the per unit share of any dividends credited to the
subaccount by the FUND during the period.
The charges listed above are explained further in Charges against the separate
account, page 7.
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
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 transfer 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 transfer,
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 in writing or by telephone is received at the Home
Office of Lincoln Life. The minimum amount which may be transferred between
subaccounts is $100. The maximum number of transfers allowed in a policy year is
twelve.
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, page
14.)
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, pages 14-17.)
LOAN AMOUNT. The amount of all outstanding loans with interest may not exceed
the POLICY VALUE less SURRENDER CHARGE 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 less SURRENDER CHARGE, 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, page 11.) In addition, the presence of any outstanding
policy loan negates the GUARANTEED DEATH BENEFIT.
LOAN INTEREST. Interest on any loan will be payable annually in arrears at an
annual rate of 6.0%. 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. The amount of any loan or unpaid loan
interest will be deducted from the INVESTMENT AMOUNT and transferred to the
Lincoln Life GENERAL ACCOUNT, where it will earn interest at the then currently
declared annual rate, which may not be less than the annual rate of 4.0%. The
current annual rate is 6.0%. 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. Ordinarily, the amount of any loan or
unpaid loan interest will be deducted from the subaccounts in proportion to the
values of 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.
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.
POLICY LAPSE AND REINSTATEMENT
Insurance coverage under the POLICY will be continued in force until the NET
CASH SURRENDER VALUE is insufficient to cover the monthly deductions, except
that the POLICY will not be continued beyond the MATURITY DATE. Lapse will
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only occur when the POLICY VALUE less surrender charges and less outstanding
policy loans is insufficient to cover the cost of insurance 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.
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 NET CASH SURRENDER VALUE will be returned to the OWNER.
If the INSURED dies during 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 SURRENDER CHARGE, minus any outstanding
loan and minus any unpaid loan interest. 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 minus any unpaid 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
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 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 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. The payment option elected,
as well as the time the election is made, may have tax consequences.
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
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validity of the POLICY or defend a claim. These statements are, in the absence
of fraud, 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 the
premiums paid, minus any policy loan, and minus any loan interest due.
If the INSURED commits suicide, while sane or insane, within two years from the
effective date of any increase in insurance or reinstatement, our total
liability with respect to such increase will be its cost of insurance and
monthly charges.
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.
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
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. In
addition, Lincoln Life will provide to policyowners semi-annually, or otherwise
as may be required by regulations under the Investment Company Act of 1940, a
report containing information about the operations of the FUNDS.
Lincoln Life has entered into an agreement with Delaware Management Holdings,
Inc., 2005 Market Street, Philadelphia, PA 19203, to provide accounting services
to the SEPARATE ACCOUNT.
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 B and will be based on assumptions in regard to the death benefit as
may be specified by
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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 attributable to a
premium paid by check may be delayed until such time as the check has cleared
the OWNER'S bank.
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.
The availability of this rider 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.
DISTRIBUTION OF THE POLICY
Lincoln Life intends to offer the POLICY in all jurisdictions where it is
licensed to do business. American Fund Distributors, Inc. (AFD), the principal
underwriter for the POLICIES, is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers (NASD). The principal business address of AFD is 333 S. Hope
Street, 52nd Floor, Los Angeles, California 90071. The principal business
address of Lincoln Life is 1300 South Clinton Street, Fort Wayne, Ind. 46802.
The POLICY will be sold by individuals who, in addition to being licensed as
life insurance agents for Lincoln Life, are also its registered representatives.
The POLICY will also be sold by properly licensed representatives of independent
broker-dealers which in turn have selling agreements with AFD and have been
appropriately licensed by state insurance departments as agents of Lincoln Life.
These representatives ordinarily receive commissions and service fees up to 5.5%
of all premiums paid, plus .25% of accumulated POLICY VALUES in the second
policy year and each year thereafter. The broker-dealer or local agency receives
additional compensation on all premiums paid. In some situations, the
broker-dealer or local agency may elect to share its commission with the
registered representative. Selling representatives may also be eligible for
bonuses and non-cash compensation if certain production levels are reached. All
compensation is paid from Lincoln Life's resources, which include sales charges
made under this POLICY.
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 advisor 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 either of two tests set forth
in section 7702. 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
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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 entered into before October 21, 1988, although there
are no regulations interpreting the manner in which the tests are under section
7702 are to be applied, Lincoln Life believes that such a policy should meet the
definition of a life insurance contract for federal tax purposes. However, an
exchange of a policy entered into before October 21, 1988, or possibly other
changes, might cause such a policy to be treated as entered into after October
20, 1988, and in such circumstances, the policy would be subject to modified
mortality and other expense charge requirements. Accordingly, the OWNER, of a
POLICY entered into before October 21, 1988, should contact a competent tax
advisor before exchanging or making any other change, to such a POLICY to
determine whether the exchange or change would cause the POLICY to be treated as
entered into after October 20, 1988.
With respect to a policy entered into after October 20, 1988, that is issued on
the basis of a standard rate class or a rate involving a lower mortality risk
(i.e., a preferred or preferred plus basis), while there is some uncertainty due
to the limited guidance on the modified section 7702 requirement, Lincoln Life
nonetheless believes that such a policy should meet the section 7702 definition
of a life insurance contract. With respect to a policy entered into after
October 20, 1988, that is issued on a substandard basis (i.e., rate class
involving higher than standard mortality risk), there is even more uncertainty,
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 such 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.
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 each FUND'S
assets may be invested. Lincoln Life does not have control over the American
Variable Insurance Series or its investments. 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. As of the date of
this prospectus, the Treasury Department has issued no guidelines on this
subject, although it has indicated informally that guidelines could limit the
number of underlying funds or the frequency of transfers among those funds. Such
guidelines may apply prospectively only, although retroactive effect is possible
if the guidelines are considered not to embody a new position. 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 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
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 advisor
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.
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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. Because of the premium level contemplated
under the policies, all policies entered into after June 20, 1988 are or may
become modified endowment contracts. 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 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 advisor
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 advisor 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 limitation
and cause the POLICY to become a Modified Endowment Contract. In simplified
terms, the 7-pay limitation is satisfied only if the accumulated premiums paid
under a POLICY do not at any time during the first seven POLICY years exceed the
sum of the equal annual premiums that would have been paid for a similar policy
providing for fully funded benefits at the end of the seven year period. 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" 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, 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 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 is not deductible after 1990. 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. For interest paid or accrued after October 13,
1996, and policies issued
16
<PAGE>
after June 8, 1997, additional rules apply which may reduce or eliminate any
interest deduction. The OWNER should consult a competent tax advisor concerning
the rules and limitations.
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 ACCELERATED BENEFIT ELECTION RIDER. Lincoln Life believes that
any benefits paid under the Accelerated Benefit Election Rider generally will be
excludable from the recipient's income.
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 POLICY.
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 l940 or any
regulation thereunder should be amended or if the present interpretation thereof
should change, and as a result Lincoln Life determines that it is permitted to
vote the 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 SERIES 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
subclassification or investment objective of any of the SERIES of a FUND 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 advisor 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 Commissioner of Insurance 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,
17
<PAGE>
the insurance department of any other state applies the laws of the state of
domicile in determining permissible investments.
SAFEKEEPING OF THE SEPARATE 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 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 material legal or administrative proceedings pending or known to be
contemplated, other then ordinary routine litigation incidental to the business,
to which the SEPARATE ACCOUNT is a party or to which any of its assets are
subject. The principal underwriter, AFD, is not engaged in any material
litigation of any nature.
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of these proceedings are routine
and in the ordinary course of business. In some instances these proceedings
include claims for unspecified or substantial punitive damages and similar types
of relief in addition to amounts for alleged contractual liability or requests
for equitable relief. After consultation with legal counsel and a review of
available facts, it is management's opinion that the ultimate liability, if any,
under these suits will not have a material adverse effect on the financial
position of Lincoln Life.
During the 1990's class action lawsuits alleging sales practices fraud have been
filed against many life insurance companies, and Lincoln Life has not been
immune. Two lawsuits alleging fraud in the sale of interest-sensitive universal
and whole life insurance policies have been filed against Lincoln Life. These
two suits have been filed as class actions, although as of the date of this
Prospectus the court had not certified a class in either case. Plaintiffs seek
unspecified damages and penalties for themselves and on behalf of the putative
class. Although the relief sought in these cases is substantial, the cases are
in the early stages of litigation, and it is premature to make assessments about
potential loss, if any. Management denies the allegations and intends to defend
these suits vigorously. The amount of liability, if any, which may arise as a
result of these suits (exclusive of any indemnification from professional
liability insurers) cannot be reasonably estimated at this time.
EXPERTS
The financial statements of the SEPARATE ACCOUNT and the statutory-basis
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 which also appear elsewhere in this
document and in the registration statement. The financial statements and
schedules audited by Ernst & Young LLP have been included in this document in
reliance on their reports given on their authority 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.
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organizations.
Lincoln Life, as part of its year 2000 updating process, is responsible for the
updating of the SEPARATE ACCOUNT related computer systems. An affiliate of
Lincoln Life, Delaware Service Company (Delaware), provides substantially all of
the necessary accounting and valuation services for the SEPARATE ACCOUNT.
Delaware, for its part, is responsible for updating all of its computer systems,
including those which service the SEPARATE ACCOUNT, to accommodate the year
2000. Lincoln Life and Delaware have begun formal discussions with each other to
assess the requirements for their respective systems to interface properly in
order to facilitate the accurate and orderly operation of the SEPARATE ACCOUNT
beginning in the year 2000.
The year 2000 issue is pervasive and complex and affects virtually every aspect
of the businesses of both Lincoln Life and Delaware (the Companies). The
computer systems of the Companies and their interfaces
18
<PAGE>
with the computer systems of vendors, suppliers, customers and other business
partners are particularly vulnerable. The inability to properly recognize
date-sensitive electronic information and to transfer data between systems could
cause errors or even complete failure of systems, which would result in a
temporary inability to process transactions correctly and engage in normal
business activities for the SEPARATE ACCOUNT. The Companies respectively are
redirecting significant portions of their internal information technology
efforts and are contracting, as needed, with outside consultants to help update
their systems to accommodate the year 2000. Also, in addition to the discussions
with each other noted above, the Companies have respectively initiated formal
discussions with other critical parties that interface with their systems to
gain an understanding of the progress by those parties in addressing year 2000
issues. While the companies are making substantial efforts to address their own
systems and the systems with which they interface, it is not possible to provide
assurance that operational problems will not occur. The companies presently
believe that, with the modification of existing computer systems, updates by
vendors and conversion to new software and hardware, the year 2000 issue will
not pose significant operations problems for their respective computer systems.
In addition, the Companies are incorporating potential issues surrounding year
2000 into their contingency planning process, in the event that, despite these
substantial efforts, there are unresolved year 2000 problems. If the remediation
efforts noted above are not completed timely or properly, the year 2000 issue
could have a material adverse impact on the operation of the business of Lincoln
Life or Delaware or both.
The cost of addressing year 2000 issues and the timeliness of completion will be
closely monitored by management of the respective Companies and, for each
company, will be based on its management's best estimates which are derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. Nevertheless, there can be no guarantee either by Lincoln Life or by
Delaware that estimated costs will be achieved, and actual results could differ
significantly from those anticipated. Specific factors that might cause such
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer problems, and other uncertainties.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of l933, 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 this 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.
19
<PAGE>
APPENDIX A
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>
NANCY J. ALFORD Vice President [4/96-present], (formerly Second
VICE PRESIDENT Vice President [1/90-4/96], Lincoln National
Life Insurance Co.
- ------------------
ROLAND C. BAKER President [1/95-present], First Penn-Pacific
VICE PRESIDENT AND Life Insurance Co. Formerly: Chairman and CFO
DIRECTOR [7/88-1/95], Baker, Ralish, Shipley & Politzer,
1801 S. Meyers Inc.
Road
Oakbrook Terrace,
Ill. 60181
- ------------------
JON A. BOSCIA President and Director, Lincoln National Corp.
DIRECTOR [1/98-present] (Formerly: President and Chief
Executive Officer [10/96-1/98]); Chief
Operating Officer [5/94-10/96]), Lincoln
National Life Insurance Co., President
[7/91-5/94] Lincoln Investment Management Inc.
- ------------------
JOHN GOTTA Vice President and General Manager
VICE PRESIDENT [1/98-present] Formerly: Senior Vice President,
900 Cottage Grove CIGNA [3/96-12/97]; Vice President, Connecticut
Rd. Mutual Life Insurance Company [8/94-3/96]; Vice
Bloomfield, CT President, CIGNA [3/93-8/94]; Regional Director
06152-2321 of Agencies, Phoenix-Home Life Mutual Insurance
Company [3/90-2/93]
- ------------------
MELANIE T. HALL Vice President [1/96-present] Formerly: Second
VICE PRESIDENT Vice President [6/95-1/96], Lincoln National
Life Insurance Co. Formerly: Assistant Vice
President [1/95-6/95], LNC Equity Sales
Corporation, Assistant Vice President
[12/93-1/95], Lincoln Investment Management,
Inc.; Assistant Vice President [12/92-12/93],
Lincoln National Life Insurance Co.
- ------------------
J. MICHAEL HEMP President [11/96-present], Lincoln Financial
VICE PRESIDENT Advisors Corp.; Vice President [10/95-Present],
Lincoln National Life Insurance Co. Formerly:
Regional Chief Executive Officer [11/79-10/95],
Lincoln Dallas RMO.
- ------------------
JACK D. HUNTER Executive Vice President [5/86-present] and
EXECUTIVE VICE General Counsel [3/75-Present], Lincoln
PRESIDENT, National Corporation and Executive Vice
GENERAL COUNSEL President [8/86-Present] and General Counsel
AND DIRECTOR [3/75-Present], The Lincoln National Life
200 East Berry Insurance Company
Street
Fort Wayne, Ind.
46802
- ------------------
STEPHEN H. LEWIS Senior Vice President, [5/94-present] Lincoln
VICE PRESIDENT National Life Insurance Co. Formerly: President
[2/85-5/94], First Penn-Pacific Life Insurance
Co.
- ------------------
H. THOMAS MCMEEKIN President [5/94-present], Lincoln Investment
DIRECTOR Management, Inc. Formerly: Executive Vice
200 East Berry President [2/92-11/92], Senior Vice President
Street [11/87-2/92]; Executive Vice President
Fort Wayne, Ind. [5/94-Present], Lincoln National Corporation
46802 Formerly: Senior Vice President [11/92-5/94]
- ------------------
IAN M. ROLLAND Chairman [1/92-present], Chief Executive
DIRECTOR Officer [5/77-present] and President
200 East Berry [12/75-1/92], Lincoln National Corp. Formerly:
Street Chairman [1/92-5/94], Chief Executive Officer
Fort Wayne, Ind. [7/77-5/94] and President [3/83-1/93], Lincoln
46802 National Life Insurance Co.
- ------------------
ARTHUR S. ROSS Vice President [8/91-present], Lincoln National
VICE PRESIDENT Life Insurance Co.
- ------------------
</TABLE>
20
<PAGE>
APPENDIX A CONTINUED
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S)
WITH APPLICANT* PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -------------------------------------------------------------------
<S> <C>
LAWRENCE T. Executive Vice President [10/96-present]
ROWLAND Formerly: Senior Vice President [1/93-10/96],
EXECUTIVE VICE Vice President [10/91-1/93], Lincoln National
PRESIDENT AND Life Insurance Co.
DIRECTOR
One Reinsurance
Place
1700 Magnavox Way
Fort Wayne, Ind.
46804
- ------------------
KEITH J. RYAN Senior Vice President Formerly Vice President,
SENIOR VICE Chief Financial Officer and Assistant Treasurer
PRESIDENT, CHIEF [1/96-present] Formerly: Controller
FINANCIAL OFFICER [6/95-12/95], Business Controls Director
AND ASSISTANT [11/90-6/95], Lincoln National Life Insurance
TREASURER Co.
- ------------------
GABRIEL L. SHAHEEN President and Chief Executive Officer
PRESIDENT, CHIEF [1/98-present] Formerly: Chairman and Managing
EXECUTIVE OFFICER Director, Lincoln National (UK) PLC
AND DIRECTOR [12/96-1/98]; President, Lincoln National
Reassurance Company [7/95-12/96]; Senior Vice
President, Lincoln National Life Reinsurance
Company [1/93-7/95]; Senior Vice President,
Lincoln National Life Insurance Company
[5/91-1/93]
- ------------------
RICHARD C. VAUGHAN Executive Vice President and Chief Financial
DIRECTOR Officer [1/95-present] Formerly: Senior Vice
200 East Berry President [6/92-1/95]), Lincoln National Corp.
Street
Fort Wayne, Ind.
46802
- ------------------
MICHAEL R. WALKER Vice President [1/96-present], Lincoln National
VICE PRESIDENT Life Insurance Co. Formerly: Vice President
[3/96-1/96], Employers Health Insurance Co.;
Vice President [7/85-3/93], Baker Hughes, Inc.
- ------------------
ROY V. WASHINGTON Vice President [7/96-present], Lincoln National
VICE PRESIDENT Life Insurance Co. Formerly: Associate Counsel
[2/95-7/96]. Formerly: Director of Compliance
[8/94-2/95], Lincoln Investment Management,
Inc.; Compliance Consultant [8/89-8/94],
Lincoln National Corp.
- ------------------
MICHAEL L. WRIGHT Senior Vice President [3/95-present], Lincoln
SENIOR VICE National Life Insurance Co. Formerly: Executive
PRESIDENT Vice President and Chief Operating Officer
[11/88-3/95], The Associate Group.
</TABLE>
*Unless otherwise indicated, the principal business address is 1300 South
Clinton Street, Fort Wayne, Indiana 46801.
21
<PAGE>
APPENDIX B
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 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 a different
classification was 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 cost of insurance
charges are deducted. Although the contract allows for maximum cost of insurance
charges specified in the l980 Commissioners Standard Ordinary Mortality Table,
Lincoln Life expects that it will continue to charge the current cost of
insurance charges 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 cost of insurance charges were
deducted. However, these are primarily of interest only to show by comparison
the benefits of the lower current cost of insurance charges.
In each of the illustrations an assumed gross annual return is indicated. The
gross annual return used in the illustrations is then reduced by the asset
management charge (current average .53%), the mortality and expense risk charge
(.85% for the first 10 policy years and .75% thereafter), the administrative
charge (.30% for the first 10 policy years and .10% thereafter), the GUARANTEED
DEATH BENEFIT charge (.10% for the first 10 policy years and 0% thereafter), and
other expenses incurred by the FUNDS including printing, mailing, Directors'
fees, etc. (current average .03%) so that the actual numbers in the
illustrations are net of expenses. Thus, for the first 10 policy years a 12%
gross annual return yields a net annual return of 9.99%; a 6% gross annual
return yields a net annual return of 4.10%; and a 0% gross annual return yields
a net annual return of -1.79%. Thereafter, a 12% gross annual return yields a
net annual return of 10.43%; a 6% gross annual return yields a net annual return
of 4.52%; and a 0% gross annual return yields a net annual return of -1.40%.
22
<PAGE>
AMERICAN LEGACY LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35
$132,250 SPECIFIED AMOUNT
$25,000 INITIAL PREMIUM USING CURRENT PREFERRED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1 $ 26,250 $132,500 $132,500 $132,500 $24,336 $25,803 $ 27,270 $22,086 $23,553 $ 25,020
2 27,562 132,500 132,500 132,500 23,669 26,627 29,758 21,544 24,502 27,633
3 28,941 132,500 132,500 132,500 23,000 27,474 32,488 21,000 25,474 30,488
4 30,388 132,500 132,500 132,500 22,315 28,332 35,473 20,565 26,582 33,723
5 31,907 132,500 132,500 132,500 21,615 29,202 38,740 20,115 27,702 37,240
- ------
6 33,502 132,500 132,500 132,500 20,899 30,085 42,320 19,649 28,835 41,070
7 35,178 132,500 132,500 132,500 20,167 30,982 46,247 19,167 29,982 45,247
8 36,936 132,500 132,500 132,500 19,419 31,894 50,560 18,669 31,144 49,810
9 38,783 132,500 132,500 132,500 18,655 32,822 55,300 18,155 32,322 54,800
10 40,722 132,500 132,500 134,318 17,862 33,756 60,504 17,612 33,506 60,254
- ------
15 51,973 132,500 132,500 184,849 13,731 39,348 96,779 13,731 39,348 96,779
20 66,332 132,500 132,500 242,771 8,156 45,123 154,631 8,156 45,123 154,631
25 84,659 132,500 132,500 332,125 271 50,735 247,854 271 50,735 247,854
30 108,049 * 0 132,500 485,543 * 0 55,478 397,986 * 0 55,478 397,986
</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 gross annual 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. All
values are net of the following charges: administration = .30% first 10 years,
then .10%; asset management = .53% (average) all years; guaranteed death benefit
= .10% first 10 years only, then 0%; mortality and expense risk = .85% first 10
years, then .75%; and miscellaneous expense = .03% all years. Values illustrated
are also net of cost of insurance charges.
* Please refer to the Guaranteed Minimum Death
Benefit provision.
23
<PAGE>
AMERICAN LEGACY LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35
$132,250 SPECIFIED AMOUNT
$25,000 INITIAL PREMIUM USING CURRENT STANDARD CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
1 $ 26,250 $132,500 $132,500 $132,500 $24,323 $25,789 $ 27,256 $22,073 $23,539 $ 25,006
2 27,562 132,500 132,500 132,500 23,643 26,600 29,730 21,518 24,475 27,605
3 28,941 132,500 132,500 132,500 22,962 27,433 32,444 20,962 25,433 30,444
4 30,388 132,500 132,500 132,500 22,265 28,276 35,412 20,515 26,526 33,662
5 31,907 132,500 132,500 132,500 21,552 29,131 38,661 20,052 27,631 37,161
------
6 33,502 132,500 132,500 132,500 20,824 29,999 42,221 19,574 28,749 40,971
7 35,178 132,500 132,500 132,500 20,080 30,879 46,127 19,080 29,879 45,127
8 36,936 132,500 132,500 132,500 19,320 31,775 50,417 18,570 31,025 49,667
9 38,783 132,500 132,500 132,500 18,531 32,673 55,122 18,031 32,173 54,622
10 40,722 132,500 132,500 133,840 17,712 33,576 60,288 17,462 33,326 60,038
------
15 51,973 132,500 132,500 183,899 13,409 38,949 96,282 13,409 38,949 96,282
20 66,332 132,500 132,500 241,154 7,569 44,376 153,601 7,569 44,376 153,601
25 84,659 * 0 132,500 329,117 * 0 49,166 245,609 * 0 49,166 245,609
30 108,049 * 0 132,500 479,657 * 0 52,178 393,162 * 0 52,178 393,162
</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 gross annual 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. All values are
net of the following charges: administration = .30% first 10 years, then .10%;
asset management = .53% (average) all years; guaranteed death benefit = .10%
first 10 years only, then 0%; mortality and expense risk = .85% first 10 years,
then .75%; and miscellaneous expense = .03% all years. Values illustrated are
also net of cost of insurance charges.
* Please refer to the Guaranteed Minimum Death
Benefit provision.
24
<PAGE>
AMERICAN LEGACY LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35
$132,250 SPECIFIED AMOUNT
$25,000 INITIAL PREMIUM USING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1 $ 26,250 $132,500 $132,500 $132,500 $24,322 $25,788 $ 27,255 $22,072 $23,538 $ 25,005
2 27,562 132,500 132,500 132,500 23,639 26,596 29,725 21,514 24,471 27,600
3 28,941 132,500 132,500 132,500 22,948 27,419 32,430 20,948 25,419 30,430
4 30,388 132,500 132,500 132,500 22,247 28,257 35,392 20,497 26,507 33,642
5 31,907 132,500 132,500 132,500 21,532 29,109 38,637 20,032 27,609 37,137
- ------
6 33,502 132,500 132,500 132,500 20,801 29,972 42,192 19,551 28,722 40,942
7 35,178 132,500 132,500 132,500 20,051 30,846 46,089 19,051 29,846 45,089
8 36,936 132,500 132,500 132,500 19,279 31,728 50,365 18,529 30,978 49,615
9 38,783 132,500 132,500 132,500 18,483 32,618 55,059 17,983 32,118 54,559
10 40,722 132,500 132,500 133,680 17,660 33,514 60,216 17,410 33,264 59,966
- ------
15 51,973 132,500 132,500 183,623 13,325 38,838 96,138 13,325 38,838 96,138
20 66,332 132,500 132,500 240,756 7,463 44,210 153,348 7,463 44,210 153,348
25 84,659 * 0 132,500 328,529 * 0 48,913 245,171 * 0 48,913 245,171
30 108,049 * 0 132,500 478,757 * 0 51,795 392,424 * 0 51,795 392,424
</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 gross annual 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. All values are
net of the following charges: administration = .30% first 10 years, then .10%;
asset management = .53% (average) all years; guaranteed death benefit = .10%
first 10 years only, then 0%; mortality and expense risk = .85% first 10 years,
then .75%; and miscellaneous expense = .03% all years. Values illustrated are
also net of cost of insurance charges.
* Please refer to the Guaranteed Minimum Death
Benefit provision.
25
<PAGE>
AMERICAN LEGACY LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
$62,500 SPECIFIED AMOUNT
$25,000 INITIAL PREMIUM USING CURRENT PREFERRED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
---------------------------------- ---------------------------------- ----------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ---------------------------------- ---------------------------------- ----------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 26,250 62,500 62,500 62,500 24,176 25,644 27,111 21,926 23,394 24,861
2 27,562 62,500 62,500 62,500 23,327 26,289 29,427 21,202 24,164 27,302
3 28,941 62,500 62,500 62,500 22,451 26,938 31,973 20,451 24,938 29,973
4 30,388 62,500 62,500 62,500 21,542 27,586 34,778 19,792 25,836 33,028
5 31,907 62,500 62,500 62,500 20,594 28,232 37,872 19,094 26,732 36,372
- ------
6 33,502 62,500 62,500 62,500 19,604 28,876 41,296 18,354 27,626 40,046
7 35,178 62,500 62,500 62,500 18,560 29,511 45,092 17,560 28,511 44,092
8 36,936 62,500 62,500 62,500 17,455 30,135 49,312 16,705 29,385 48,562
9 38,783 62,500 62,500 66,943 16,275 30,741 53,987 15,775 30,241 53,487
10 40,722 62,500 62,500 72,115 15,014 31,330 59,111 14,764 31,080 58,861
15 51,973 62,500 62,500 109,956 7,245 34,637 94,790 7,245 34,637 94,790
20 66,332 * 0 62,500 163,038 * 0 37,117 152,372 * 0 37,117 152,372
25 84,659 * 0 62,500 258,636 * 0 36,916 246,320 * 0 36,916 246,320
30 108,049 * 0 62,500 414,533 * 0 29,741 394,793 * 0 29,741 394,793
</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 gross annual 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. All values are
net of the following charges: administration = .30% first 10 years, then .10%;
asset management = .53% (average) all years; guaranteed death benefit = .10%
first 10 years only, then 0%; mortality and expense risk = .85% first 10 years,
then .75%; and miscellaneous expense = .03% all years. Values illustrated are
also net of cost of insurance charges.
* Please refer to the Guaranteed Minimum Death
Benefit provision.
26
<PAGE>
AMERICAN LEGACY LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
$62,500 SPECIFIED AMOUNT
$25,000 INITIAL PREMIUM USING CURRENT STANDARD CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
---------------------------------- ---------------------------------- ----------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ---------------------------------- ---------------------------------- ----------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 $ 26,250 $62,500 $62,500 $ 62,500 $24,145 $ 25,612 $ 27,079 $21,895 $23,362 $ 24,829
2 27,562 62,500 62,500 62,500 23,259 26,220 29,356 21,134 24,095 27,231
3 28,941 62,500 62,500 62,500 22,336 26,821 31,854 20,336 24,821 29,854
4 30,388 62,500 62,500 62,500 21,370 27,411 34,601 19,620 25,661 32,851
5 31,907 62,500 62,500 62,500 20,358 27,991 37,631 18,858 26,491 36,131
- ------
6 33,502 62,500 62,500 62,500 19,288 28,554 40,980 18,038 27,304 39,730
7 35,178 62,500 62,500 62,500 18,156 29,100 44,695 17,156 28,100 43,695
8 36,936 62,500 62,500 62,500 16,944 29,618 48,827 16,194 28,868 48,077
9 38,783 62,500 62,500 66,236 15,636 30,100 53,416 15,136 29,600 52,916
10 40,722 62,500 62,500 71,303 14,221 30,541 58,445 13,971 30,291 58,195
- ------
15 51,973 62,500 62,500 108,281 5,139 32,669 93,345 5,139 32,669 93,345
20 66,332 * 0 62,500 159,825 * 0 32,472 149,370 * 0 32,472 149,370
25 84,659 * 0 62,500 252,835 * 0 26,217 240,795 * 0 26,217 240,795
30 108,049 * 0 62,500 404,160 * 0 3,544 384,914 * 0 3,544 384,914
</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 gross annual 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. All
values are net of the following charges: administration = .30% first 10 years,
then .10%; asset management = .53% (average) all years; guaranteed death benefit
= .10% first 10 years only, then 0%; mortality and expense risk = .85% first 10
years, then .75%; and miscellaneous expense = .03% all years. Values illustrated
are also net of cost of insurance charges.
* Please refer to the Guaranteed Minimum Death
Benefit provision.
27
<PAGE>
AMERICAN LEGACY LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
$62,500 SPECIFIED AMOUNT
$25,000 INITIAL PREMIUM USING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
---------------------------------- ---------------------------------- ----------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ---------------------------------- ---------------------------------- ----------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 $ 26,250 $62,500 $62,500 $ 62,500 $24,143 $25,610 $ 27,077 $21,893 $23,360 $ 24,827
2 27,562 62,500 62,500 62,500 23,253 26,214 29,350 21,128 24,089 27,225
3 28,941 62,500 62,500 62,500 22,328 26,812 31,845 20,328 24,812 29,845
4 30,388 62,500 62,500 62,500 21,360 27,400 34,590 19,610 25,650 32,840
5 31,907 62,500 62,500 62,500 20,345 27,978 37,617 18,845 26,478 36,117
- ------
6 33,502 62,500 62,500 62,500 19,274 28,539 40,963 18,024 27,289 39,713
7 35,178 62,500 62,500 62,500 18,137 29,080 44,675 17,137 28,080 43,675
8 36,936 62,500 62,500 62,500 16,921 29,593 48,802 16,171 28,843 48,052
9 38,783 62,500 62,500 66,201 15,611 30,072 53,388 15,111 29,572 52,888
10 40,722 62,500 62,500 71,264 14,192 30,510 58,413 13,942 30,260 58,163
- ------
15 51,973 62,500 62,500 108,207 5,065 32,593 93,282 5,065 32,593 93,282
20 66,332 * 0 62,500 159,696 * 0 32,302 149,248 * 0 32,302 149,248
25 84,659 * 0 62,500 252,533 * 0 25,554 240,508 * 0 25,554 240,508
30 108,049 * 0 0 402,839 * 0 0 383,656 * 0 0 383,656
</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 gross annual 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. All values are
net of the following charges: administration = .30% first 10 years, then .10%;
asset management = .53% (average) all years; guaranteed death benefit = .10%
first 10 years only, then 0%; mortality and expense risk = .85% first 10 years,
then .75%; and miscellaneous expense = .02% all years. Values illustrated are
also net of cost of insurance charges.
* Please refer to the Guaranteed Minimum Death
Benefit provision.
28
<PAGE>
APPENDIX C
DEFINITIONS FOR SEPARATE ACCOUNT F
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.
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.
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.
FUND -- Any of the FUNDS in which the SEPARATE ACCOUNT may invest; currently,
the American Variable Insurance Series is available.
GENERAL ACCOUNT -- The assets of LINCOLN LIFE other than those allocated to the
SEPARATE ACCOUNT or any other Separate Account.
GUARANTEED DEATH BENEFIT -- The death benefit protection provided by Lincoln
Life on the life of the INSURED if NET CASH SURRENDER VALUE has been reduced to
zero and if there are no outstanding POLICY loans.
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 any outstanding loans.
ISSUE PREMIUM -- The total premium required to be paid to issue the POLICY.
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.
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 minus any unpaid loan interest.
NET INVESTMENT RESULTS -- The NET INVESTMENT RESULTS are the changes in the unit
values of the subaccounts from the previous valuation day to the current day.
The NET INVESTMENT RESULTS are equal to the per unit change in the market value
of each FUND'S assets, reduced by the per unit share of the asset management
charge, the GUARANTEED DEATH BENEFIT charge, and the administrative charge, any
miscellaneous expenses incurred by the FUND, the mortality and expense risk
charge for the period, and increased by the per unit share of any dividends
credited to the subaccount by the FUND during the period.
OPTION DATE -- Any date the POLICY terminates under the termination provision.
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 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 Cash Management FUND to the
various SUBACCOUNTS.
SEPARATE ACCOUNT -- The Lincoln Life Flexible Premium Variable Life Account F, a
SEPARATE ACCOUNT established by Lincoln Life to receive and invest net premiums
paid under the POLICY.
SERIES -- Any of the SERIES in which the SEPARATE ACCOUNT may invest; currently,
the sole SERIES is American Variable Insurance Series.
29
<PAGE>
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.
UNIT -- An accounting unit of measure used to calculate the value of an
investment in a specified SUBACCOUNT.
UNIT VALUE -- The dollar value of a UNIT in a specified subaccount on a
specified valuation date.
30
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
31
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT CASH HIGH-YIELD
OF NET BOND MANAGEMENT BOND
ASSETS COMBINED ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
Investments in American Variable
Insurance Series at net asset value:
- Bond Fund
14,847 shares at $10.43 per share
(cost-$152,595) 0.2% $ 154,859 $ 154,859
- ---------------------------------------
- Cash Management Fund
314,146 shares at $11.01 per share
(cost-$3,488,584) 5.1% 3,458,753 $3,458,753
- ---------------------------------------
- High-Yield Bond Fund
276,851 shares at $14.66 per share
(cost-$3,906,531) 6.0% 4,058,643 $ 4,058,643
- ---------------------------------------
- Growth-Income Fund
702,472 shares at $36.42 per share
(cost-$20,306,455) 37.7% 25,584,025
- ---------------------------------------
- Growth Fund
441,553 shares at $44.98 per share
(cost-$15,926,222) 29.2% 19,861,070
- ---------------------------------------
- U.S. Government/AAA-Rated
Securities Fund
340,282 shares at $11.10 per share
(cost-$3,752,289) 5.6% 3,777,130
- ---------------------------------------
- International Fund
478,094 shares at $14.48 per share
(cost-$6,963,103) 10.2% 6,922,805
- ---------------------------------------
- Asset Allocation Fund
249,826 shares at $15.32 per share
(cost-$3,621,505) 5.6% 3,827,339
- ---------------------------------------
- Global Growth Fund
27,480 shares at $10.78 per share
(cost-$298,173) 0.4% 296,235
- --------------------------------------- ------- ------------ --------- ----------- -----------
TOTAL ASSETS
(Cost-$58,415,457) 100.0% 67,940,859 154,859 3,458,753 4,058,643
- ---------------------------------------
LIABILITY --
Payable to Lincoln National Life
Insurance Company 0.0% 2,317 5 118 139
- --------------------------------------- ------- ------------ --------- ----------- -----------
NET ASSETS 100.0% $ 67,938,542 $ 154,854 $3,458,635 $ 4,058,504
- --------------------------------------- ------- ------------ --------- ----------- -----------
------- ------------ --------- ----------- -----------
UNITS OUTSTANDING 132,562 2,300,083 1,455,005
- --------------------------------------- --------- ----------- -----------
--------- ----------- -----------
NET ASSET VALUE PER UNIT $ 1.168 $ 1.504 $ 2.789
- --------------------------------------- --------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying Notes to financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
GROWTH- AAA-RATED ASSET GLOBAL
INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in American Variable
Insurance Series at net asset value:
- Bond Fund
14,847 shares at $10.43 per share
(cost-$152,595)
- ---------------------------------------
- Cash Management Fund
314,146 shares at $11.01 per share
(cost-$3,488,584)
- ---------------------------------------
- High-Yield Bond Fund
276,851 shares at $14.66 per share
(cost-$3,906,531)
- ---------------------------------------
- Growth-Income Fund
702,472 shares at $36.42 per share
(cost-$20,306,455) $ 25,584,025
- ---------------------------------------
- Growth Fund
441,553 shares at $44.98 per share
(cost-$15,926,222) $ 19,861,070
- ---------------------------------------
- U.S. Government/AAA-Rated
Securities Fund
340,282 shares at $11.10 per share
(cost-$3,752,289) $3,777,130
- ---------------------------------------
- International Fund
478,094 shares at $14.48 per share
(cost-$6,963,103) $6,922,805
- ---------------------------------------
- Asset Allocation Fund
249,826 shares at $15.32 per share
(cost-$3,621,505) $ 3,827,339
- ---------------------------------------
- Global Growth Fund
27,480 shares at $10.78 per share
(cost-$298,173) $ 296,235
- --------------------------------------- ------------ ------------ ------------ -------------- ------------ ----------
TOTAL ASSETS
(Cost-$58,415,457) 25,584,025 19,861,070 3,777,130 6,922,805 3,827,339 296,235
- ---------------------------------------
LIABILITY --
Payable to Lincoln National Life
Insurance Company 866 673 129 246 131 10
- --------------------------------------- ------------ ------------ ------------ -------------- ------------ ----------
NET ASSETS $ 25,583,159 $ 19,860,397 $3,777,001 $6,922,559 $ 3,827,208 $ 296,225
- --------------------------------------- ------------ ------------ ------------ -------------- ------------ ----------
------------ ------------ ------------ -------------- ------------ ----------
UNITS OUTSTANDING 6,784,360 4,606,675 1,923,768 3,749,845 1,802,720 275,099
- --------------------------------------- ------------ ------------ ------------ -------------- ------------ ----------
------------ ------------ ------------ -------------- ------------ ----------
NET ASSET VALUE PER UNIT $ 3.771 $ 4.311 $ 1.963 $ 1.846 $ 2.123 $ 1.077
- --------------------------------------- ------------ ------------ ------------ -------------- ------------ ----------
------------ ------------ ------------ -------------- ------------ ----------
</TABLE>
33
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CASH
BOND MANAGEMENT
COMBINED ACCOUNT ACCOUNT
<S> <C> <C> <C>
- --------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Net investment income:
- Dividends from investment income $ 1,252,832 -- $125,603
- ---------------------------------------
- Dividends from net realized gain on
investments 1,586,142 -- 0
- ---------------------------------------
- Mortality and expense risk charge (442,101) -- (27,945)
- --------------------------------------- ----------- ------- -----------
NET INVESTMENT INCOME 2,396,873 -- 97,658
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain on investments 527,229 -- 8,545
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 4,708,861 -- (13,686)
- --------------------------------------- ----------- ------- -----------
NET GAIN (LOSS) ON INVESTMENTS 5,236,090 -- (5,141)
- --------------------------------------- ----------- ------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 7,632,963 -- $ 92,517
- --------------------------------------- ----------- ------- -----------
----------- ------- -----------
YEAR ENDED DECEMBER 31, 1996
Net investment income:
- Dividends from investment income $ 1,278,281 $ 1,617 $158,350
- ---------------------------------------
- Dividends from net realized gain on
investments 2,577,711 0 0
- ---------------------------------------
- Mortality and expense risk charge (540,498) (257) (39,817)
- --------------------------------------- ----------- ------- -----------
NET INVESTMENT INCOME 3,315,494 1,360 118,533
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain on investments 1,163,196 1,419 10,778
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 833,877 (2) (11,163)
- --------------------------------------- ----------- ------- -----------
NET GAIN (LOSS) ON INVESTMENTS 1,997,073 1,417 (385)
- --------------------------------------- ----------- ------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 5,312,567 $ 2,777 $118,148
- --------------------------------------- ----------- ------- -----------
----------- ------- -----------
YEAR ENDED DECEMBER 31, 1997
Net investment income:
- Dividends from investment income $ 1,550,226 $ 7,378 $210,279
- ---------------------------------------
- Dividends from net realized gain on
investments 5,730,418 1,765 0
- ---------------------------------------
- Mortality and expense risk charge (739,534) (1,411) (51,918)
- --------------------------------------- ----------- ------- -----------
NET INVESTMENT INCOME 6,541,110 7,732 158,361
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain (loss) on
investments 1,463,015 222 6,491
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 2,258,647 2,266 (7,991)
- --------------------------------------- ----------- ------- -----------
NET GAIN (LOSS) ON INVESTMENTS 3,721,662 2,488 (1,500)
- --------------------------------------- ----------- ------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $10,262,772 $10,220 $156,861
- --------------------------------------- ----------- ------- -----------
----------- ------- -----------
</TABLE>
See accompanying Notes to financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
HIGH-YIELD GROWTH- AAA-RATED ASSET
BOND INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Net investment income:
- Dividends from investment income $332,900 $ 318,849 $ 84,892 $ 277,020 $ 66,376 $ 47,192
- ---------------------------------------
- Dividends from net realized gain on
investments 0 559,151 919,940 0 59,299 47,752
- ---------------------------------------
- Mortality and expense risk charge (42,751) (153,973) (122,795) (47,668) (32,274) (14,695)
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET INVESTMENT INCOME 290,149 724,027 882,037 229,352 93,401 80,249
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain on investments 2,863 148,499 338,085 12,456 14,231 2,550
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 330,754 2,434,036 1,331,301 255,811 168,842 201,803
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET GAIN (LOSS) ON INVESTMENTS 333,617 2,582,535 1,669,386 268,267 183,073 204,353
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $623,766 $ 3,306,562 $ 2,551,423 $ 497,619 $276,474 $ 284,602
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
----------- ----------- ----------- ------------ -------------- -----------
YEAR ENDED DECEMBER 31, 1996
Net investment income:
- Dividends from investment income $305,128 $ 344,882 $ 75,047 $ 254,325 $ 75,494 $ 63,438
- ---------------------------------------
- Dividends from net realized gain on
investments 0 1,285,259 973,370 0 192,271 126,811
- ---------------------------------------
- Mortality and expense risk charge (42,312) (194,093) (152,717) (42,257) (48,336) (20,709)
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET INVESTMENT INCOME 262,816 1,436,048 895,700 212,068 219,429 169,540
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain on investments 79,255 389,876 586,803 9,685 44,775 40,605
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 60,180 673,953 (64,090) (161,672) 320,050 16,621
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET GAIN (LOSS) ON INVESTMENTS 139,435 1,063,829 522,713 (151,987) 364,825 57,226
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $402,251 $ 2,499,877 $ 1,418,413 $ 60,081 $584,254 $ 226,766
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
----------- ----------- ----------- ------------ -------------- -----------
YEAR ENDED DECEMBER 31, 1997
Net investment income:
- Dividends from investment income $331,279 $ 429,919 $ 95,703 $ 229,241 $135,843 $ 109,245
- ---------------------------------------
- Dividends from net realized gain on
investments 42,064 2,394,172 2,359,562 0 727,603 204,654
- ---------------------------------------
- Mortality and expense risk charge (47,419) (270,306) (205,231) (41,537) (83,012) (37,650)
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET INVESTMENT INCOME 325,924 2,553,785 2,250,034 187,704 780,434 276,249
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain (loss) on
investments 66,410 675,984 389,341 (2,010) 158,689 167,622
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (2,082) 1,384,066 1,361,804 47,345 (550,676) 25,853
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET GAIN (LOSS) ON INVESTMENTS 64,328 2,060,050 1,751,145 45,335 (391,987) 193,475
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $390,252 $ 4,613,835 $ 4,001,179 $ 233,039 $388,447 $ 469,724
- --------------------------------------- ----------- ----------- ----------- ------------ -------------- -----------
----------- ----------- ----------- ------------ -------------- -----------
<CAPTION>
GLOBAL
GROWTH
ACCOUNT
<S> <C>
- ---------------------------------------
YEAR ENDED DECEMBER 31, 1995
Net investment income:
- Dividends from investment income --
- ---------------------------------------
- Dividends from net realized gain on
investments --
- ---------------------------------------
- Mortality and expense risk charge --
- --------------------------------------- ----------
NET INVESTMENT INCOME --
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain on investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments --
- --------------------------------------- ----------
NET GAIN (LOSS) ON INVESTMENTS --
- --------------------------------------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS --
- --------------------------------------- ----------
----------
YEAR ENDED DECEMBER 31, 1996
Net investment income:
- Dividends from investment income --
- ---------------------------------------
- Dividends from net realized gain on
investments --
- ---------------------------------------
- Mortality and expense risk charge --
- --------------------------------------- ----------
NET INVESTMENT INCOME --
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain on investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments --
- --------------------------------------- ----------
NET GAIN (LOSS) ON INVESTMENTS --
- --------------------------------------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS --
- --------------------------------------- ----------
----------
YEAR ENDED DECEMBER 31, 1997
Net investment income:
- Dividends from investment income $ 1,339
- ---------------------------------------
- Dividends from net realized gain on
investments 598
- ---------------------------------------
- Mortality and expense risk charge (1,050)
- --------------------------------------- ----------
NET INVESTMENT INCOME 887
- ---------------------------------------
Net realized and unrealized gain(loss)
on investments:
- Net realized gain (loss) on
investments 266
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (1,938)
- --------------------------------------- ----------
NET GAIN (LOSS) ON INVESTMENTS (1,672)
- --------------------------------------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (785)
- --------------------------------------- ----------
----------
</TABLE>
35
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CASH
BOND MANAGEMENT
COMBINED ACCOUNT ACCOUNT
<S> <C> <C> <C>
- --------------------------------------------------------------------------
NET ASSETS AT JANUARY 1, 1995 $30,719,456 -- $2,604,984
Changes from operations:
- Net investment income 2,396,873 -- 97,658
- ---------------------------------------
- Net realized gain on investments 527,229 -- 8,545
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 4,708,861 -- (13,686 )
- --------------------------------------- ----------- -------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 7,632,963 -- 92,517
- ---------------------------------------
Net increase (decrease) from unit
transactions 1,193,904 -- (199,493 )
- --------------------------------------- ----------- -------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 8,826,867 -- (106,976 )
- --------------------------------------- ----------- -------- ----------
NET ASSETS AT DECEMBER 31, 1995 39,546,323 -- 2,498,008
- ---------------------------------------
Changes from operations:
- Net investment income 3,315,494 $ 1,360 118,533
- ---------------------------------------
- Net realized gain on investments 1,163,196 1,419 10,778
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 833,877 (2) (11,163 )
- --------------------------------------- ----------- -------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 5,312,567 2,777 118,148
- ---------------------------------------
Net increase (decrease) from unit
transactions 4,922,873 55,958 1,448,392
- --------------------------------------- ----------- -------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 10,235,440 58,735 1,566,540
- --------------------------------------- ----------- -------- ----------
NET ASSETS AT DECEMBER 31, 1996 49,781,763 58,735 4,064,548
- --------------------------------------- ----------- -------- ----------
Changes from operations:
- Net investment income 6,541,110 7,732 158,361
- ---------------------------------------
- Net realized gain (loss) on
investments 1,463,015 222 6,491
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 2,258,647 2,266 (7,991 )
- --------------------------------------- ----------- -------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 10,262,772 10,220 156,861
- ---------------------------------------
Net increase (decrease) from unit
transactions 7,894,007 85,899 (762,774 )
- --------------------------------------- ----------- -------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 18,156,779 96,119 (605,913 )
- --------------------------------------- ----------- -------- ----------
NET ASSETS AT DECEMBER 31, 1997 $67,938,542 $154,854 $3,458,635
- --------------------------------------- ----------- -------- ----------
----------- -------- ----------
</TABLE>
See accompanying Notes to financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
HIGH-YIELD GROWTH- AAA-RATED ASSET
BOND INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1, 1995 $2,975,271 $10,478,767 $ 7,702,707 $3,658,018 $2,378,109 $ 921,600
Changes from operations:
- Net investment income 290,149 724,027 882,037 229,352 93,401 80,249
- ---------------------------------------
- Net realized gain on investments 2,863 148,499 338,085 12,456 14,231 2,550
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 330,754 2,434,036 1,331,301 255,811 168,842 201,803
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 623,766 3,306,562 2,551,423 497,619 276,474 284,602
- ---------------------------------------
Net increase (decrease) from unit
transactions 132,619 320,027 947,072 (392,338) 204,677 181,340
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 756,385 3,626,589 3,498,495 105,281 481,151 465,942
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
NET ASSETS AT DECEMBER 31, 1995 3,731,656 14,105,356 11,201,202 3,763,299 2,859,260 1,387,542
- ---------------------------------------
Changes from operations:
- Net investment income 262,816 1,436,048 895,700 212,068 219,429 169,540
- ---------------------------------------
- Net realized gain on investments 79,255 389,876 586,803 9,685 44,775 40,605
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 60,180 673,953 (64,090) (161,672) 320,050 16,621
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 402,251 2,499,877 1,418,413 60,081 584,254 226,766
- ---------------------------------------
Net increase (decrease) from unit
transactions (194,412) 1,217,257 1,139,258 (563,544) 1,462,514 357,450
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 207,839 3,717,134 2,557,671 (503,463) 2,046,768 584,216
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
NET ASSETS AT DECEMBER 31, 1996 3,939,495 17,822,490 13,758,873 3,259,836 4,906,028 1,971,758
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
Changes from operations:
- Net investment income 325,924 2,553,785 2,250,034 187,704 780,434 276,249
- ---------------------------------------
- Net realized gain (loss) on
investments 66,410 675,984 389,341 (2,010) 158,689 167,622
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (2,082) 1,384,066 1,361,804 47,345 (550,676) 25,853
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 390,252 4,613,835 4,001,179 233,039 388,447 469,724
- ---------------------------------------
Net increase (decrease) from unit
transactions (271,243) 3,146,834 2,100,345 284,126 1,628,084 1,385,726
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 119,009 7,760,669 6,101,524 517,165 2,016,531 1,855,450
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
NET ASSETS AT DECEMBER 31, 1997 $4,058,504 $25,583,159 $19,860,397 $3,777,001 $6,922,559 $ 3,827,208
- --------------------------------------- ---------- ----------- ----------- ------------ -------------- ------------
---------- ----------- ----------- ------------ -------------- ------------
<CAPTION>
GLOBAL
GROWTH
ACCOUNT
<S> <C>
- ---------------------------------------
NET ASSETS AT JANUARY 1, 1995 --
Changes from operations:
- Net investment income --
- ---------------------------------------
- Net realized gain on investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments --
- --------------------------------------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS --
- ---------------------------------------
Net increase (decrease) from unit
transactions --
- --------------------------------------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS --
- --------------------------------------- ----------
NET ASSETS AT DECEMBER 31, 1995 --
- ---------------------------------------
Changes from operations:
- Net investment income --
- ---------------------------------------
- Net realized gain on investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments --
- --------------------------------------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS --
- ---------------------------------------
Net increase (decrease) from unit
transactions --
- --------------------------------------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS --
- --------------------------------------- ----------
NET ASSETS AT DECEMBER 31, 1996 --
- --------------------------------------- ----------
Changes from operations:
- Net investment income $ 887
- ---------------------------------------
- Net realized gain (loss) on
investments 266
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (1,938)
- --------------------------------------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (785)
- ---------------------------------------
Net increase (decrease) from unit
transactions 297,010
- --------------------------------------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 296,225
- --------------------------------------- ----------
NET ASSETS AT DECEMBER 31, 1997 $ 296,225
- --------------------------------------- ----------
----------
</TABLE>
37
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
THE SEPARATE ACCOUNT: Lincoln Life Flexible Premium Variable Life Account F
(Separate Account) was established as a segregated investment account of Lincoln
National Life Insurance Company (Lincoln Life) on May 29, 1987. The Separate
Account was registered on November 20, 1987 under the Investment Company Act of
1940, as amended, as a unit investment trust, and commenced investment activity
on January 4, 1988.
INVESTMENTS: The Separate Account invests in the American Variable Insurance
Series (AVIS) which consists of nine funds: Bond Fund, Cash Management Fund,
High-Yield Bond Fund, Growth-Income Fund, Growth Fund, U.S. Government/AAA-Rated
Securities Fund, International Fund, Asset Allocation Fund and Global Growth
Fund (Funds). Investments in the Funds are stated at the closing net asset
values per share on December 31, 1997. AVIS is registered as an open-end
management investment company
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
SEPARATE ACCOUNT CHARGES: Amounts are charged daily to the Separate Account by
Lincoln Life for a mortality and expense risk charge at an annual rate of .85%
of the average daily net asset value of the Separate Account for the first ten
policy years, and .75% for policy years thereafter.
For the first ten policy years, amounts are charged daily to the Separate
Account by Lincoln Life for the guaranteed death benefit at an annual rate of
.10% of the average daily net asset value of the Separate Account.
Amounts are charged daily to the Separate Account by Lincoln Life for an
administrative charge at an annual rate of .30% of the average daily net asset
value of the Separate Account for the first ten policy years and .10% for policy
years thereafter.
OTHER CHARGES: Other charges, which are paid to Lincoln Life by redeeming
Separate Account units, are for the cost of insurance and contingent surrender
charges. These other charges for 1997, 1996 and 1995 amounted to $627,688,
$521,383 and $436,723, respectively.
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.
Surrender charges are deducted if the policy is surrendered during the first ten
policy years. The maximum rate for surrender charges, which decreases by policy
year, ranges from 9% of the total first year premiums paid for surrenders during
the first policy year to 1% for surrenders during the tenth policy year.
38
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
39
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS CONTINUED
3. NET ASSETS
Net Assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
CASH HIGH-YIELD
BOND MANAGEMENT BOND
COMBINED ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Unit transactions $36,535,200 $141,857 $2,666,444 $1,644,117
- ---------------------------------------
Accumulated net investment income 17,211,335 9,092 772,162 1,967,125
- ---------------------------------------
Accumulated net realized gain on
investments 4,666,605 1,641 49,860 295,150
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 9,525,402 2,264 (29,831 ) 152,112
- --------------------------------------- ----------- -------- ---------- ----------
$67,938,542 $154,854 $3,458,635 $4,058,504
----------- -------- ---------- ----------
----------- -------- ---------- ----------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
GROWTH- AAA-RATED ASSET GLOBAL
INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Unit transactions $12,288,995 $ 9,169,754 $2,032,982 $5,495,220 $ 2,798,821 $ 297,010
- ---------------------------------------
Accumulated net investment income 6,415,587 4,617,013 1,616,415 1,208,411 604,643 887
- ---------------------------------------
Accumulated net realized gain on
investments 1,601,007 2,138,782 102,763 259,226 217,910 266
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 5,277,570 3,934,848 24,841 (40,298) 205,834 (1,938)
- --------------------------------------- ----------- ----------- ------------ -------------- ------------ ----------
$25,583,159 $19,860,397 $3,777,001 $6,922,559 $ 3,827,208 $ 296,225
----------- ----------- ------------ -------------- ------------ ----------
----------- ----------- ------------ -------------- ------------ ----------
</TABLE>
41
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
UNITS AMOUNT UNITS AMOUNT
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
BOND ACCOUNT:
Purchases 90,000 $ 99,436 201,450 $ 208,586
- ---------------------------------------
Redemptions (12,123) (13,537) (146,765) (152,628)
- --------------------------------------- ----------- ------------ ---------- -----------
77,877 85,899 54,685 55,958
CASH MANAGEMENT ACCOUNT:
Purchases 14,280,121 21,069,330 10,549,495 15,041,172
- ---------------------------------------
Redemptions (14,787,164) (21,832,104) (9,532,862) (13,592,780)
- --------------------------------------- ----------- ------------ ---------- -----------
(507,043) (762,774) 1,016,633 1,448,392
HIGH-YIELD BOND ACCOUNT:
Purchases 434,944 1,153,178 718,336 1,716,073
- ---------------------------------------
Redemptions (547,819) (1,424,421) (811,050) (1,910,485)
- --------------------------------------- ----------- ------------ ---------- -----------
(112,875) (271,243) (92,714) (194,412)
GROWTH-INCOME ACCOUNT:
Purchases 1,780,296 6,127,582 1,044,112 2,936,929
- ---------------------------------------
Redemptions (869,750) (2,980,748) (621,723) (1,719,672)
- --------------------------------------- ----------- ------------ ---------- -----------
910,546 3,146,834 422,389 1,217,257
GROWTH ACCOUNT:
Purchases 1,087,136 4,236,409 1,276,020 3,987,975
- ---------------------------------------
Redemptions (581,119) (2,136,064) (913,240) (2,848,717)
- --------------------------------------- ----------- ------------ ---------- -----------
506,017 2,100,345 362,780 1,139,258
U.S. GOVERNMENT/AAA-RATED SECURITIES
ACCOUNT:
Purchases 618,910 1,169,963 256,101 450,344
- ---------------------------------------
Redemptions (473,455) (885,837) (568,288) (1,013,888)
- --------------------------------------- ----------- ------------ ---------- -----------
145,455 284,126 (312,187) (563,544)
INTERNATIONAL ACCOUNT:
Purchases 1,718,428 3,191,689 1,277,676 2,014,548
- ---------------------------------------
Redemptions (830,858) (1,563,605) (351,916) (552,034)
- --------------------------------------- ----------- ------------ ---------- -----------
887,570 1,628,084 925,760 1,462,514
ASSET ALLOCATION ACCOUNT:
Purchases 1,366,832 2,757,294 387,503 647,701
- ---------------------------------------
Redemptions (669,283) (1,371,568) (171,729) (290,251)
- --------------------------------------- ----------- ------------ ---------- -----------
697,549 1,385,726 215,774 357,450
GLOBAL GROWTH ACCOUNT:
Purchases 301,971 326,275 -- --
- ---------------------------------------
Redemptions (26,872) (29,265) -- --
- --------------------------------------- ----------- ------------ ---------- -----------
275,099 297,010 0 0
------------ -----------
NET INCREASE FROM UNIT TRANSACTIONS $ 7,894,007 $ 4,922,873
------------ -----------
------------ -----------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
UNITS AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------
BOND ACCOUNT:
Purchases -- --
- ---------------------------------------
Redemptions -- --
- --------------------------------------- ---------- -----------
0 0
CASH MANAGEMENT ACCOUNT:
Purchases 3,219,898 $ 4,417,577
- ---------------------------------------
Redemptions (3,375,836) (4,617,070)
- --------------------------------------- ---------- -----------
(155,938) (199,493)
HIGH-YIELD BOND ACCOUNT:
Purchases 194,024 397,517
- ---------------------------------------
Redemptions (125,874) (264,898)
- --------------------------------------- ---------- -----------
68,150 132,619
GROWTH-INCOME ACCOUNT:
Purchases 523,394 1,210,343
- ---------------------------------------
Redemptions (392,334) (890,316)
- --------------------------------------- ---------- -----------
131,060 320,027
GROWTH ACCOUNT:
Purchases 839,058 2,292,591
- ---------------------------------------
Redemptions (485,162) (1,345,519)
- --------------------------------------- ---------- -----------
353,896 947,072
U.S. GOVERNMENT/AAA-RATED SECURITIES
ACCOUNT:
Purchases 183,394 306,584
- ---------------------------------------
Redemptions (408,679) (698,922)
- --------------------------------------- ---------- -----------
(225,285) (392,338)
INTERNATIONAL ACCOUNT:
Purchases 413,293 577,192
- ---------------------------------------
Redemptions (269,256) (372,515)
- --------------------------------------- ---------- -----------
144,037 204,677
ASSET ALLOCATION ACCOUNT:
Purchases 151,510 206,365
- ---------------------------------------
Redemptions (18,134) (25,025)
- --------------------------------------- ---------- -----------
133,376 181,340
GLOBAL GROWTH ACCOUNT:
Purchases -- --
- ---------------------------------------
Redemptions -- --
- --------------------------------------- ---------- -----------
0 0
-----------
NET INCREASE FROM UNIT TRANSACTIONS $ 1,193,904
-----------
-----------
</TABLE>
43
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
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 1997.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
COST OF PROCEEDS FROM
PURCHASES SALES
<S> <C> <C>
- --------------------------------------------------------------------
Bond Account $ 104,812 $ 11,238
- ---------------------------------------
Cash Management Account 11,738,185 12,346,768
- ---------------------------------------
High-Yield Bond Account 1,430,027 1,379,300
- ---------------------------------------
Growth-Income Account 8,124,651 2,442,070
- ---------------------------------------
Growth Account 6,036,769 1,700,562
- ---------------------------------------
U.S. Government/AAA-Rated Securities
Account 1,357,554 889,062
- ---------------------------------------
International Account 3,808,704 1,404,944
- ---------------------------------------
Asset Allocation Account 3,006,711 1,346,680
- ---------------------------------------
Global Growth Account 319,015 21,108
- --------------------------------------- ----------- --------------
$35,926,428 $21,541,732
----------- --------------
----------- --------------
</TABLE>
6. NEW INVESTMENT FUNDS
Effective January 1, 1996, the AVIS Bond Fund became available as an investment
option for Separate Account contract owners.
Effective April 25, 1997, the AVIS Global Growth Fund became available as an
investment option for Separate Account contract owners.
44
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of Lincoln National Life Insurance Company and
Policyowners of Lincoln National Flexible Premium Variable Life
Account F
We have audited the accompanying statement of net assets of Lincoln
National Flexible Premium Variable Life Account F (Separate Account)
as of December 31, 1997, and the related statements of operations and
changes in net assets for each of the three years in the period then
ended. These financial statements are the responsibility of the
Separate Account's management. Our responsibility is to express an
opinion on these financial statements 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. Our procedures included
confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. 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 financial position of Lincoln
National Flexible Premium Variable Life Account F at December 31,
1997, and the results of its operations and the changes in its net
assets for each of the three years in the period then ended in
conformity with generally accepted accounting principles.
[SIG]
Fort Wayne, Indiana
March 20, 1998
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------- ---------
(IN MILLIONS)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $18,560.7 $19,389.6
- ------------------------------------------------------------------------------------
Preferred stocks 257.3 239.7
- ------------------------------------------------------------------------------------
Unaffiliated common stocks 436.0 358.3
- ------------------------------------------------------------------------------------
Affiliated common stocks 412.1 241.5
- ------------------------------------------------------------------------------------
Mortgage loans on real estate 3,012.7 2,976.7
- ------------------------------------------------------------------------------------
Real estate 584.4 621.3
- ------------------------------------------------------------------------------------
Policy loans 660.5 626.5
- ------------------------------------------------------------------------------------
Other investments 335.5 282.7
- ------------------------------------------------------------------------------------
Cash and short-term investments 2,133.0 759.2
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and investments 26,392.2 25,495.5
- ------------------------------------------------------------------------------------
Premiums and fees in course of collection 42.4 60.9
- ------------------------------------------------------------------------------------
Accrued investment income 343.5 343.6
- ------------------------------------------------------------------------------------
Funds withheld by ceding companies 44.1 25.8
- ------------------------------------------------------------------------------------
Other admitted assets 216.0 355.7
- ------------------------------------------------------------------------------------
Separate account assets 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total admitted assets $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 5,872.9 $ 5,954.0
- ------------------------------------------------------------------------------------
Other policyholder funds 16,360.1 17,262.4
- ------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 878.2 250.2
- ------------------------------------------------------------------------------------
Funds held under reinsurance treaties 720.4 564.6
- ------------------------------------------------------------------------------------
Asset valuation reserve 450.0 375.5
- ------------------------------------------------------------------------------------
Interest maintenance reserve 135.4 76.7
- ------------------------------------------------------------------------------------
Other liabilities 413.9 490.9
- ------------------------------------------------------------------------------------
Federal income taxes 0.8 4.3
- ------------------------------------------------------------------------------------
Net transfers due from separate accounts (761.9) (659.7)
- ------------------------------------------------------------------------------------
Separate account liabilities 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 55,400.7 48,054.0
- ------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million (owned by Lincoln National
Corporation) 25.0 25.0
- ------------------------------------------------------------------------------------
Paid-in surplus 1,821.8 883.4
- ------------------------------------------------------------------------------------
Unassigned surplus 1,121.6 1,054.2
- ------------------------------------------------------------------------------------ --------- ---------
Total capital and surplus 2,968.4 1,962.6
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF INCOME -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 5,589.0 $ 7,268.5 $ 4,899.1
- -----------------------------------------------------------------------------
Net investment income 1,847.1 1,756.3 1,772.2
- -----------------------------------------------------------------------------
Amortization of interest maintenance reserve 41.5 27.2 34.0
- -----------------------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 99.7 90.9 98.3
- -----------------------------------------------------------------------------
Expense charges on deposit funds 119.3 100.7 83.2
- -----------------------------------------------------------------------------
Other income 21.3 16.8 14.5
- ----------------------------------------------------------------------------- --------- --------- ---------
Total revenues 7,717.9 9,260.4 6,901.3
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 4,522.1 5,989.9 4,184.0
- -----------------------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 2,728.4 2,878.5 2,345.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Total benefits and expenses 7,250.5 8,868.4 6,529.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before dividends to policyholders, income taxes and net
realized gain on investments 467.4 392.0 371.6
- -----------------------------------------------------------------------------
Dividends to policyholders 27.5 27.3 27.3
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before federal income taxes and net realized gain on
investments 439.9 364.7 344.3
- -----------------------------------------------------------------------------
Federal income taxes 78.3 83.6 103.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before net realized gain on investments 361.6 281.1 240.6
- -----------------------------------------------------------------------------
Net realized gain on investments, net of income tax expense and excluding net
transfers to the interest maintenance reserve 31.3 53.3 43.9
- ----------------------------------------------------------------------------- --------- --------- ---------
Net income $ 392.9 $ 334.4 $ 284.5
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
S-2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 1,962.6 $ 1,732.9 $ 1,679.6
- -----------------------------------------------------------------------------
Correction of prior years' asset valuation reserve (Note 15) (37.6) -- --
- -----------------------------------------------------------------------------
Correction of prior year's admitted assets (Note 15) (57.0) -- --
- ----------------------------------------------------------------------------- --------- --------- ---------
1,868.0 1,732.9 1,679.6
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income 392.9 334.4 284.5
- -----------------------------------------------------------------------------
Difference in cost and admitted investment amounts (36.2) 38.6 143.2
- -----------------------------------------------------------------------------
Nonadmitted assets (0.4) (3.0) 2.9
- -----------------------------------------------------------------------------
Regulatory liability for reinsurance (3.9) 0.6 (2.0)
- -----------------------------------------------------------------------------
Life policy reserve valuation basis (0.9) (0.4) 2.9
- -----------------------------------------------------------------------------
Asset valuation reserve (36.9) (105.5) (112.5)
- -----------------------------------------------------------------------------
Mortgage loan, real estate and other investment reserves -- -- 2.2
- -----------------------------------------------------------------------------
Paid-in surplus, including contribution of common stock of affiliated
company in 1997 938.4 100.0 15.1
- -----------------------------------------------------------------------------
Separate account receivable due to change in valuation (2.6) -- 27.0
- -----------------------------------------------------------------------------
Dividends to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------------- --------- --------- ---------
Capital and surplus at end of year $ 2,968.4 $ 1,962.6 $ 1,732.9
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes. S-3
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 6,364.3 $ 8,059.4 $ 5,430.9
- -----------------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (649.2) (767.5) (383.6)
- -----------------------------------------------------------------------
Investment income received 1,798.8 1,700.6 1,713.2
- -----------------------------------------------------------------------
Benefits paid (5,345.2) (4,050.4) (3,239.6)
- -----------------------------------------------------------------------
Insurance expenses paid (2,867.5) (2,972.2) (2,513.5)
- -----------------------------------------------------------------------
Federal income taxes recovered (paid) (87.0) (72.3) 38.4
- -----------------------------------------------------------------------
Dividends to policyholders (28.4) (27.7) (16.5)
- -----------------------------------------------------------------------
Other income received and expenses paid, net (42.7) 6.3 14.4
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) operating activities (856.9) 1,876.2 1,043.7
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 12,142.6 12,542.0 13,183.9
- -----------------------------------------------------------------------
Purchase of investments (10,345.0) (14,175.4) (14,049.6)
- -----------------------------------------------------------------------
Other sources (uses) 563.1 (266.5) (64.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) investing activities 2,360.7 (1,899.9) (929.7)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in -- 100.0 15.1
- -----------------------------------------------------------------------
Proceeds from borrowings from shareholder 120.0 100.0 63.0
- -----------------------------------------------------------------------
Repayment of borrowings from shareholder (100.0) (63.0) (63.0)
- -----------------------------------------------------------------------
Dividends paid to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (130.0) 2.0 (294.9)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and short-term investments 1,373.8 (21.7) (180.9)
- -----------------------------------------------------------------------
Cash and short-term investments at beginning of year 759.2 780.9 961.8
- ----------------------------------------------------------------------- ---------- ---------- ----------
Cash and short-term investments at end of year $ 2,133.0 $ 759.2 $ 780.9
- ----------------------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
S-4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company ("Company") is a wholly owned
subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1997, the Company owns 100% of the outstanding
common stock of four insurance company subsidiaries: First Penn-Pacific Life
Insurance Company ("First Penn"), Lincoln National Health & Casualty
Insurance Company ("LNH&C"), Lincoln National Reassurance Company ("LNRAC")
and Lincoln Life & Annuity Company of New York ("LLANY").
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Department"), which practices differ from generally accepted
accounting principles ("GAAP"). The more significant variances from GAAP are
as follows:
INVESTMENTS
Bonds are reported at cost or amortized cost or fair value based on their
National Association of Insurance Commissioners ("NAIC") rating. For GAAP,
the Company's bonds are classified as available-for-sale and, accordingly,
are reported at fair value with changes in the fair values reported directly
in shareholder's equity after adjustments for related amortization of
deferred acquisition costs, additional policyholder commitments and deferred
income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis.
Changes between cost and admitted asset investment amounts are credited or
charged directly to unassigned surplus rather than to a separate surplus
account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the Interest Maintenance Reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by an NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period that the asset giving rise to the gain or loss is sold and valuation
allowances are provided when there has been a decline in value deemed other
than temporary, in which case, the provision for such declines are charged
to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP. Under statutory accounting principles, the Company's
subsidiaries are carried at their statutory basis net equity and presented
in the balance sheet as affiliated common stocks.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For
universal life insurance, annuity and other investment-type products,
deferred
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
policy acquisition costs, to the extent recoverable from future gross
profits, are amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts are reported as premium revenues;
whereas, under GAAP, such premiums and deposits are treated as liabilities
and policy charges represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Department to assume such business. Changes to those
amounts are credited or charged directly to unassigned surplus. Under GAAP,
an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting whereas such contracts would be accounted
for using deposit accounting under GAAP.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
A reconciliation of the Company's net income and capital and surplus
determined on a statutory accounting basis with amounts determined in
accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME
-----------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1995
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory basis $ 2,968.4 $ 1,962.6 $ 392.9 $ 334.4 $ 284.5
- ---------------------------------------------
GAAP adjustments:
Deferred policy acquisition costs and
present value of future profits 958.3 1,119.1 (98.9) 66.7 (63.0)
------------------------------------------
Policy and contract reserves (1,672.9) (1,405.3) (48.6) (57.1) (55.3)
------------------------------------------
Interest maintenance reserve 135.4 76.7 58.7 (39.7) 60.9
------------------------------------------
Deferred income taxes (13.0) (27.4) 70.3 1.8 38.3
------------------------------------------
Policyholders' share of earnings and
surplus on participating business (79.8) (81.9) 5.3 (.3) .2
------------------------------------------
Asset valuation reserve 450.0 375.5 -- -- --
------------------------------------------
Net realized gain (loss) on investments (91.5) (72.0) (20.4) 78.7 30.0
------------------------------------------
Unrealized gain on investments 1,245.5 825.2 -- -- --
------------------------------------------
Nonadmitted assets, including nonadmitted
investments 61.0 (7.1) -- -- --
------------------------------------------
Investments in subsidiary companies 188.8 156.6 (80.5) 29.9 34.3
------------------------------------------
Other, net (162.5) (99.0) (35.0) (82.6) (7.3)
------------------------------------------ --------- --------- --------- --------- ---------
Net increase (decrease) 1,019.3 860.4 (149.1) (2.6) 38.1
- --------------------------------------------- --------- --------- --------- --------- ---------
Amounts on a GAAP basis $ 3,987.7 $ 2,823.0 $ 243.8 $ 331.8 $ 322.6
- --------------------------------------------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
The discount or premium on bonds is amortized using the interest method. For
mortgage-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic
life of the securities. When actual prepayments differ significantly from
anticipated prepayments, 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.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items and are amortized over the
remaining lives of the hedged items as adjustments to investment income or
benefits from the hedged items through the IMR. Any unamortized gains or
losses are recognized when the underlying hedged items are sold. The
premiums paid for interest rate caps and swaptions are deferred and
amoritized to net investment income on a straight-line basis over the term
of the respective derivative.
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, increased liabilities associated with certain
reinsurance agreements and foreign exchange risk. Moreover, the derivatives
used are designated as a hedge and reduce the indicated risk by having a
high correlation between 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 or if the hedged items have
been sold, terminated or matured, the change in value of the derivatives is
included in net income.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments. Real estate is reported at depreciated cost.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds, mortgage loans and common and preferred stocks are
credited or charged directly in unassigned surplus.
LOANED SECURITIES
Securities loaned are treated as collateralized financing transactions and a
liability is recorded equal to the amount to be paid to reacquire the
security. It is the Company's policy to take possession of securities with a
market value at least equal to the value of the securities loaned.
Securities loaned are recorded at amortized cost as long as the value of the
related collateral is sufficient. The Company's agreements with third
parties generally contain contractual provisions to allow for additional
collateral to be obtained when necessary. The Company values collateral
daily and obtains additional collateral when deemed appropriate.
GOODWILL
Goodwill, which represents the excess of the ceding commission over
statutory-basis net assets of business purchased under an assumption
reinsurance agreement, is amortized on a straight-line basis over ten years.
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Department. The Company waives deduction of deferred fractional premiums on
the death of life and annuity policy insureds and returns any premium beyond
the date of death, except for policies issued prior to March 1977. Surrender
values on policies do not exceed the corresponding benefit reserves.
Additional reserves are established when the results of cash flow testing
under various interest rate scenerios indicate the need for such reserves.
If net premiums exceed the gross premiums on any insurance in-force,
additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends
in claim severity and frequency. Although considerable variability is
inherent in such estimates, management believes that the reserves for claims
and claim adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums and claims and claim adjustment expenses are accounted
for on bases consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts. Certain business
is transacted on a funds withheld basis and investment income on funds
withheld are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans is
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC. Pursuant to an intercompany
tax sharing agreement with LNC, the Company provides for income taxes on a
separate return filing basis. The tax sharing agreement also provides that
the Company 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.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of the
intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of LNC's common stock at the grant date, or other
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
measurement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND 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 statements of income.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Department. "Prescribed" statutory accounting practices include state laws,
regulations and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices
may differ from state to state, may differ from company to company within a
state and may change in the future. The NAIC currently is in the process of
recodifying statutory accounting practices ("Codification"). Codification
will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.
Codification, which is expected to be approved by the NAIC in 1998, will
require adoption by the various states before it becomes the prescribed
statutory-basis of accounting for insurance companies domesticated within
those states. Accordingly, before Codification becomes effective for the
Company, the state of Indiana must adopt Codification as the prescribed
basis of accounting on which domestic insurers must report their
statutory-basis results to the Department. At this time, it is unclear
whether Indiana will adopt Codification. However, based on the current draft
guidance, management believes that the impact of Codification will not be
material to the Company's statutory-basis financial statements.
The Company has received written approval from the Department to record
surrender charges applicable to separate account liabilities for variable
life and annuity products as a liability in the separate account financial
statements payable to the Company's general account. In the accompanying
financial statements, a corresponding receivable is recorded with the
related income impact recorded in the accompanying statement of operations
as a change in reserves or change in premium and other deposit funds.
S-10
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 1,524.4 $ 1,442.2 $ 1,457.4
----------------------------------------------------------------
Preferred stocks 23.5 9.6 6.4
----------------------------------------------------------------
Unaffiliated common stocks 8.3 6.5 5.2
----------------------------------------------------------------
Affiliated common stocks 15.0 9.5 12.6
----------------------------------------------------------------
Mortgage loans on real estate 257.2 269.3 252.0
----------------------------------------------------------------
Real estate 92.2 114.4 110.0
----------------------------------------------------------------
Policy loans 37.5 35.0 32.1
----------------------------------------------------------------
Other investments 28.2 22.4 62.6
----------------------------------------------------------------
Cash and short-term investments 70.3 48.9 53.2
---------------------------------------------------------------- --------- --------- ---------
Total investment income 2,056.6 1,957.8 1,991.5
- -------------------------------------------------------------------
Expenses:
Depreciation 21.0 25.0 25.9
----------------------------------------------------------------
Other 188.5 176.5 193.4
---------------------------------------------------------------- --------- --------- ---------
Total investment expenses 209.5 201.5 219.3
- ------------------------------------------------------------------- --------- --------- ---------
Net investment income $ 1,847.1 $ 1,756.3 $ 1,772.2
- ------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
Nonadmitted accrued investment income at December 31, 1997
and 1996 amounted to $2,600,000 and $2,500,000,
respectively, consisting principally of interest on bonds in
default and mortgage loans.
S-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Corporate $13,003.8 $ 942.2 $ 60.1 $13,885.9
------------------------------------------------
U.S. government 436.3 67.9 -- 504.2
------------------------------------------------
Foreign government 1,202.1 104.9 5.4 1,301.6
------------------------------------------------
Mortgage-backed 3,874.3 215.2 27.1 4,062.4
------------------------------------------------
State and municipal 44.2 .3 -- 44.5
------------------------------------------------ --------- ----------- ----------- ---------
$18,560.7 $ 1,330.5 $ 92.6 $19,798.6
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
At December 31, 1996:
Corporate $12,548.1 $ 586.5 $ 66.6 $13,068.0
------------------------------------------------
U.S. government 1,088.7 43.2 18.0 1,113.9
------------------------------------------------
Foreign government 1,234.0 105.1 1.4 1,337.7
------------------------------------------------
Mortgage-backed 4,478.4 183.3 27.4 4,634.3
------------------------------------------------
State and municipal 40.4 .1 -- 40.5
------------------------------------------------ --------- ----------- ----------- ---------
$19,389.6 $ 918.2 $ 113.4 $20,194.4
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The carrying amount of bonds in the balance sheets at
December 31, 1997 and 1996 reflects NAIC adjustments of
$5,500,000 and $2,700,000, respectively, to decrease
amortized cost.
Fair values for bonds are based on quoted market prices,
where available. For bonds 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.
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1997, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Maturity:
In 1998 $ 490.1 $ 494.9
--------------------------------------------------------------------------
In 1999-2002 3,088.7 3,185.4
--------------------------------------------------------------------------
In 2003-2007 4,762.7 4,971.0
--------------------------------------------------------------------------
After 2007 6,344.9 7,084.9
--------------------------------------------------------------------------
Mortgage-backed securities 3,874.3 4,062.4
-------------------------------------------------------------------------- --------- ---------
Total $18,560.7 $19,798.6
- ----------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 1997, the Company did not have a material
concentration of financial instruments in a single investee,
industry or geographic location.
Proceeds from sales of investments in bonds during 1997,
1996 and 1995 were $9,715,000,000, $10,996,900,000 and
$12,234,100,000, respectively. Gross gains during 1997, 1996
and 1995 of $218,100,000, $169,700,000 and $225,600,000,
respectively, and gross losses of $78,000,000, $177,000,000
and $83,100,000, respectively, were realized on those sales.
At December 31, 1997 and 1996, investments in bonds, with an
admitted asset value of $76,200,000 and $70,700,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in unaffiliated
common stocks and preferred stocks are as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
(IN MILLIONS)
--------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Preferred stocks $257.3 $12.1 $ .7 $268.7
- ----------------------------------------
Unaffiliated common stocks 357.0 98.5 19.5 436.0
- ----------------------------------------
At December 31, 1996:
Preferred stocks $239.7 $10.5 $ 1.7 $248.5
- ----------------------------------------
Unaffiliated common stocks 289.9 84.6 16.2 358.3
- ----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1997 and 1996 reflects NAIC
adjustments of $4,000,000 and $700,000, respectively, to
decrease amortized cost.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During 1997, the minimum and maximum lending rates for
mortgage loans were 7.09% and 9.25%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At December 31, 1997, the
Company did not hold any mortgages with interest overdue
beyond one year. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan
over the maximum loan that would be allowed on the land
without the building.
Realized capital gains are reported net of federal income
taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Realized capital gains $ 209.3 $ 69.3 $ 186.8
- ------------------------------------------------------------------------
Less amount transferred to IMR (net of related taxes (credit) of $54.0,
$(6.7) and $51.1 in 1997, 1996 and 1995, respectively) 100.2 (12.4) 94.8
- ------------------------------------------------------------------------ --------- --------- ---------
109.1 81.7 92.0
Less federal income taxes on realized gains 77.8 28.4 48.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net realized capital gains $ 31.3 $ 53.3 $ 43.9
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
4. SUBSIDIARIES
Statutory-basis financial information related to the
Company's four wholly-owned subsidiaries is summarized as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,154.4 $ 284.8 $ 399.0 $ 796.3
- -----------------------------------------------------------
Other assets 36.9 77.3 481.6 130.8
- ----------------------------------------------------------- --------- ----------- --------- ---------
Total admitted assets $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
Insurance reserves $ 1,072.2 $ 266.7 $ 279.3 $ 588.7
- -----------------------------------------------------------
Other liabilities 48.4 21.7 546.4 5.8
- -----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 164.7
- -----------------------------------------------------------
Capital and surplus 70.7 73.7 54.9 212.9
- ----------------------------------------------------------- --------- ----------- --------- ---------
Total liabilities and capital and surplus $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 267.6 $ 135.4 $ 125.3 $ 230.0
- ------------------------------------------------------------
Expenses 262.6 244.2 114.6 224.4
- ------------------------------------------------------------
Net realized gains (losses) .1 .6 (.1) (.1)
- ------------------------------------------------------------ --------- --------- --------- ---------
Net income $ 5.1 $ (108.2) $ 10.6 $ 5.5
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,090.7 $ 146.4 $ 406.7 $ 664.3
- -----------------------------------------------------------
Other assets 31.8 17.7 503.1 9.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total admitted assets $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Insurance reserves $ 1,013.5 $ 72.7 $ 261.8 $ 601.1
- -----------------------------------------------------------
Other liabilities 41.3 18.7 597.2 22.1
- -----------------------------------------------------------
Capital and surplus 67.7 72.7 50.8 50.2
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total liabilities and capital and surplus $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 246.5 $ 104.9 $ 120.8 $ 642.7
- -------------------------------------------------------------
Expenses 247.1 97.1 114.1 661.3
- -------------------------------------------------------------
Net realized gains (losses) (.6) -- -- --
- ------------------------------------------------------------- --------- ----------- ----------- -----------
Net income (loss) $ (1.2) $ 7.8 $ 6.7 $ (18.6)
- ------------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
The carrying value of affiliated common stocks, representing
their statutory-basis net equity, was $412,100,000 and
$241,500,000 at December 31, 1997 and 1996, respectively.
The cost basis of investments in subsidiaries as of December
31, 1997 and 1996 was $466,200,000 and $194,000,000,
respectively.
During 1997 and 1996, the Company's insurance subsidiaries
paid dividends of $15,000,000 and $10,500,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate for financial
reporting purposes differs from the prevailing statutory tax
rate principally due to tax-exempt investment income,
dividends-received tax deductions, differences in policy
acquisition costs and policy and contract liabilities for
tax return and financial statement purposes.
Federal income taxes incurred of $78,300,000, $83,600,000
and $103,700,000 in 1997, 1996 and 1995, respectively, would
be subject to recovery in the event that the Company incurs
net operating losses within three years of the years for
which such taxes were paid.
Prior to 1984, a portion of the Company's 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 Company's balance in the
"policyholders' surplus" account at December 31, 1983 of
$187,000,000 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's
surplus," and is available for dividends to the shareholder
without additional payment of tax by the Company. The
December 31, 1997 memorandum account balance for
"shareholder's surplus"
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
was $1,905,000,000. Should dividends to the shareholder
exceed its respective "shareholder's surplus," amounts would
need to be transferred from the "policyholders' surplus" and
would be subject to federal income tax at that time. Under
existing or foreseeable circumstances, the Company neither
expects nor intends that distributions will be made that
will result in any such tax.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption, "Other Admitted Assets", includes
amounts recoverable from other insurers for claims paid by
the Company, and the balance sheet caption, "Future Policy
Benefits and Claims," has been reduced for insurance ceded
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Insurance ceded $ 1,431.0 $ 1,154.5
- -------------------------------------------------------------------------------
Amounts recoverable from other insurers 35.9 16.0
- -------------------------------------------------------------------------------
</TABLE>
Reinsurance transactions included in the income statement
caption, "Premiums and Deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 727.2 $ 241.3 $ 667.7
- ------------------------------------------------------------------------
Insurance ceded 302.9 193.3 453.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net amount included in premiums $ 424.3 $ 48.0 $ 214.6
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
The income statement caption, "Benefits and Settlement
Expenses," is net of reinsurance recoveries of
$1,240,500,000, $787,900,000 and $1,407,000,000 for 1997,
1996 and 1995, respectively.
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and Fees in Course of Collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.2 $ 2.4 $ .8
- ------------------------------------------------------------------------
Ordinary renewal 17.8 3.2 14.6
- ------------------------------------------------------------------------
Group life 10.6 .2 10.4
- ------------------------------------------------------------------------ --------- --- -----
$ 31.6 $ 5.8 $ 25.8
--------- --- -----
--------- --- -----
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.9 $ 1.9 $ 2.0
- ------------------------------------------------------------------------
Ordinary renewal 35.1 3.0 32.1
- ------------------------------------------------------------------------
Group life 9.4 (.1) 9.5
- ------------------------------------------------------------------------ --------- --- -----
$ 48.4 $ 4.8 $ 43.6
--------- --- -----
--------- --- -----
</TABLE>
The Company has entered into non-exclusive managing general
agent agreements with International Benefit Services Corp.,
HRM Claim Management, Inc. and Pediatrics Insurance
Consultants, Inc. to write group life and health business.
Direct premiums written related to the agreements amounted
to $2,000,000, $2,600,000 and $8,800,000 in 1997 and
$26,200,000, $3,800,000 and $8,600,000 in 1996,
respectively. During 1996, LNC Administrative Services
Corporation entered into a similar agreement with the
Company with direct premiums written amounting to $7,200,000
and 6,200,000 in 1997 and 1996, respectively. Authority
granted by the managing general agents agreements include
underwriting, claims adjustment and claims payment services.
7. ANNUITY RESERVES
At December 31, 1997, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
7. ANNUITY RESERVES (CONTINUED)
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
----------------------
(IN MILLIONS)
----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,426.3 5%
-----------------------------------------------------------------------------
At book value, less surrender charge 4,225.8 8
-----------------------------------------------------------------------------
At market value 30,064.7 59
----------------------------------------------------------------------------- --------- ---
36,716.8 72
Subject to discretionary withdrawal without adjustment at book value with
minimal or no charge or adjustment 11,657.7 23
- --------------------------------------------------------------------------------
Not subject to discretionary withdrawal 2,531.1 5
- -------------------------------------------------------------------------------- --------- ---
Total annuity reserves and deposit fund liabilities -- before reinsurance 50,905.6 100%
- -------------------------------------------------------------------------------- ---
---
Less reinsurance 1,797.5
- -------------------------------------------------------------------------------- ---------
Net annuity reserves and deposit fund liabilities, including separate accounts $49,108.1
- -------------------------------------------------------------------------------- ---------
---------
</TABLE>
8. CAPITAL AND SURPLUS
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1997, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In 1998, the Company can pay dividends of
$361,600,000 without prior approval of the Indiana Insurance Commissioner.
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory-basis financial statements of income or
financial position for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Option issued subsequent to 1991 are
exercisable in 25% increments on the option issuance anniversary in the four
years following issuance.
As of December 31, 1997, 716,211 shares of LNC common stock were subject to
options granted to Company employees and agents under the stock option
incentive plans of which 370,239 were exercisable on that date. The exercise
prices of the outstanding options range from $23.50 to $75.66. During 1997,
1996 and 1995, 170,789, 72,405 and
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
117,806 options were exercised, respectively, and 1,846, 10,950 and 11,473
options were forfeited, respectively.
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
DISABILITY INCOME CLAIMS
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1997 and 1996 is a net
liability of $516,900,000 and $572,000,000, respectively. This liability is
based on the assumption that the recent experience will continue in the
future. If incidence levels or claim termination rates fluctuate
significantly from the assumptions underlying reserves, adjustments to
reserves may be required in the future. Accordingly, this liability may
prove to be deficient or excessive. However, it is management's opinion that
such future development will not materially affect the financial position of
the Company. The Company reviews reserve levels on an ongoing basis.
During 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, net income
decreased by $15,200,000 as a result of strengthening the disability income
reserve.
Because of continuing adverse experience and worsening projections of future
experience, the Company conducted an additional in-depth review of loss
experience on its disability income business during 1997. As a result of
this study, the reserve level was deemed to be inadequate to meet future
obligations if current incident levels were to continue in the future. In
order to address this situation, the Company strengthened its disability
income reserve by $80,000,000 (pre-tax).
MARKETING AND COMPLIANCE ISSUES
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. The Company's management
continues to monitor the Company's sales materials and compliance procedures
and is making an extensive effort to minimize any potential liability. Due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time;
however, it is management's opinion that such future development will not
materially affect the financial position of the Company.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold by the Company, are supported by a single
portfolio of assets that attempts to match the duration of these
liabilities. Due to the 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.
Accordingly, these liabilities may prove to be deficient or excessive.
However, it is management's opinion that such future development will not
materially affect the financial position of the Company.
LEASES
The Company leases its 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. The Company also 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 ending in 2009 or on
the last day of any of the renewal periods.
Total rental expense on operating leases in 1997, 1996 and 1995 was
$29,300,000, $26,400,000 and
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
$22,500,000, respectively. Future minimum rental commitments are as follows
(in millions):
<TABLE>
<S> <C>
1998 $ 18.5
- --------------------------------------
1999 18.9
- --------------------------------------
2000 20.1
- --------------------------------------
2001 20.4
- --------------------------------------
2002 20.7
- --------------------------------------
Thereafter 152.2
- -------------------------------------- ---------
$ 250.8
---------
---------
</TABLE>
The future commitments include amounts for space and equipment to be used by
the personnel that were added on January 2, 1998 as a result of the purchase
of a block of individual life and annuity business (see NOTE 12).
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for providing information technology services for the Fort Wayne
operations. Annual costs are estimated to range from $33,600,000 to
$56,800,000.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. Industry regulations prescribe the maximum
coverage that the Company can retain on an individual insured. Prior to
December 31, 1997, the Company limited its maximum coverage that it retained
on an individual to $3,000,000. Based on a review of the capital and
business in-force (including the addition of the block of business described
in NOTE 12), effective in January 1998, the Company changed the amount it
will retain on an individual to $10,000,000. Portions of the Company's
deferred annuity business have also been reinsured with other companies to
limit its exposure to interest rate risks. At December 31, 1997, the
reserves associated with these reinsurance arrangements totaled
$1,760,000,000. To cover products other than life insurance, the Company
acquires other insurance coverages with retentions and limits that
management believes are appropriate for the circumstances. The Company
remains liable if its 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, 1997, the Company has provided $12,400,000 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.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $8,200,000 and $4,300,000 at December 31, 1997
and 1996, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1997, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or 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 severe
impact to the Company's financial condition.
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine
in the ordinary course of business. The Company maintains professional
liability insurance coverage for claims in excess of $5,000,000. The degree
of applicability of this coverage depends on the specific facts of each
proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these suits
will
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
not have a material adverse affect on the financial position or results of
operations of the Company.
Two lawsuits involve alleged fraud in the sale of interest sensitive
universal life and whole life insurance policies. These two suits have been
filed as class actions against the Company, although the court has not
certified a class in either case. Plaintiffs seek unspecified damages and
penalties for themselves and on behalf of the putative class while the
relief sought in these cases in substantial, the cases are in the early
stages of litigation, and it is premature to make assessments about
potential loss, if any. Management intends to defend these suits vigorously.
The amount of liability, if any, which may arise as a result of these suits
cannot be reasonably estimated at this time.
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.
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
--------------------
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Mortgage loan pass-through
certificates $ 41.6 $ 50.3
- ------------------------------
Real estate partnerships -- .5
- ------------------------------ --------- ---------
$ 41.6 $ 50.8
--------- ---------
--------- ---------
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans to finance their projects. 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, 1997 and 1996.
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, increased liabilities associated with reinsurance
agreements 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 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:
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
NOTIONAL OR ASSETS (LIABILITIES)
CONTRACT AMOUNTS -----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1997 1997 1996 1996
-------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $4,900.0 $5,500.0 $13.9 $ .9 $20.8 $ 8.2
---------------------------------
Swaptions 1,752.0 672.0 6.9 6.9 11.0 10.6
---------------------------------
Financial futures contracts -- 147.7 -- -- (2.4) (2.4)
---------------------------------
Interest rate swaps 10.0 -- -- (1.8) -- --
--------------------------------- -------- -------- -------- ----- -------- ------
6,662.0 6,319.7 20.8 6.0 29.4 16.4
Foreign currency derivatives:
Forward contracts 163.1 251.5 5.4 5.4 .2 (.2)
---------------------------------
Foreign currency options -- 43.9 -- -- .6 .4
---------------------------------
Foreign currency swaps 15.0 15.0 -- (2.1) -- (2.1)
--------------------------------- -------- -------- -------- ----- -------- ------
178.1 310.4 5.4 3.3 .8 (1.9)
-------- -------- -------- ----- -------- ------
$6,840.1 $6,630.1 $26.2 $ 9.3 $30.2 $ 14.5
-------- -------- -------- ----- -------- ------
-------- -------- -------- ----- -------- ------
</TABLE>
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts at December
31 is a follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,500.0 $ 5,110.0 $ -- $ 600.0 $ 672.0 $ --
- -----------------------------------
New contracts -- 390.0 50.0 15.0 1,080.0 672.0
- -----------------------------------
Terminations and maturities (600.0) -- (50.0) (615.0) -- --
- ----------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0
- ----------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL FUTURES INTEREST RATE SWAPS
CONTRACTS
------------------------------------------
1997 1996 1997 1996
------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 147.7 $ -- $ -- $ 5.0
- ------------------------------------------------------------
New contracts 88.3 7,918.8 10.0 --
- ------------------------------------------------------------
Terminations and maturities (236.0) (7,771.1) -- (5.0)
- ------------------------------------------------------------ --------- --------- --------- ---------
Balance at end of year $ -- $ 147.7 $ 10.0 $ --
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
----------------------------------------------------------------
FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY
FORWARD CONTRACTS OPTIONS SWAPS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 251.5 $ 15.7 $ 43.9 $ 99.2 $ 15.0 $ 15.0
- --------------------------------------
New contracts 833.1 406.9 -- 1,168.8 -- --
- --------------------------------------
Terminations and maturities (921.6) (171.1) (43.9) (1,224.1) -- --
- -------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0
- -------------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
INTEREST RATE CAPS
The interest rate cap agreements, which expire in 1998 through 2003, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by 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 rising interest rates. The premium paid for the interest rate caps is
included in other assets ($13,900,000 as of December 31, 1997) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2002 and 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of
fluctuating interest rates. The premium paid for the swaptions is included
in other assets ($6,900,000 as of December 31, 1997) and is being amortized
over the terms of the agreements. This amortization is included in net
investment income.
SPREAD LOCKS
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
Government 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 Government
security and the price sensitivity of the swap at that time. 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 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. They 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.
INTEREST RATE SWAPS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreements the stream of variable coupon payments generated from the bonds,
and in turn, receives a fixed payment from the counterparty at a
predetermined interest rate. The net receipts/payments from interest rate
swaps are recorded in net investment income.
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
re-exchange 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
$7,000,000, $6,900,000 and $5,600,000 in 1997, 1996 and 1995, respectively.
Deferred losses of $2,600,000 as of December 31, 1997, were the result of:
1) terminated and expired spread-lock agreements and; 2) financial futures
contracts. These losses 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, swaptions, spread-lock
agreements, interest rate swaps, foreign exchange forward contracts, foreign
currency options and foreign currency swaps. However, the Company does not
anticipate nonperformance by any of the 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, 1997, the exposure was
$11,700,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values. 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.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices, where available. For
bonds not actively traded, fair values are estimated using values obtained
from independent pricing services. In the case of private placements, fair
values 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 of unaffiliated common stocks
are based on quoted market prices.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair values of mortgage loans on real estate are established
using a discounted cash flow method based on credit rating, maturity and
future income. 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 based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are calculated on a
composite discounted cash flow basis using Treasury interest rates
consistent with the maturity durations assumed. These durations are based on
historical experience.
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other investments and cash and
short-term investments in the accompanying statutory-basis balance sheets
approximate their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future Policy Benefits and Claims" and "Other
Policyholder 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. These calculations are based on interest rates
currently offered on similar contracts with maturities that are consistent
with those remaining for the contracts being valued.
The remainder of the balance sheet captions "Future Policy Benefits and
Claims" and "Other Policyholder 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
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading 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 DEBT
Fair values of short-term debt approximates carrying values.
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.
DERIVATIVES
The Company's derivatives include interest rate cap agreements, swaptions,
spread-lock agreements, foreign currency exchange contracts, financial
futures contracts, interest rate swaps, foreign currency options and foreign
currency swaps. Fair values for these contracts are based on current
settlement values. These values are based on: 1) quoted market prices for
the foreign currency exchange contracts and financial future contracts and;
2) brokerage quotes that utilize 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. These estimates would take into account changes in interest
rates, the counterparties' credit standing and the remaining terms of the
commitments.
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. 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
----------------------------------------------
1997 1996
----------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 18,560.7 $ 19,798.6 $ 19,389.6 $ 20,194.4
- -----------------------------------------------
Preferred stock 257.3 268.7 239.7 248.5
- -----------------------------------------------
Unaffiliated common stock 436.0 436.0 358.3 358.3
- -----------------------------------------------
Mortgage loans on real estate 3,012.7 3,179.2 2,976.7 3,070.9
- -----------------------------------------------
Policy loans 660.5 648.3 626.5 612.7
- -----------------------------------------------
Other investments 335.5 335.5 282.7 282.7
- -----------------------------------------------
Cash and short-term investments 2,133.0 2,133.0 759.2 759.2
- -----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,324.2) (16,887.6) (17,871.6) (17,333.0)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (1,267.0) (1,294.6) (1,799.7) (1,835.4)
--------------------------------------------
Short-term debt (120.0) (120.0) (100.0) (100.0)
- -----------------------------------------------
Derivatives 26.2 9.3 26.5 13.8
- -----------------------------------------------
Investment commitments -- (.5) -- (.6)
- -----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In October 1996, the Company and LLANY purchased a block of group
tax-qualified annuity business from UNUM Corporation's affiliate. The
transaction was completed in the form of a reinsurance transaction, which
resulted in a ceding commission of $71,800,000. The ceding commission has
been recorded as admissible goodwill of $62,300,000, which is to be
amortized on a straight-line basis over 10 years. LLANY was required by the
New York Department of Insurance to expense its portion of the ceding
commission in 1996. Policy liabilities and related accruals of the Company
and its wholly owned subsidiary increased by $3,200,000,000 as a result of
this transaction.
In 1997, LNC contributed 25,000,000 shares of common stock of American
States Financial Corporation ("American States") to the Company. American
States is a property casualty insurance holding company of which LNC owned
83.3%. The contributed common stock was accounted for as a capital
contribution equal to the fair value of the common stock received by the
Company. Subsequently, the American States common stock owned by the
Company, along with all other American States common stock owned by LNC and
its affiliates, was sold. The Company received proceeds from the sale in the
amount of $1,175,000,000. The Company recognized no gain or loss on the sale
of its portion of the common stock due to the receipt of such stock at fair
value.
On January 2, 1998, the Company issued a surplus note to LNC in return for
$500,000,000 in cash. The note calls for the Company to pay, on or before
March 31, 2028, the principal amount of the note and interest quarterly at a
6.56% annual rate. LNC also has a right to redeem the note for immediate
repayment in total or in part once per year on the
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
12. ACQUISITIONS AND SALES OF SUBSIDIARIES (CONTINUED)
anniversary date of the note, but not before January 2, 2003. Any payment of
interest or repayment of principal may be paid only out of excess surplus
(as defined in the note) and is subject to the approval of the Commissioner
of the Indiana Department of Insurance.
Proceeds from the sale of the Company's American States common stock, as
well as proceeds from the surplus note, were used to finance an indemnity
reinsurance transaction whereby the Company reinsured 100% of a block of
individual life insurance and annuity business from CIGNA Corporation. The
Company paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of
the reinsurance agreement, which will result in a decrease to surplus in
1998 of approximately $1,000,000,000. Operating results generated by this
block of business after the closing date will be included in the Company
financial statements from the closing date. At the time of closing, this
block of business had statutory liabilities of $4,658,200,000 that became
the Company's obligation. The company also received assets, measured on a
historical statutory basis, equal to the liabilities. During 1997, this
block produced premiums, fees and deposits of $1,051,000,000 and earnings of
$87,200,000 on a statutory basis. The Company also expects to pay
$30,000,000 to cover expenses associated with the reinsurance agreement and
to record a charge of approximately $12,000,000 during 1998 to cover certain
costs of integrating the existing operations with the new block of business.
13. 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
$61,600,000, $56,300,000 and $43,300,000 in 1997, 1996 and 1995,
respectively. LFGI incurred expenses of $5,500,000, $15,700,000 and
$10,400,000 in 1997, 1996 and 1995, respectively, in excess of the override
commissions and operating expense allowances received from the Company,
which the Company is not required to reimburse. Effective in January 1998,
the Company and LFGI agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1997 and 1996 include the
Company's participation in a short-term investment pool with LNC of
$325,600,000 and $175,100,000, respectively. Related investment income
amounted to $15,500,000, $15,300,000 and $21,100,000 in 1997, 1996 and 1995,
respectively. Other liabilities at December 31, 1997 and 1996 include
$120,000,000 and $100,000,000, respectively, of notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $48,500,000, $34,100,000 and
$24,900,000 in 1997, 1996 and 1995, respectively.
The Company cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income include premiums on
insurance business accepted under reinsurance contracts and exclude premiums
ceded to other affiliated companies, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 11.9 $ 17.9 $ 17.6
- ----------------------
Insurance ceded 100.3 302.8 214.4
- ----------------------
</TABLE>
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Future policy benefits
and claims assumed $ 245.5 $ 312.7
- ------------------------
Future policy benefits
and claims ceded 997.2 891.8
- ------------------------
Amounts recoverable on
paid and unpaid losses 30.4 31.2
- ------------------------
Reinsurance payable on
paid losses 5.3 2.7
- ------------------------
Funds held under
reinsurance treaties --
net liability 1,115.4 1,062.4
- ------------------------
</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 $280,900,000 and $314,200,000 at December 31, 1997 and 1996,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1997 and 1996, LNC had guaranteed $229,100,000 and $239,200,000,
respectively, of these letters of credit. At December 31, 1997, the Company
has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $130,700,000 for statutory surplus
relief received under financial reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered, principally for
annuity contracts, and for which the contractholder, rather than the
Company, bears the investment risk. Separate account contractholders have no
claim against the assets of the general account of the Company. Separate
account assets are reported at fair value and consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds. The detailed
operations of the separate accounts are not included in the accompanying
financial statements. Fees charged on separate account policyholder deposits
are included in other income.
Separate account premiums, deposits and other considerations amounted to
$4,821,800,000, $4,148,700,000 and $3,068,200,000 in 1997, 1996 and 1995,
respectively. Reserves for separate accounts with assets at fair value were
$30,560,700,000 and $23,047,800,000 at December 31, 1997 and 1996,
respectively. All reserves are subject to discretionary withdrawal at market
value. Substantially all of the Company's separate accounts are
nonguaranteed.
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of
various Separate Accounts:
Transfers to separate accounts $ 4,824.0 $ 4,149.6
- ------------------------------------------------------------
Transfers from separate accounts (2,943.8) (2,058.5)
- ------------------------------------------------------------ --------- ---------
Net transfer to separate accounts as reported in the
Company's NAIC Annual Statement -- Summary of Operations $ 1,880.2 $ 2,091.1
- ------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
15. RECONCILIATION OF ANNUAL STATEMENT TO AUDITED FINANCIAL STATEMENTS
In 1997, certain errors were identified by the Illinois
Insurance Department in the calculation of the AVR as of
December 31, 1996 and 1995. The effects of the AVR errors
also resulted in the need for revisions in the calculation
of certain investment limitation thresholds, the results of
which indicated that additional assets should have been
nonadmitted as of December 31, 1996. As discussed by the
Company with the Indiana and Illinois Insurance Departments,
corrections were made to affected pages of the Company's
NAIC Annual Statement which were refiled with various state
insurance departments. However, due to immateriality of the
corrections in relation to the financial statements taken as
a whole, the audited 1996 and 1995 statutory-basis financial
statements were not corrected and re-issued.
The Company's 1997 NAIC Annual Statement, as filed with
various state insurance departments, also includes the
corrected balances for 1996 and 1995. The following is a
reconciliation of total admitted assets, total liabilities
and capital and surplus as of December 31, 1996 as presented
in the 1997 NAIC Annual Statement (as corrected) to the
accompanying audited financial statements.
<TABLE>
<CAPTION>
TOTAL CAPITAL
ADMITTED TOTAL AND
ASSETS LIABILITIES SURPLUS
---------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1996 as
reported in the accompanying audited
financial statements $50,016.6 $ 48,054.0 $ 1962.6
- ----------------------------------------
Effect of AVR errors -- 37.6 (37.6)
- ----------------------------------------
Effect of change in investment
limitations (57.0) -- (57.0)
- ---------------------------------------- --------- ----------- --------
Balance as of December 31, 1996 as
reported in the 1997 NAIC Annual
Statement $49,959.6 $ 48,091.6 $1,868.0
- ---------------------------------------- --------- ----------- --------
--------- ----------- --------
</TABLE>
16. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is pervasive and complex and affects virtually every
aspect of the Company's business. The Company's computer systems and
interfaces with the computer systems of vendors, suppliers, customers and
business partners are particularly vulnerable. The inability to properly
recognize date sensitive electronic information and transfer data between
systems could cause errors or even a complete systems failure which would
result in a temporary inability to process transactions correctly and engage
in normal business
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
activities. The Company is redirecting a large portion of its internal
information technology efforts and contracting with outside consultants to
update its systems to accommodate the year 2000. Also, the Company has
initiated formal communications with critical parties that interface with
the Company's systems to gain an understanding of their progress in
addressing Year 2000 Issues. While the Company is making every effort to
address its own systems and the systems with which it interfaces, it is not
possible to provide assurance that operational problems will not occur. The
Company presently believes that with the modification of existing computer
systems, updates by vendors and conversion to new software and hardware, the
Year 2000 Issue will not pose significant operational problems for its
computer systems. In addition, the Company is developing contingency plans
in the event that, despite its best efforts, there are unresolved year 2000
problems. If the remediation efforts noted above are not completed timely or
properly, the Year 2000 Issue could have a material adverse impact on the
operation of the Company's business.
During 1997 and 1996, the Company incurred expenditures of approximately
$5,500,000 ($3,600,000 after-tax) to address this issue. The Company's
financial plans for 1998 through 2000 include expected expenditures of an
additional $20,000,000 ($13,000,000 after-tax) on this issue. The cost of
addressing Year 2000 Issues and the timeliness of completion will be closely
monitored by management and are based on managements's current best
estimates which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. Nevertheless, there can be no
guarantee that these estimated costs will be achieved and actual results
could differ significantly from those anticipated. Specific factors that
might cause such differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer problems and other uncertainties.
S-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets
of The Lincoln National Life Insurance Company (a wholly owned
subsidiary of Lincoln National Corporation) as of December 31,
1997 and 1996, and the related statutory-basis statements of
income, changes in capital and surplus and cash flows for each
of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements 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.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting
practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from generally accepted
accounting principles. The variances between such practices and
generally accepted accounting principles and the effects on the
accompanying financial statements are also described in Note 1.
In our opinion, because of the effects of the matter described
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of The
Lincoln National Life Insurance Company at December 31, 1997 and
1996, or the results of its operations or its cash flows for
each of the three years in the period ended December 31, 1997.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of The Lincoln National Life Insurance Company at
December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
February 5, 1998
S-31
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C> <C>
Investment income earned:
Government bonds $ 52.8
-----------------------------------------------------------------------------------------
Other bonds (unaffiliated) 1,471.6
-----------------------------------------------------------------------------------------
Preferred stocks (unaffiliated) 23.5
-----------------------------------------------------------------------------------------
Common stocks (unaffiliated) 8.3
-----------------------------------------------------------------------------------------
Common stocks of affiliates 15.0
-----------------------------------------------------------------------------------------
Mortgage loans 257.2
-----------------------------------------------------------------------------------------
Real estate 92.2
-----------------------------------------------------------------------------------------
Premium notes, policy loans and liens 37.5
-----------------------------------------------------------------------------------------
Cash on hand and on deposit 1.0
-----------------------------------------------------------------------------------------
Short-term investments 69.3
-----------------------------------------------------------------------------------------
Other invested assets 21.9
-----------------------------------------------------------------------------------------
Derivative instruments (10.0)
-----------------------------------------------------------------------------------------
Aggregate write-ins for investment income 16.3
----------------------------------------------------------------------------------------- ---------
Gross investment income $ 2,056.6
- ---------------------------------------------------------------------------------------------------- ---------
---------
Real estate owned (cost, less encumbrances) $ 585.2
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans (unpaid balance):
Farm mortgages $ 0.1
-----------------------------------------------------------------------------------------
Residential mortgages 3.1
-----------------------------------------------------------------------------------------
Commercial mortgages 3,009.5
----------------------------------------------------------------------------------------- ---------
Total mortgage loans $ 3,012.7
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans by standing (unpaid balance):
Good standing $ 2,974.1
----------------------------------------------------------------------------------------- ---------
---------
Good standing with restructured terms $ 38.5
----------------------------------------------------------------------------------------- ---------
---------
Interest overdue more than three months, not in foreclosure $ --
----------------------------------------------------------------------------------------- ---------
---------
Foreclosure in process $ 0.1
----------------------------------------------------------------------------------------- ---------
---------
Other long-term assets (statement value) $ 281.5
- ---------------------------------------------------------------------------------------------------- ---------
---------
</TABLE>
S-32
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Bonds and stocks of parent, subsidiaries and affiliates (cost):
Common stocks of subsidiaries $ 466.2
- ----------------------------------------------------------------------------------------------- ---------
---------
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less $ 3,140.1
------------------------------------------------------------------------------------------
Over 1 year through 5 years 5,182.8
------------------------------------------------------------------------------------------
Over 5 years through 10 years 5,772.8
------------------------------------------------------------------------------------------
Over 10 years through 20 years 3,275.3
------------------------------------------------------------------------------------------
Over 20 years 3,270.6
------------------------------------------------------------------------------------------ ---------
Total by maturity $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Bonds by class (statement value):
Class 1 $13,879.0
------------------------------------------------------------------------------------------
Class 2 5,215.6
------------------------------------------------------------------------------------------
Class 3 848.0
------------------------------------------------------------------------------------------
Class 4 668.8
------------------------------------------------------------------------------------------
Class 5 23.6
------------------------------------------------------------------------------------------
Class 6 6.6
------------------------------------------------------------------------------------------ ---------
Total by class $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Total bonds publicly traded $16,457.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Total bonds privately placed $ 4,184.5
- ----------------------------------------------------------------------------------------------- ---------
---------
Preferred stocks (statement value) $ 257.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Unaffiliated common stocks (market value) $ 436.0
- ----------------------------------------------------------------------------------------------- ---------
---------
Short-term investments (cost or amortized cost) $ 2,080.9
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps owned (statement value) $ 20.8
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps written (statement value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Swap and forward agreements open (statement value) $ 5.4
- ----------------------------------------------------------------------------------------------- ---------
---------
Futures contracts open (current value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Cash on deposit $ 52.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance in-force:
Ordinary $ 108.6
------------------------------------------------------------------------------------------ ---------
---------
Group life $ 31.2
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-33
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Amount of accidental death insurance in-force under ordinary policies $ 5.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance policies with disability provisions in-force:
Ordinary $ 5.5
------------------------------------------------------------------------------------------ ---------
---------
Group life $ --
------------------------------------------------------------------------------------------ ---------
---------
Supplementary contracts in-force:
Ordinary -- not involving life contingencies:
Amount on deposit $ --
------------------------------------------------------------------------------------------ ---------
---------
Income payable $ 0.8
------------------------------------------------------------------------------------------ ---------
---------
Ordinary -- involving life contingencies:
Income payable $ 3.0
------------------------------------------------------------------------------------------ ---------
---------
Group -- not involving life contingencies:
Income payable $ 1.1
------------------------------------------------------------------------------------------ ---------
---------
Group -- involving life contingencies:
Income payable $ --
------------------------------------------------------------------------------------------ ---------
---------
Annuities:
Ordinary:
Immediate -- amount of income payable $ 71.8
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- fully paid account balance $ 0.7
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- not fully paid account balance $ 264.0
------------------------------------------------------------------------------------------ ---------
---------
Group:
Amount of income payable $ 0.3
------------------------------------------------------------------------------------------ ---------
---------
Fully paid account balance $ 0.1
------------------------------------------------------------------------------------------ ---------
---------
Not fully paid account balance $ 72.3
------------------------------------------------------------------------------------------ ---------
---------
Accident and health insurance -- premiums in-force:
Ordinary $ 166.0
------------------------------------------------------------------------------------------ ---------
---------
Group $ 77.7
------------------------------------------------------------------------------------------ ---------
---------
Deposit funds and dividend accumulations:
Deposit funds account balance $16,507.3
------------------------------------------------------------------------------------------ ---------
---------
Dividend accumulations -- account balance $ 114.4
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-34
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
NOTE -- BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis
financial data as of December 31, 1997 and for the year then
ended for purposes of complying with paragraph 9 of the Annual
Audited Financial Reports in the General Section of the National
Association of Insurance Commissioners' Annual Statement
Instructions and agrees to or is included in the amounts
reported in The Lincoln National Life Insurance Company's 1997
Statutory Annual Statement as filed with the Indiana Department
of Insurance.
S-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
OTHER FINANCIAL INFORMATION
Board of Directors
The Lincoln National Life Insurance Company
Our audits were conducted for the purpose of forming an opinion
on the statutory-basis financial statements taken as a whole.
The accompanying supplemental schedule of selected statutory
basis financial data is presented to comply with the National
Association of Insurance Commissioners' Annual Statement
Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the
auditing procedures applied in our audit of the statutory-basis
financial statements and, in our opinion, is fairly stated in
all material respects in relation to the statutory-basis
financial statements taken as a whole.
February 5, 1998
S-36
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
BROOKLYN, NY
PERMIT NO. 148
[LOGO]
Fort Wayne, Indiana 46801
- -C- 1998 Lincoln National Life Insurance Co.
May 98 [LOGO]
<PAGE>
This filing is made pursuant to Rule 6e-3(T)
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
OF THE INVESTMENT COMPANY ACT OF 1940
Lincoln National Life Insurance Company hereby represents
that the fees and charges deducted under the Policies registered by this
registration statement, in the aggregate, are reasonable in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed by Lincoln National Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 119 pages.
The undertaking to file reports.
The representation pursuant to Section 26(e)(2)A of the Investment Company
Act of 1940
The signatures.
Written Consents of the following persons:
John L. Steinkamp, Esquire
Denis G. Schwartz, FSA
Ernst & Young LLP
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 (incorporated by reference to registration statement
filed on Form S-6 (File no. 333-40745) filed on November 21, 1997).
(2) Not applicable.
(3) (a) Principal Underwriting Agreement.
(b) Selling Group Agreement. (incorporated by reference to
registration statement filed on Form N-4 (File no. 33-27783)
filed on March 27, 1998.)
(c) Commission Schedule.
(d) Amendment to Principal Underwriting Agreement.
(4) Not applicable.
(5) (a) Application.
(b) Policy.
(6) (a) Articles of Incorporation of The Lincoln National Life Insurance
Company are incorporated herein by reference to registration
statement filed on Form S-6 (file no. 333-40745) filed on
November 21, 1997.
(b) By-Laws of The Lincoln National Life Insurance Company are
incorporated herein by reference to registration statement filed
on Form S-6 (file no. 333-40745) filed on November 21, 1997.
(7) Not applicable.
(8) Agreement to Purchase Shares.
(9) (a) Proposed form of Indemnification Agreement related to compliance
with IRC Section 817(h) and the regulations thereunder*.
(b) Services Agreement between Lincoln National Life Insurance
Company, Delaware Management Holding Companies Inc. and Delaware
Services Company, Inc. is incorporated herein by reference to
registration statement filed on Form S-6 (file no. 333-40745)
filed on November 21, 1997.
(10) See Exhibit 1(5).
2. See Exhibit 1(5)
3. Opinion and Consent of John L. Steinkamp, Vice President and Associate
General Counsel of The Lincoln National Life Insurance Company.
4. Not applicable.
5. Opinion and Consent of Denis G. Schwartz, FSA, Assistant Vice President
* To be filed by amendment.
<PAGE>
6. Consent of Ernst & Young LLP, Independent Auditors.
- ------------------------------------------------------------------------------
7. Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Lincoln Life Flexible Premium Variable Life Account F, certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this post-effective amendment to this Registration Statement to be signed on its
behalf by the undersigned hereunto duly authorized, in the City of Fort Wayne,
State of Indiana on the 27th day of April, 1998.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
on its own behalf as Depositor and on behalf of
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
By: /s/ Stephen H. Lewis
---------------------------------------
Stephen H. Lewis
Senior Vice President
Pursuant to 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/ Gabriel L. Shaheen
- ---------------------------- Chief Executive Officer, April 27, 1998
Gabriel L. Shaheen President and Director
(Principal Executive Officer)
/s/ Keith J. Ryan
- ---------------------------- Senior Vice President, April 27, 1998
Keith J. Ryan Assistant Treasurer
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
- ---------------------------- Director April , 1998
Jon A. Boscia
- ---------------------------- Executive Vice President, April , 1998
Jack D. Hunter General Counsel and Director
/s/ H. Thomas McMeekin
- ---------------------------- Director April 27, 1998
H. Thomas McMeekin
*
- ---------------------------- Director April 27, 1998
Ian M. Rolland
- ---------------------------- Director and April , 1998
Lawrence T. Rowland Executive Vice President
/s/ Richard C. Vaughan
- ---------------------------- Director April 27, 1998
Richard C. Vaughan
* /s/ John L. Steinkamp pursuent to a Power of
------------------------- Attorney filed with Post-
John L. Steinkamp Effective Amendment No. 3 to
this Registration Statement.
</TABLE>
<PAGE>
Exhibit 1(3)(a)
UNDERWRITING AGREEMENT
AGREEMENT made this 28TH day of December, 1987, by the Lincoln National
Life Insurance Company ("Lincoln National"), an Indiana corporation, on its own
behalf and on behalf of Lincoln National Flexible Premium Variable Life Account
F ("Variable Account F"), and American Funds Distributors, Inc. ("AFD"), a
corporation organized under the laws of the State of California.
WHEREAS, Lincoln National has established and maintains Variable Account F,
a segregated investment account, pursuant to the laws of the State of Indiana
for the purpose of selling certain flexible premium variable life insurance
policies, sometimes referred to in the prospectus and/or advertising material as
American Legacy Estate Builder, (the "Policies"), to commence after the
effectiveness of the registration statement for the Policies as filed with the
Securities and Exchange Commission (the "SEC") on Form S-6 (Registration No.
33-14692) pursuant to the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, Variable Account F is registered as a unit investment trust under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, Variable Account F will invest in shares of the American Variable
Insurance Series, a series mutual fund (the "Fund") and such shares will be sold
to Lincoln National for allocation to Variable Account F by [specify any
distributor for Fund shares]; and
WHEREAS, AFD is registered as a broker-dealer with the SEC under the
Securities and Exchange Act of 1934, as amended (the "1934 Act"), and is a
member of the National Association of Securities Dealers (the "NASD"); and
WHEREAS, Lincoln National and Variable Account F desire to have the
Policies sold and distributed through AFD, and AFD is willing to sell and
distribute such Policies, under the terms state herein.
NOW THEREFORE, the parties hereto agree as follows:
1. PRINCIPAL UNDERWRITER. Lincoln National grants to AFD the right to
be, and AFD agrees to serve as, sole distributor and principal underwriter of
the Policies during the term of this Agreement in each state or other
jurisdiction where the Policies may legally be sold. AFD agrees to use its best
efforts to solicit applications for the Policies at its own expense, to
undertake to provide any other sales services relating to the Policies and
otherwise to actively engage in all duties and functions which are necessary and
proper for the sale and distribution of the Policies on a continuous basis while
this Agreement is in effect and a registration statement for the Policies is
effective.
1
<PAGE>
2. SELLING GROUP.
a. SALES AGREEMENTS. AFD agrees to form a selling group (the
"Selling Group") consisting of broker-dealers appointed by AFD to distribute the
Policies issued by Lincoln National through its Variable Account F. AFD is
hereby authorized to enter into separate written sales agreements with
broker-dealers registered as such under the 1934 Act which agree to join the
Selling Group and to use their best efforts to solicit applications for the
Policies, PROVIDED that all such sales agreements shall:
i. Expressly be subject to this Agreement;
ii. Require Lincoln National's written approval before taking
effect;
iii. Provide that such broker-dealer will assume full
responsibility for continued compliance by itself and its
representatives with applicable federal and state securities
laws;
iv. Provide that each such broker-dealer will distribute the
Policies only in those jurisdictions in which the Policies are
registered or qualified for sale and only through duly licensed
registered representatives of broker-dealers who are properly
insurance licensed by Lincoln National to sell the Policies in
the applicable jurisdictions; and
v. Provide that all applications and initial and subsequent
payments under the Policies collected by such broker-dealer will
be remitted promptly to Lincoln National.
b. SALES AGREEMENT COPIES. AFD shall submit an executed copy of
each such sales agreement to Lincoln National's Compensation/Contracts section
immediately upon execution thereof.
c. ADDITIONAL BROKER-DEALERS. The parties hereto expressly
understand and agree that Lincoln National may from time to time propose that
the Policies be distributed through additional broker-dealers. In such
circumstances, AFD agrees to enter into a sales agreement in the usual and
customary form with such other broker-dealer, subject to AFD's reasonable
satisfaction with such other broker-dealer's credentials and practices. AFD
agrees that a sales agreement will not be unreasonably withheld.
d. INDEPENDENT CONTRACTORS. All members of the Selling Group shall
act as independent contractors and nothing herein contained shall itself
constitute such broker-dealers or their agents or employees as employees of
Lincoln National in connection with the sale of the Policies.
2
<PAGE>
e. INSURANCE LICENSES. AFD shall apply, at its own cost, for any
necessary and proper insurance licenses in the appropriate states or
jurisdictions for the designated persons associated with members of the Selling
Group for the sale of the Policies, PROVIDED that Lincoln National reserves the
right to refuse to appoint any proposed registered representative as an agent or
broker, and to terminate an agent or broker once appointed. AFD shall be
responsible for coordinating the submission of insurance license information to
Lincoln National's Licensing section.
3. PREMIUMS. All premiums or other monies payable for the Policies shall
be remitted promptly in full (unless otherwise agreed in writing by LNL)
together with the related applications, forms and any other required
documentation to Lincoln National or its designated servicing agents, and shall
be the exclusive property of Lincoln National. Checks or money orders in
payment of premiums or other monies payable shall be drawn to the order of "The
Lincoln National Life Insurance Company." Lincoln National will retain all such
payments.
4. SALES EFFORTS AND PROMOTIONAL MATERIALS.
a. PROMOTION. AFD will its best efforts to promote sales of the
Policies, including, without limitation:
i. Providing information and marketing assistance to members of
the Selling Group;
ii. Preparing and providing advertising materials and sales
literature and providing current Prospectuses for the Policies
and the Fund.
"Prospectuses" as used in this Agreement shall include Statements of Additional
Information whenever appropriate. Lincoln National and AFD will cooperate in
the development of all sales and promotional materials (but the costs thereof
will be borne by AFD).
b. POLICY INFORMATION. AFD agrees to offer the Policies for sale
only in accordance with the then current registration statement therefor. AFD
is not authorized to and shall not:
i. Give any information or make any representations concerning
the Policies except those contained in sales literature or
advertising approved pursuant to clause (ii) below or the most
recent Policy registration statement and any supplements thereto,
or
ii. Give any information regarding, or use any description of,
the Policies in any sales literature or advertising or otherwise,
unless approved by Lincoln National in writing in advance.
3
<PAGE>
c. FUND INFORMATION. Lincoln National is not authorized to and
shall not:
i. Give any information or make any representations concerning
the Fund, its shares or operations, except those contained in the
most recent Fund registration statement and any supplements
thereto, or
ii. Use any description of the fund in any sales literature or
advertising, unless approved by AFD or the Fund in writing in
advance.
Notwithstanding this paragraph 4(c) or any other provision of this Agreement, it
is not contemplated that Lincoln National will advertise, promote or incur any
expenses for the advertising or promotion of the Policies, except for the
compensation to AFD specified in paragraph 10 hereof.
d. APPROVAL BY LINCOLN NATIONAL. Advertising and sales literature
with respect to the Policies, non-public field sales material (such as
information or brochures intended for brokers only) or other supplemental sales
materials shall be submitted to Lincoln National for prior approval. AFD shall
not use (or allow the use of) any such materials not previously approved by
Lincoln National in writing. AFD expressly agrees not to use any form of
advertising bearing Lincoln National's name or referring to the Policies, other
than that furnished by Lincoln National or approved in writing by Lincoln
National.
e. ADVERTISING. The term "advertising" as used in this Agreement
includes all forms of communication by any medium, direct or indirect,
including, but not limited to, print (including brochures, letters,
illustrations and other materials), radio, television, billboards, direct mail,
booklets leaflets, business cards and stationery.
f. USE BY LINCOLN NATIONAL. Lincoln National shall have the right
to receive free of charge quantities of all such advertising and sales
literature from AFD, for use by Lincoln National in its own sales efforts.
g. REGULATORY APPROVALS. The parties understand that certain sales
literature and materials intended for use in connection with the sale of the
Policies may require filings with and/or approvals from the SEC, NASD and other
securities regulatory authorities. In any such case, AFD shall make such filing
or seek such approval; and that Lincoln National shall make such filings or seek
such approval of any appropriate insurance regulatory authorities.
5. SUSPENSION OF SALES. Lincoln National reserves the right to suspend
sales of the Policies, either nationwide or in selected jurisdictions. AFD will
take any necessary steps to ensure that no offering, sale or other disposition
of the Policies will be made after it has been notified by Lincoln National to
suspend such activities in any states or other jurisdictions and for such time
periods as may be specified in such notice. Lincoln National will not suspend
sales of the Policies without cause and will notify AFD of any cause.
4
<PAGE>
6. REPRESENTATIONS AND WARRANTIES BY AFD. AFD represents and warrants to
Lincoln National that:
a. FUND REGISTRATION. A registration statement under the 1933 Act
(Registration No. 33-14692), and under the 1940 Act (Registration No. 811-5164)
with respect to the Fund has been filed with the SEC in the form previously
delivered to Lincoln National, and copies of any and all amendments or
supplements thereto will be forwarded to Lincoln National at the time that they
are filed with the SEC.
b. MAINTENANCE OF REGISTRATION. AFD will maintain effective
registration of an indefinite number of the Fund's shares under the 1933 Act and
will register from time to time as necessary such additional shares of the Fund
(if required under the laws of any state) as may be reasonably necessary for use
as the funding vehicle for the Policies.
c. CONFORMITY TO SECURITIES LAWS. The Fund's registration statement
and any further amendments or supplements thereto will, when they become
effective, conform in all respects to the requirements of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations of the SEC thereunder, and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to AFD by Lincoln National
expressly for use therein.
d. BROKER-DEALER REGISTRATION. AFD is a broker-dealer duly
registered with the SEC pursuant to the 1934 Act and a member in good standing
of the NASD and is in compliance with the federal securities laws and the
securities laws in those states in which it conducts business as a broker-dealer
and AFD will maintain such registration, membership and compliance.
e. COMPLIANCE WITH NASD RULES. AFD will comply with the
requirements of any applicable state broker-dealer regulations and the 1934 Act
and shall conduct its affairs in accordance with the Rules of Fair Practice of
the NASD. Without limiting the generality of the foregoing, AFD agrees that it
shall be fully responsible for the following activities, which it may conduct
directly or through members of the Selling Group:
i. Ensuring that no person shall offer or sell the Policies on
its behalf unless such person is a duly registered representative
of either AFD or a member of the Selling Group, properly
insurance licensed and appointed by Lincoln National, and
appropriately licensed, registered or otherwise qualified to
offer and sell such Policies under any applicable insurance or
securities laws.
5
<PAGE>
ii. Training, supervising and controlling all such persons for
purposes of complying on a continuous basis with the NASD Rules
of Fair Practice and with applicable federal and state securities
and insurance laws requirements in connection with the offering
and sale of the Policies. In this connection AFD or such member
of the Selling Group shall:
A. Conduct such training (including the preparation
and utilization of training materials) as is necessary to
accomplish the purposes of this Agreement;
B. Establish and implement reasonable written
procedures for supervision of sales practices of agents,
representatives or brokers selling the Policies, including
ensuring that registered representatives deliver only the
currently effective prospectuses for the Policies and the
Funds and use only sales literature and advertising material
authorized in writing by Lincoln National and AFD and in
compliance with federal and state laws requirements; and
C. Take reasonable steps to ensure that the various
sales representatives appointed by it shall not make
recommendations to an applicant to purchase a Policy in the
absence of reasonable grounds to believe that the purchase
of the Policy is suitable for such applicant. While not
limited to the following, a determination of suitability
shall be based on information furnished after reasonable
inquiry concerning the applicant's insurance and investment
objectives, financial situation and needs, and the
likelihood of the applicant persisting with the Policy for a
reasonable period of time.
f. INFORMATION TRUE. Any information furnished by AFD to Lincoln
National for use in the registration statement of the Fund or the Policies will
not result in the registration statements':
i. Failing to conform in all respects to the requirements of
the 1933 Act, the 1934 Act, or the 1940 Act and the rules and
regulations thereunder, or
ii. Containing any untrue statement of a material fact or
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. AFD will
furnish Lincoln National such information with respect to the Fund or
otherwise relevant to this Agreement or the distribution of the
Policies in such form and signed by such of its officers as
6
<PAGE>
Lincoln National may reasonably request, and warrants that when so
signed, such information will be true and correct.
g. EFFECTIVENESS. AFD will take any necessary steps to ensure that
no offering, sale or other disposition of the Policies will be made until it has
been notified by Lincoln National that the subject registration statements have
been declared effective and the Policies have been released for sale by Lincoln
National, and such offering, sale or other disposition shall be limited to those
jurisdictions that have approved or otherwise permit the offer and sale of the
Policies by Lincoln National.
h. CORPORATE STANDING. AFD is a corporation duly organized and in
good standing under the laws of the State of California, with the power to own
its properties and conduct its business and has been duly qualified for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification.
i. CONSENTS. No consent, approval, authorization or order of any
court or governmental agency or body which has not been obtained by the
effective date of this Agreement is required for the consummation by AFD of the
transactions contemplated by this Agreement.
j. LITIGATION. There are no legal or governmental proceedings
pending to which AFD is a party or otherwise subject, which, if determined
adversely to AFD, would individually or in the aggregate have a material adverse
effect on the financial position, surplus or operations of AFD.
k. NO DEFAULTS. The performance of its duties under this Agreement
by AFD will not result in a breach or violation of any of the terms or
provisions or constitute a default under any statute, any indenture, mortgage,
deed of trust or other agreement or instrument to which AFD is a party or by
which AFD is bound, the Certificate of Incorporation or By-Laws of AFD, or any
order, rule or regulation of any court or government agency or body having
jurisdiction over AFD or its property.
7. REPRESENTATIONS AND WARRANTIES BY LINCOLN NATIONAL.
Lincoln National represents and warrants to AFD that:
a. POLICY REGISTRATION STATEMENT. Registration statements under the
1933 Act (Registration No. 33-14692) on Form S-6 (with respect to the Policies)
and under the 1940 Act (Registration No. 811-5164) on Form N-8B-2 (with respect
to Variable Account F) have been filed with the SEC in the forms previously
delivered to AFD, and copies of any and all amendments and supplements thereto
will be forwarded to AFD at the time that they are filed with the SEC.
7
<PAGE>
b. MAINTENANCE OF REGISTRATION. Lincoln National will maintain
effective registration of an indefinite amount of the Policies under the 1933
Act.
c. CONFORMITY TO SECURITIES LAWS. The registration statements and
any further amendments or supplements thereto will, when they become effective,
conform in all material respects to the requirements of the 1933 Act, and the
1934 Act, and the 1940 Act, and the rules and regulations of the SEC thereunder,
and will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, however, that this representation and warranty
shall not apply to any statement or omission made in reliance upon and in
conformity with information furnished in writing to Lincoln National by AFD
expressly for use therein.
d. STOCK LIFE COMPANY. Lincoln National is validly existing as a
stock life insurance company in good standing under the laws of the State of
Indiana, with the power to own its properties and conduct its business as
described in the registration statement, and has been duly qualified for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification.
e. THE POLICIES. The Policies to be issued through Variable Account
F have been duly and validly authorized and, when issued and delivered against
payment therefor as provided in the Policy registration statements and in the
Policies, will be duly and validly issued and will conform to the description of
such Policies contained in the registration statement therefore.
f. NO DEFAULTS. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms or provisions of, or constitute a default under
any statute, any indenture, mortgage, deed of trust or other agreement or
instrument to which Lincoln National is a party or by which Lincoln National is
bound, Lincoln National's Charter as a stock life insurance company or By-Laws,
or any order, rule or regulation of any court or governmental agency or body
having jurisdiction over Lincoln National or any of its properties.
g. CONSENTS. No consent, approval, authorization or order of any
court or governmental agency or body which has not been obtained by the
effective date of this Agreement is required for the consummation by Lincoln
National of the transactions contemplated by this Agreement.
h. LITIGATION. There are no material legal or governmental
proceedings pending to which Lincoln National or Variable Account F is a party
or of which any property of Lincoln National or Variable Account F is the
subject, other than as set forth in the registration statement relating to the
Policies, and other than litigation incident to the kind of business conducted
by Lincoln National which, if determined adversely to Lincoln National, would
not
8
<PAGE>
individually or in the aggregate have a material adverse effect on the financial
position, surplus or operations of Lincoln National.
i. INFORMATION TRUE. Any information furnished in writing by
Lincoln National to AFD for use in the registration statement of the Fund or the
Policies will not result in the registration statement's (i) failing to conform
in all respects to the requirements of the 1933 Act, the 1934 Act, or the 1940
Act and the rules and regulations thereunder or (ii) containing any untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Lincoln National will furnish AFD such information with respect to the Policies
in such form and signed by such of its officers as AFD may reasonably request,
and warrants that when so signed, such information will be true and correct.
8. EXPENSES.
a. AFD. AFD will bear all its expenses of providing services under
this Agreement, including but not limited to the cost of:
i. Preparing, printing and mailing or otherwise disseminating
all advertising and sales literature for the Policies;
ii. Printing and mailing Fund and Policy Prospectuses used for
sales purposes; and
iii. Any direct expenses incurred in the normal course of
business by its employees in assisting Lincoln National in performing
its duties hereunder. AFD shall not bear expenses of registering and
qualifying shares of the Fund or Policies for sale under federal or
state laws.
b. LINCOLN NATIONAL. Lincoln National will bear all its expenses of
providing services under this agreement, including the cost of:
i. Policy Prospectuses not used for sales purposes;
ii. Registering or qualifying the Policies and Variable Account
F under federal or state laws;
iii. Any direct expenses incurred in the normal course of
business by its employees in assisting AFD in performing its duties
hereunder; and
iv. Mailing the Fund's semi-annual reports to Policy owners.
9
<PAGE>
c. THE FUND. The parties hereto understand and agree that the Fund
shall bear its own expenses (except to the extent borne by the Fund's investment
adviser or manager), including but not limited to the cost of:
i. Preparing Fund Prospectuses and printing and mailing them to
existing Policy owners;
ii. Preparing and printing Fund proxy materials and reports to
shareholders, and the costs of mailing such proxy materials and
reports to Policy owners; and
iii. Registering Fund shares under federal or state laws.
9. COMPENSATION.
a. COMMISSIONS. Lincoln National shall pay such remuneration to AFD
for its services hereunder as may be contained in such schedules of remuneration
as may be adopted and appended to this Agreement from time to time ("Schedules
of Remuneration"); PROVIDED that no such schedule shall be effective until
signed and attested to on the face thereof by Lincoln National and AFD. No
compensation shall be paid with respect to any Policy that is canceled during
the "Free Look Period" as defined in the Policy Prospectus, and AFD agrees to
refund to Lincoln National any compensation that may have been paid with respect
to such Policies.
b. PAYING AGENT. AFD shall be responsible for paying all
commissions or other fees which are due for the sale of the Policies to members
of the Selling Group or associated persons thereof. AFD hereby appoints Lincoln
National as its paying agent to pay commissions or other remuneration to members
of the Selling Group in accordance with the Schedule of Remuneration and agrees
that Lincoln National shall deduct any amounts so paid from amounts otherwise
due to AFD.
Lincoln National, as paying agent for AFD, shall provide AFD:
i. On a monthly or otherwise regular basis, a statement setting
forth commissions and concessions earned and payable to AFD, along
with an accounting of AFD Selling Group commission accounts; and
ii. On a weekly basis, statements setting forth commissions
earned and payable to Selling Group members together with a separate
accounting of each licensed representative's production.
c. OFFSET. Lincoln National may at any time deduct from any monies
otherwise payable under this Agreement and any supplement or amendment hereto,
any monies or debts due from AFD, including interest [at what rate?] on any such
debts. Furthermore, in
10
<PAGE>
administering AFD's compensation accounting with members of the Selling Group,
Lincoln National shall have the authority to offset any Selling Group member
commission accounting debt to AFD. Included in statements described in (a) and
(b) above, will be an accounting of charges that would occur in the normal
course of business. Those charges include but are not limited to: "Not taken
out" charges, cancellation fees, reissue fees, and commission chargebacks.
Notwithstanding the preceding, no member of the Selling Group or associated
person thereof shall have any claim whatsoever against Lincoln National.
d. INDEMNIFICATION OF PAYING AGENT. In consideration for Lincoln
National's agreement to act as paying agent for AFD, AFD agrees to indemnify and
hold harmless Lincoln National, its officers, directors, employees, agents,
servants or successors against any losses, claims, damages or liabilities
incurred as a result of any action taken or omitted by Lincoln National acting
as such paying agent on behalf of AFD, and will reimburse Lincoln National for
any legal or other expenses reasonably incurred by it in investigating or
defending against such loss, claim, damage, liability or action.
10. INDEMNIFICATION.
a. GENERAL INDEMNITY. Each party (the "Indemnifying Party") agrees
to indemnify and hold harmless the other party, its officers, directors,
employees, agents, servants or successors against any losses, claims or
liability incurred as a result of any action taken or omitted by the
Indemnifying Party or any of its officers, directors, employees agents or
servants not authorized by this Agreement, including the violation of any
federal or state law or regulation; PROVIDED, however, that no such indemnity
shall be provided for any such liability resulting from willful misfeasance, bad
faith or gross negligence of the other party.
b. FUND REGISTRATION STATEMENT. Without limiting the generality of
the foregoing, AFD will indemnify and hold harmless Lincoln National and
Variable Account F against any losses, claims, damages or liabilities to which
Lincoln National and Variable Account F may become subject, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
i. Any untrue statement or alleged untrue statement of any
material fact contained in the Fund registration statement or
Prospectus or any supplements or amendments thereto,
ii. The omission or alleged omission to state any material fact
required to be stated in the Fund registration statement or Prospectus
or any supplements or amendments thereto or necessary to make the
statements therein not misleading, or
iii. Other misconduct or negligence of AFD in its capacity as
principal underwriter and distributor of the Fund;
11
<PAGE>
and will reimburse Lincoln National or Variable Account F for any legal or other
expenses reasonably incurred by it in investigating or defending against such
loss, claim, damage, liability or action.
c. POLICY REGISTRATION STATEMENT. Without limiting the generality
of the foregoing, Lincoln National will indemnify and hold harmless AFD against
any losses, claims, damages or liabilities to which AFD may become subject,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
i. Any untrue statement or alleged untrue statement of any
material fact contained in the Policy registration statement or
Prospectus or any supplements or amendments thereto,
ii. The omission or alleged omission to state any material fact
required to be stated in the Policy registration statement or
Prospectus or any supplements or amendments thereto or necessary to
make the statements therein not misleading, or
iii. Other misconduct or negligence of Lincoln National;
and will reimburse AFD for any legal or other expenses reasonably incurred by it
in investigating or defending against such loss, claim, damage, liability or
action.
11. INVESTIGATIONS OR PROCEEDINGS.
a. COOPERATION. AFD and Lincoln National agree to cooperate fully
in:
i. Any insurance regulatory inspection, inquiry, investigation
or proceeding or judicial proceeding arising in connection with the
Policies distributed under this Agreement;
ii. Any securities (including, but not limited to, SEC and NASD)
regulatory inspection, inquiry, investigation or proceeding or any
judicial proceeding with respect to Lincoln National, AFD, or any
affiliates or representatives of either of them to the extent that
such inspection, inquiry, investigation or proceeding relates to the
Policies distributed under this Agreement.
b. NOTIFICATION. Without limiting the foregoing, each party will
promptly notify the other of:
i. Any customer complaint;
12
<PAGE>
ii. Notice of any regulatory inspection, inquiry, investigation,
hearing or proceeding or any judicial proceeding with respect to it or
any of its representatives which relates to or might affect the
issuance or distribution of any Policy or any activity in connection
with any such Policy;
iii. Any request by the SEC for the amendment of either or both
the Fund or the Policy registration statement or for additional
information;
iv. The issuance of any stop order suspending effectiveness of
the Fund or the Policy registration statement or the initiation of any
proceeding for that purpose; or
v. The happening of any material event which makes untrue any
statement made in either or both the Fund or the Policy registration
statement or any supplements or amendments thereto, or which requires
the making of a change therein in order to make any statement made
therein not misleading.
c. CUSTOMER COMPLAINTS. In the case of a customer compliant, AFD
and Lincoln National will cooperate in investigating such complaint and consult
with each other to arrive at a mutually satisfactory response.
12. CONFIDENTIALITY. Any information, documents or materials, whether
printed or oral, furnished by either party or its agents or employees to the
other which are not otherwise publicly available shall be held in confidence.
No such information shall be given to any third party, other than to such
sub-contractors of AFD as may be permitted herein (except under requirement of a
lawful authority), without the prior express written consent of the other party.
13. TERMINATION.
a. EVENTS OF TERMINATION. This Agreement may be terminated:
i. Either with or without cause, upon 90 days' written notice
to the other party;
ii. At any time upon the mutual written consent of the parties
hereto,
iii. At the option of Lincoln National upon the institution of
formal proceedings against AFD by the SEC, NASD, or any other
regulatory authority, or
iv. As otherwise provided in the 1940 Act, in any such case
without a penalty.
13
<PAGE>
b. RETURN OF RECORDS, ETC.. Upon termination of this Agreement,
i. All rate manuals, policyholder records, application forms,
letters or other correspondence with Policy owners and representatives
of Lincoln National, sales material, equipment and all other supplies
and records in the possession of AFD or members of the Selling Group
shall be returned to Lincoln National;
ii. All authorizations, rights and obligations shall cease,
except the obligations to settle accounts hereunder, and any
obligation to cooperate referred to in paragraph 12 hereof; and
iii. Both AFD and Lincoln National will use best efforts to
preserve in force the business as issued pursuant to this Agreement.
14. ASSIGNMENT. AFD shall not assign or delegate its responsibilities
under this Agreement and shall not assign any concessions or commissions payable
hereunder without the prior written consent of an authorized officer of Lincoln
National.
15. EXCLUSIVITY.
a. The services of AFD and Lincoln National hereunder are not to be
deemed exclusive and AFD and Lincoln National shall be free to render similar
services to others, except that:
i. AFD shall not, while this Agreement is in effect, act as
principal underwriter, sponsor, distributor or dealer with respect to
flexible premium variable life insurance policies issued by insurance
companies other than Lincoln National and its affiliates;
ii. Shares of the Fund shall not be sold to any other life
insurance company to fund flexible premium variable life insurance
policies.
16. REGULATION.
a. APPLICABLE LAWS. This Agreement shall be subject to the
provisions of the 1940 Act and the 1934 Act and the rules, regulations, and
rulings thereunder and of the NASD from time to time in effect, including such
exemptions from the 1940 act as the SEC may grant, and the terms of this
Agreement shall be interpreted and construed and in accordance therewith.
b. SUBMISSION TO REGULATION. AFD shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of Variable
Account F, present or future; and if, and only if, requested by Lincoln
National, AFD will provide any information,
14
<PAGE>
reports or other material which any such body may request or require pursuant to
applicable laws or regulations.
17. CONVICTIONS FOR FRAUD. AFD represents that neither AFD nor any
registered representative of any member of the Selling Group, or any other
person employed or utilized in any connection with respect to the services
provided pursuant to this Agreement:
a. FEDERAL VIOLATIONS. Within the last ten years has been convicted
of any felony or misdemeanor arising out of conduct involving embezzlement,
fraudulent conversion, or misappropriation of funds or securities, or involving
violations of sections 1341, 1342, or 1343 of Title 18, United States Code; or
b. INSURANCE VIOLATIONS. Within the last ten years has been found
by any state regulatory authority to have violated or has acknowledged violation
of any provision of any state insurance law involving fraud, deceit or knowing
misrepresentation; or
c. SECURITIES VIOLATIONS. Within the last ten years has been found
by any federal or state regulatory authorities to have violated or have
acknowledged violation of any provision of federal or state securities laws
involving fraud, deceit or knowing misrepresentation.
18. ENTIRETY OF AGREEMENT AMENDMENT. This Agreement covers and includes
all agreements, oral and written, expressed or implied, between Lincoln National
and AFD and supersedes any and all other agreements between the parties with
respect to the subject matter hereof. Any provision of this Agreement may be
waived or amended only by a written instrument duly executed by the parties
hereto.
19. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
20. WAIVER. Forbearance or neglect of Lincoln National to insist upon
full performance of any term or provision of this Agreement shall not constitute
a waiver of any rights and privileges hereunder.
21. LIMITATIONS. Neither party shall have authority on behalf of the
other to make, alter or discharge any contractual terms of the Policy, to waive
any forfeiture, to extend the time of making any contributions to the Policy,
nor to guarantee dividends, to alter the forms which either may prescribe, or to
substitute other forms in place of those prescribed by the other.
22. CAPTIONS. The captions, headings and arrangements used in this
Agreement are for convenience of reference only and do not affect, limit or
amplify the terms and provisions hereof.
15
<PAGE>
23. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officials as of the day and year first above
written to take effect upon the effectiveness of the registration statement with
respect to the Policies.
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY, on behalf of
itself and Variable Account F
Attest:
/s/ Janet M. Hoffman /s/ Harlan K. Holly
By
- ----------------------------------- --------------------------------------
Name:
Title:
AMERICAN FUNDS DISTRIBUTORS, INC.
Attest:
/s/ Michael Downer /s/
By
- ----------------------------------- --------------------------------------
Name:
Title:
16
<PAGE>
SCHEDULE OF COMMISSIONS TO DEALERS AND REMUNERATION TO AFD
1. ALL SALES
Lincoln National will make direct payment of commissions to dealers and
remuneration to AFD with respect to all sales of the Policies according to
the schedule set forth below. Where state law prohibits direct payment to
AFD, payment will be made in accordance with the applicable state law.
<TABLE>
<CAPTION>
Commissions Remuneration
to Dealers to AFD
---------- ------
<S> <C> <C>
All Premiums from
Policies Sold By
Member Dealers 5.5% 1.00%
<CAPTION>
Commissions to Remuneration
Lincoln National to AFD
---------------- ------
<S> <C> <C>
All Premiums from
Policies Sold By LNSC (As determined by
Agents and Brokers Lincoln National) 0.40%
</TABLE>
An annual .25% continuing commission will be paid to dealers (except
Lincoln Nation) on the Policy value of premiums beginning in the second
Policy year. This asset based compensation will be paid at the end of each
calendar quarter and will be calculated as follows: At the end of each
quarter, Lincoln National will calculate and pay, for all Policies which
have been in force for 15 months or more as of the last day of the quarter,
an amount equal to .0625% of an amount equal to the excess of Policy value
over loans as of the last day of the quarter.
2. SALES VOLUME ALLOWANCE
Effective January 1, 1988, AFD will relinquish a portion of its
remuneration in order to provide an additional sales volume allowance of
.25% to be paid to dealers (except LNSC agents and brokers) attaining a
sales volume of at least $2,000,000 in American Legacy Life premiums in
each calendar year. For calendar year 1988, the allowance will be paid on
all premiums received between April 1 and December 31 for years thereafter,
the allowance will be paid on all premiums received during the calendar
year.
Lincoln National, upon notification from AFD that a broker-dealer has
calendar year sales of $2,000,000 or more, will deduct from AFD's
remuneration to pay that broker-dealer the allowance due. The initial
payment will be included in the next possible check due
17
<PAGE>
following attainment of the $2,000,000 premium threshold for American
Legacy Life sales. All subsequent payments will be made at the end of each
quarter throughout the remainder of the calendar year. The broker-dealers
must attain the $2,000,000 sales volume each calendar year to qualify for
the additional allowance payments.
3. INTRODUCTORY PERIOD
All member dealers (except LNSC agents and brokers) will be paid a 6.50%
commission on all Policy premiums on Policies sold between January 4, 1988,
and March 31, 1988.
18
<PAGE>
COMMISSION SCHEDULE
American Legacy Life - LNL Separate Account F
On contracts sold through American Funds Distributors, the following commissions
will be paid to American Funds Distributors:
6.50% of all premiums received, plus
.0625% of excess of Policy Value over Policy Loans, payable at the end of
each quarter beginning with the end of the fifth policy quarter.
On contracts sold through the Lincoln National Distribution system, the
following commissions will be paid:
4.50% of all premiums received, payable to the selling agent or
broker, plus
1.75% of all premiums received, payable to Lincoln National Sales
Corporation, Inc., plus
.40% of all premiums received, payable to American Funds Distributors.
<PAGE>
AMENDMENT TO THE PRINCIPAL UNDERWRITING AGREEMENT
This amendment, dated as of March 30, 1998 (this "Amendment"), to a certain
Principal Underwriting Agreement effective on the 28th day of December, 1987
(the "Original Agreement"), is executed by and between LINCOLN NATIONAL LIFE
INSURANCE COMPANY ("Lincoln National"), a life insurance company organized under
the laws of the State of Indiana, on behalf of itself and LINCOLN NATIONAL
FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F ("Separate Account"), a separate
account established by Lincoln National pursuant to the Indiana Insurance Code,
and AMERICAN FUNDS DISTRIBUTORS, INC. ("AFD"), a corporation organized under the
laws of the State of California (collectively, the "Parties"). Unless otherwise
specifically provided, this Amendment shall be effective as of September 1,
1997.
WITNESSETH:
WHEREAS, the Original Agreement, as amended, provides for AFD to serve as
principal underwriter for certain individual flexible premium variable life
insurance policies defined more fully therein and marketed under the name
"American Legacy Life" (the "Policies"); and
WHEREAS, the Original Agreement contains certain exclusivity provisions in
Section 17 that the Parties desire to eliminate; and
NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants
and conditions contained in the Original Agreement, as amended as well as herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Lincoln National, the Separate Account and AFD hereby
agree as follows:
A. SECTION 17. Section 17 of the Original Agreement is hereby replaced and
Section 5 of the Original Agreement is hereby modified by the "Non-Exclusivity
Provisions" set forth below. All other terms and conditions of the Original
Agreement as previously amended, are hereby ratified and confirmed with respect
to the Policies.
NON-EXCLUSIVITY PROVISIONS. AFD may act as principal underwriter, sponsor,
distributor or dealer for issuers other than Lincoln National or its affiliates
in connection with mutual funds or insurance products. American Variable
Insurance Series (the "Series") may be sold to fund insurance contracts and
policies, including those other than the Policies, of issuers other than Lincoln
National or its affiliates or to other shareholders in accordance with Internal
Revenue Code Section 817(h) and the regulations thereunder. Lincoln National
may issue through any broker-dealer any insurance contracts and policies;
however, Lincoln National will not enter into any agreement with any other
organization for the purpose of distributing the Policies. The foregoing is
subject to the
<PAGE>
covenants and conditions set forth below:
1. APPOINTMENT FEES. The Original Agreement in the last sentence of
Section 5 provides that AFD will be responsible for all state
insurance appointing fees and associated insurance license renewal
fees incurred to enable members to sell the Policies ("appointment
fees"). This sentence in Section 5 is hereby eliminated and it is
agreed that Lincoln National will be responsible for any and all
appointment fees as of September 1, 1997. Lincoln National will also
assume the responsibility for deciding whether to pay appointment fees
with respect to "non-producers." In the event Lincoln National
determines to stop paying the appointment fees for any non-producer,
AFD shall be given the option to pay such fees.
2. LINCOLN FINANCIAL ADVISORS ("LFA"). The Schedule of Commissions to
Dealers and remuneration to AFD is hereby amended to provide that sales
through LFA (referred to in the Schedule by its predecessor company's name
Lincoln National Sales Corporation or "LNSC") shall be at full reallowance
to AFD and subject to standard Selling Group Agreement terms and conditions
including remuneration for all new sales. This item will be implemented on
January 1, 1998.
3. BEST DEAL PROVISION. Lincoln National shall make available to AFD for
distribution through an AFD-formed selling group, at AFD's option, any
variable contract or policy type or variable contract or policy feature
issued by Lincoln National through broker-dealers on the same terms and
conditions. Lincoln National shall make available to AFD any proposed
variable contract or policy type to be issued through broker-dealers prior
to introduction. AFD shall use its best efforts to provide wholesaler
support for American Legacy Life and successor policies as long as the
Original Agreement, as amended, or similar agreement is in effect that is
at least comparable to the level of support provided by AFD for non-Lincoln
policies.
AFD will recommend to the Series' Board of Trustees that Lincoln National
may use at its option any fund of the Series in any of its contracts or
policies.
4. 1035 EXCHANGES. Lincoln National and AFD each agree not to seek or
encourage exchanges between the Policies and either any non-Lincoln
National policy or other Lincoln National policy. Both parties will
give their respective "best efforts" to discourage such exchanges.
The payment of compensation in connection with such an exchange will
not be a violation of this agreement; however, either Party may, if
necessary, cause commissions not to be paid on exchanges of this type
that do occur.
B. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
<PAGE>
each of which when so executed, shall be deemed to be an original, but such
counterparts taken together shall constitute but one and the same contract.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused the Amendment to be duly
executed and attested as follows:
The Lincoln National Life Insurance
Company for itself and Lincoln National
Flexible Premium Variable Life Account F
Attest: By:
------------------------- -------------------------------
American Funds Distributors, Inc.
Attest: By:
------------------------- -------------------------------
<PAGE>
<TABLE>
<S><C>
LINCOLN LIFE
Lincoln National Life Insurance Co. APPLICATION FOR LIFE INSURANCE
Fort Wayne, IN 4680-1110 PART ONE
219-455-2000 PLEASE PRINT
- ------------------------------------------------------------------------------------------------------------------------------------
LAST FIRST MIDDLE INITIAL
(a) Full name
1.PROPOSED (b) Social Security number (c) Date of birth / / (d) Age
INSURED STATE / COUNTRY
(e) Birthplace (f) Sex Male Female
(g) Driver's license # State
NO. & STREET CITY COUNTY STATE ZIP
(h) Residence address
(I) Phone no. ( ) -
(j) Employer's name
NO. & STREET CITY COUNTY STATE ZIP
(k) Employer's address
(l) Phone no. ( ) -
(m) Occupation
(n) Occupational duties
(o) Annual earned income $ (p) Income front other sources $
(q) List other sources
- ------------------------------------------------------------------------------------------------------------------------------------
2. PLAN (a) Plan of insurance
SELECTIONS (b) Amount of insurance $ (c) If UL or VUL Level (basic) Increasing (basic plus)
(d) If Whole Life: Is automatic premium loan provision to be in effect? Yes No
(If neither box is checked, "No" is assumed,)
(e) Term rider coverage
Proposed insured also applying for term rider coverage. Amount of term rider $____________
(If additional benefits/riders are requested on term coverage for proposed insured, indicate in
Special Instructions.)
Other(s) applying for a term rider. List names. (Also complete form 750TR for each term rider.)
(f) Additional benefits/policy riders (base insured only):
Accelerated benefit rider (sign form Contingent option insurability rider $
in back Option life name/D.O.B./sex
Accidental death benefit $___________ Retirement option insurability rider
Automatic increase rider (UL) $ ___________ Option date ___________
Children's term rider __________ units First-to-die rider (UL/VUL) Complete 750TR for
Convalescent care benefit (UL/VUL) each other covered insured) $ _____________
Disability benefit payment $_____ /month Name(s) of other covered insured(s) ____________
Guaranteed insurability __________ units _______________________________________________
Policy split option (Survivor Life only) Last survivor rider (UL/VUL) (Complete 750TR
Waiver of cost of insurance (UL/VUL) for each other covered insured) $ _______________
Waiver of premium benefit (Non-UL) Name(s) of other covered insured(s) ____________
Other benefits/riders __________________ ________________________________________________
___________________________________ Paid up additions purchase rider (WL only)
___________________________________ Purchase option A: single premium $ _______
___________________________________ Purchase option B: level premium $ ________
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3. SPECIAL
INSTRUCTIONS
Form 750L 3/94 Lincoln National Life Insurance Co. is a part of Lincoln National Corporation
<PAGE>
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4. BENEFICIARY(IES) (a) Primary
LAST FIRST MIDDLE INITIAL
Proceeds are paid (1) Full name
equally to all (IF NO RELATIONSHIP GIVE ADDRESS)
surviving primary (2) Relationship (3) Date of birth / /
beneficiaries unless
otherwise stated. if (b) Primary Contingent
there are no surviving LAST FIRST MIDDLE INITIAL
primary beneficiaries, (1) Full name
proceeds are paid (IF NO RELATIONSHIP GIVE ADDRESS)
equally to all (2) Relationship (3) Date of birth / /
surviving contingent (c) Primary Contingent
beneficiaries unless LAST FIRST MIDDLE INITIAL
otherwise stated. (1) Full name
(IF NO RELATIONSHIP GIVE ADDRESS)
(2) Relationship (3) Date of birth / /
- ------------------------------------------------------------------------------------------------------------------------------------
5. OWNER (a) Full name (b) Date of birth / /
Complete only if (c) Social Security no./Tax I.D. - - (d) Relationship to proposed insured
other than proposed (e) Residence address
insured (f) If proposed insured is a minor, will policy ownership pass as a gift to proposed insured at age 21 ?
Yes No (If you check "No," policy ownership will pass to the estate of the owner if the owner
and any contingent owner die before the insured. If neither box is checked,"No" is assumed.)
(g) Contingent owner (name/relationship to proposed insured)
(h) If two or more Primary owners are named, complete special instructions and check applicable block:
Joint owners with right of survivorship between them
Common owners with no right of survivorship between them
- ------------------------------------------------------------------------------------------------------------------------------------
6. APPLICANT (a) Applicant is Owner Other
Complete only if (b) Total amount of life insurance in force on Applicant $
other than (c) Occupation (d) Annual income $
proposed insured
COMPLETE THE FOLLOWING ONLY IF APPLICANT IS OTHER THAN OWNER OR PROPOSED INSURED.
(e) Social Security no./Tax I.D. - - (f) Date of birth
(g) Relationship to proposed insured
(h) Residence address
- ------------------------------------------------------------------------------------------------------------------------------------
7. CHILDREN Relationship to Date Height Weight Amount of life
List only those to be Name proposed insured of birth ft. in. (pounds) insurance in force
insured on children's
rider. For additional
children, enter in
Special Instructions
<PAGE>
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8. MONEY WITH Yes, give amount $ ______________________ If "Yes," complete Conditional Receipt.
APPLICATION No
- ------------------------------------------------------------------------------------------------------------------------------------
9. PREMIUM (a) Send notices to Residence address Employer's address Owner Other
(b) Billing frequency Monthly Quarterly Semi-annually
(EFT/PRD/M.A. only) Annually Single premium
(c) Billing method EFT (Monthly only) (Current # _____________) Direct
Military allotment (#________________) PRD (#___________)
(d) M.E.C. Yes, policy should be allowed to become a Modified Endowment Contract (M.E.C.).
No, policy should NOT be allowed to become a Modified Endowment Contract
(M.E.C.).
Premiums in excess of M.E.C. premium will be refunded to the owner.
- ------------------------------------------------------------------------------------------------------------------------------------
10. ALLOCATION OF REQUEST ONLY THOSE SUBACCOUNTS AVAILABLE WITH THE PRODUCT SELECTED. Refer to product prospectuses.
PREMIUM (Whole % only-each elected subaccount must be at least 10%. Total of all subaccounts must equal 100%.)
Applies only to AVIS SUBACCOUNTS LNIMC SUBACCOUNTS
Variable Life ALLOCATION SUBACCOUNT ALLOCATION SUBACCOUNT
%General account (LNL) %General account (LNL)
%Growth %Growth
%Growth-income %Bond
%High yield bond %International
%U.S. Govt/AAA-rated securities %Managed
%Cash management %Money market
% International %Putnam Master
%Asset allocation %Social awareness
% %Special opportunities
% %Aggressive growth
% %Capital Appreciation
% %Equity-income
% %
- ------------------------------------------------------------------------------------------------------------------------------------
11. ANNUAL I, the owner, certify under penalties of perjury that my correct SSN/TIN is included on this
DIVIDENDS application and I have not been notified that I am subject to backup withholding.
Applies only to if so notified, initial here. __________
participating Select option desired:
policies Paid in cash Reduce premiums Paid up additions Left at interest
One year term (select one):
Balance paid in cash Balance to reduce premiums
Balance to additions Balance to accumulate
- ------------------------------------------------------------------------------------------------------------------------------------
12. TOTAL (a) If none, check here
INSURANCE PLAN COVERAGE TO 1035
CURRENTLY IN (I.E. TERM, WHOLE AMOUNT OF ACCIDENTAL DEATH ISSUE BE REPLACED? EXCHANGE?
FORCE ON (b) COMPANY LIFE, UL, V(JL, ETC.) INSURANCE BENEFIT AMOUNT DATE YES* NO YES* NO
PROPOSED
INSURED(s)
(c) will premiums for insurance applied for be paid by policy loan or withdrawals from any existing
life policy or annuity? Yes* No
*IF "YES," COMPLETE AND SUBMIT APPLICABLE STATE-REQUIRED REPLACEMENT FORM(S) WITH THIS APPLICATION.
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
13. CORPORATION/ (a) Value of business: Net worth $ ______________________ (b) Fair market value $ _______________
BUSINESS (c) Proposed insured's interest: percent owned _______ %
ASSOCIATE (d) Names of other officers and co-owners and amount of business insurance on their lives
Complete only if a (if any not insured, explain)
corporation or a
business associate is VALUE OF PERCENTAGE AMOUNT AMOUNT
beneficiary or owner NAME BUSINESS INTEREST OWNED NOW CARRIED NOW REQUESTED
of the policy
- ------------------------------------------------------------------------------------------------------------------------------------
14. GENERAL THE FOLLOWING QUESTIONS PERTAIN TO ALL PROPOSED
INFORMATION PROPOSED INSUREDS, INCLUDING CHILDREN TO INSURED CHILDREN GIVE FULL DETAILS FOR ALL "YES" ANSWERS
BE COVERED UNDER CHILDREN'S RIDER. YES NO YES NO (INDICATE QUESTION NUMBER.)
(a) Are there any applications) for any life or health insurance
pending or contemplated?
(b) Have you ever received or claimed disability benefits or a
pension for any injury, sickness, or impaired condition?
(c) In the past 5 years, have you made, or contemplated making,
any flight other than as a passenger?
(If "Yes," complete aviation questionnaire.)
(d) In the past 5 years, have You engaged in, or contemplated
engaging in: ballooning; parachuting; hang gliding; vehicle
racing; scuba diving below 60 feet; mountain climbing, or any
similar sport or avocation?
(If "Yes," circle activity and complete appropriate questionnaire.)
(e) Do you have any intentions of traveling or living outside the
U.S.A. or Canada in the next 2 years except for vacation(s)?
(f) In the past Io years have you used alcohol to excess or intoxication;
or been convicted for the use or possession of alcohol; or received
advice, counseling or treatment as the result of the use of alcohol
or drugs; or used or been convicted for the use or possession of any
narcotic, stimulant, sedative, or hallucinogenic drug?
(If "Yes," complete Drug/Alcohol questionnaire.)
(g) In the past 5 years have you been convicted of 2 or more
moving violations, or driving under the influence, or had a
driver's license suspended or revoked? If yes, give details.
(h) In the past 10 years have you been convicted of a felony?
(I) In the past 10 years have you:
(1) been diagnosed as having, or been treated for, Acquired
Immune Deficiency Syndrome (AIDS) or HIV disease by a
member of the medical profession?
(2) tested positive for antibodies to the HIV virus?
- ------------------------------------------------------------------------------------------------------------------------------------
15. TOBACCO USE - What type of tobacco (nicotine) have you used in the past 12 months?
PRIMARY None
PROPOSED Cigarettes (average number smoked per day?
INSURED Pipe; cigar; chewing tobacco; snuff; nicotine gum or nicotine patch; other. (Circle type(s) used.)
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
16. MEDICAL (a) Do you have a regular doctor? Yes No
INFORMATION- if "Yes," name and address of your regular doctor ___________________________________________________
PROPOSED _____________________________________________________________________________________________________
INSUREDS (b) Date last consulted / / (c) Reasons and results _________________________
Questions (a) (d) Height ____ ft. ____ in. (e) Weight ________ lbs.
through (h) in this (f) Have you lost 10 pounds or more in the past year? Yes No If "Yes," amount lost ____ lbs.
section apply to Reason for weight loss?_______________________________________________________
primary proposed (g) Have two or more of proposed insured's immediate family (parents, brothers, or sisters) had heart
insured disease, stroke or diabetes prior to their age 60? Yes No
LIVING DECEASED
(h) FAMILY HISTORY AGE AGE AT DEATH CAUSE OF DEATH
Father
Mother
Brothers
Sisters
EXPLAIN FULLY ALL "YES" ANSWERS.
INCLUDE SPECIFIC DIAGNOSIS, TREATMENTS,
THE FOLLOWING QUESTIONS PERTAIN TO ALL PROPOSED RESULTS, DATES OF ONSET AND RECOVERY,
PROPOSED INSUREDS, INCLUDING CHILDREN TO INSURED CHILDREN AND NAMES AND ADDRESSED OF ALL
BE COVERED UNDER CHILDREN'S RIDER. YES NO YES NO DOCTORS AND HOSPITALS.
(I) Are you now receiving treatment or medication of any kind, or
do you contemplate treatment or surgery?
(j) In the past IO years, have you had or been told that you had:
high blood pressure or disease of the heart or blood vessels;
cancer or tumor of any kind; epilepsy or nervous disorder;
diabetes; lung or respiratory disorder; kidney or urinary bladder
disease; disorder of the lymph nodes or blood; gastrointestinal
or digestive disorder; or any disease of the reproductive organs,
including any sexually transmitted diseases?
(If "Yes," circle the items that pertain, and explain details.)
(k) In addition to any doctors or hospitals listed above, in the last 5
years, have you:
(1) been treated, examined or observed in a hospital, clinic, or
other medical facility?
(2) consulted with any other doctors?
(3) been treated or had an operation for any other cause(s) not
listed above?
(l) (Complete only if proposed insured is less than age 15.)
Has child had any birth injury or do you know of any
congenital or hereditary abnormality, disease or trait which
may affect the child's future health?
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
17. HOME OFFICE
CORRECTIONS
AND ADDITIONS
AGREEMENT
I understand and agree that:
1. This application is made tip of Part One, Part One TR (if completed), and Part Two, if required by Lincoln National Life
Insurance Company (the "Company"). The application, any policy issued as a result of it, and any papers attached to the policy by
the Company will form the entire contract of insurance.
2.Only an officer of the Company (the President, a Vice President, the Secretary, or an Assistant Secretary) may make or alter any
contract or agree not to enforce any of the Company's rights. NO AGENT, BROKER, OR MEDICAL EXAMINER IS AUTHORIZED TO ACCEPT RISKS,
PASS ON INSURABILITY, MAKE OR ALTER CONTRACTS, OR WAIVE ANY OF THE COMPANY'S OTHER RIGHTS OR REQUIREMENTS. Notice to or knowledge
imputed to any agent, broker, or medical examiner will not be notice to or knowledge to the Company unless it is set out in writing
in this application.
3. I have read the statements and answers in this application. To the best of my knowledge and belief, they are true, complete, and
correctly stated. They will be the basis for any policy issued based on this application.
4. Acceptance of the policy will mean acceptance of its terms and ratification of any changes noted on the "Home Office Corrections
or Additions" section, The following changes must be agreed to by me in writing: age at issue; plan or amount of insurance; premium;
classification of risks; or added benefits.
5.Unless the policy becomes effective as specified in the Conditional Receipt attached to this application, the Company will incur
no liability until: (1) any policy applied for has been delivered to and accepted by me; and (2) the first premium is paid. When I
accept the policy, the state of health of the proposed insured and/or applicant or any other factor affecting insurability must be,
the same as set forth in this application.
6. I HAVE RECEIVED THE CONDITIONAL RECEIPT IF MONEY WAS SUBMITTED WITH THIS APPLICATION. I HAVE READ THE CONDITIONAL RECEIPT AND
AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THEY HAVE BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
7. APPLIES ONLY IF APPLICATION IS FOR A FLEXIBLE PREMIUM VARIABLE LIFE POLICY
a. SUITABILITY (must be completed):
- I believe that a Flexible Premium Variable Life insurance policy is consistent with my investment objectives and financial
needs.
- My investment objectives are: Long term growth Growth & income Preservation of capital Income
Other (please indicate)______________________________________________
- Number of dependents _____ Age________, _________, _________, __________, ________, ________, ______
- Total FAMILY income $ _____________ FAMILY net worth $ _______________ OWNER'S earned income $ ______________
b. I have received the current prospectus for Flexible Premium Variable Life, an illustration, recent fund performance data and
any other information required by law.
c. I UNDERSTAND THAT THE DEATH BENEFIT FOR THE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY APPLIED FOR MAY INCREASE OR DECREASE BASED ON THE INVESTMENT EXPERIENCE OF THE
POLICY AND ON THE DEATH BENEFIT OPTION CHOSEN.
d. I UNDERSTAND THAT THE CASH SURRENDER VALUE FOR THE FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICY APPLIED FOR MAY INCREASE OR DECREASE BASED ON THE INVESTMENT
EXPERIENCE OF THE POLICY AND IS NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THERE IS NO
GUARANTEED MINIMUM CASH SURRENDER VALUE.
e. I hereby authorize and direct the Company to act on telephone instructions front any person who can furnish proper
identification to
transfer units from any sub-account (fund) to any other sub-account (fund) and/or to change the allocation of future premium
payments. The undersigned agrees that the Company is not liable for any loss arising from any telephone transfer or change in
allocation of future premium payments, ___________ initials of OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
AUTHORIZATION
I, THE PROPOSED INSURED, AUTHORIZE:
1. The disclosure of medical arid other relevant information about me or any of my children to be insured, for the purpose of
determining eligibility for insurance.
2. The following to disclose Such information to Lincoln National Life Insurance Company or its reinsurers, and to testify as to
such information, all to the extent permitted by law: any physician, medical professional, hospital, clinic, or other medical
or any medically related facility; any insurance or reinsurance company; any consumer reporting agency; other insurance support
organization; any employer; the Medical Information Bureau, Inc.; or any other person, organization, or institution that has
any records or knowledge of me, or of my children to be insured, or of our health.
I understand that Lincoln National Life insurance Company may release this information to its reinsuring companies, and may make a
brief report to the Medical Information Bureau, Inc. I agree that this Authorization will be valid for two years and six months from
the date shown below, and that a photocopy of it will be as valid as the original, I know that I may receive a copy of this
Authorization upon request. I acknowledge that I have received the Investigative Consumer Reports notice, the Privacy Notice and the
Important Notice attached to this application.
SIGNATURES
SIGNATURES BELOW INDICATE ACCEPTANCE OF THE "AGREEMENT" AND "AUTHORIZATION" SECTIONS ABOVE.
Signature of PROPOSED INSURED (if a minor, Signature of legal guardian ) X
Signature of APPLICANT (if other than proposed insured) X
Signature of OWNER (if other than proposed insured or applicant) X
CITY STATE DATE
Signed at on
I certify that I have truly arid accurately recorded on this application the information supplied by the proposed insured and/or
applicant.
Signature of AGENT OR BROKER X
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
TERMINAL ILLNESS I acknowledge that I have received the terminal illness accelerated benefit election disclosure
ACCELERATED information, Form 26797.
BENEFIT ELECTION DATE
DISCLOSURE Signature of applicant X
ACKNOWLEDGMENT DATE
Signature of agent or broker X
(DO NOT USE THIS SECTION IN THE STATES OF IL, MA, MI, NJ, PA, TX, District of Columbia)
- ------------------------------------------------------------------------------------------------------------------------------------
Agent's 1. a. How long have you known the proposed insured (applicant if proposed insured is under age 15)?
Report ____________________ How well? ___________________________________________________
b. Purpose of this insurance (if more than one purpose, indicate dollar amount for each purpose)
____________________________________________________________________________
c. Are you aware of anything about the health or hobbies of the proposed insured which might
adversely affect his or her insurability? Yes No
d. Did you see proposed insured when application was signed? Yes No
e. Will premiums be paid from proposed insured's personal funds? Yes No
2. Examination arrangements by____________________________________________________
Date examination ordered_______________________________________________________
IF BLOOD IS DRAWN, Informed Consent form must be signed BEFORE blood is drawn.
3. a. How long has proposed insured lived at present address? ____________________________
b. Previous addresses last five years _______________________________________________
c. Former name of any proposed insured if changed within five years_____________________
d. How much insurance does spouse have? __________________________________________
4. If proposed insured is under age 15, are all brothers and sisters insured? Yes No
If "Yes," give amounts ___________________________________________________________
If "No," give reasons _____________________________________________________________
5. Premium
a. Premium amount to be paid annually $ _______________
b. Additional 1st year lump sum (not 1035) $ _______________
6. To the best of your knowledge does this insurance replace any existing insurance or annuities?
Yes No
7. Replacement instructions
a. Estimated rollover value $ ______________
b. Apply rollover values as follows To pay modal premium
To meet minimum/target As a deposit-COD premium
8. References (names and addresses)_________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
9. Details to any previous questions (state question number) _______________________________________________________
_________________________________________________________________________________________________________________
10. Credit
RMO RMO ACF
CITY/RCEO MAIL CODE OPN ID SOLICITING AGENT/BROKER NUMBER %
<PAGE>
AGENT'S REPORT STATEMENTS BY AGENT
CONTINUED I CERTIFY THAT:
I asked and carefully explained each question to the proposed insured and/or applicant before
recording each answer prior to the application being signed;
The answers given in this application and Agent's Report are complete and accurate to the best of
my knowledge and belief;
The proposed insured and/or applicant knows that any false statement or misrepresentation in the
application may result in loss of coverage under the policy;
I have no personal knowledge of any other factors which may have an effect on the proposed insured(s)'
insurability;
I have given the Investigative Consumer Reports notice, the Privacy Notice., and the Important Notice
attached to this application to the proposed insured(s);
If the insurance applied for will or may replace any existing life insurance policy or annuity contract, I
have completed proper state-required replacement form(s);
If money is submitted with this application, conditions of Conditional Receipt must be met.
IF THE APPLICATION IS FOR A FLEXIBLE PREMIUM VARIABLE LIFE POLICY
I CERTIFY THAT:
I have reasonable grounds to believe the purchase of the policy applied for is suitable for the policy
owner based on the information furnished by the proposed insured and/or policy owner in this application;
A current prospectuses) was (were) delivered to the proposed insured and/or applicant; and
All of the sales materials used have been approved by the Home Office.
DATE
Signature of agent/broker X
PLEASE SUBMIT A COPY OF PAGE I OF THE PROPOSAL WITH THIS APPLICATION.
IF THIS IS A REPLACEMENT, YOU MUST SUBMIT A COPY OF THE ENTIRE PROPOSAL.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR REGIONAL Date application received ____________________
MARKETING OFFICE Inspection ordered
USE APS ordered. Doctor(s) ______________________________________
ONLY Exam ordered. Date _______________________
Check received. Amount $____________ Date of check _________________
Application mailed to Home Office. Date _____________________________
IF BLOOD IS DRAWN, Informed Consent mailed with application to Home Office. (informed
Consent must be signed before blood is drawn.)
Approved by Registered Principal X ________________________________
(If the application is for a Flexible Premium Variable Life policy.)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR HOME OFFICE Amount received $___________________
USE ONLY Suspense date ______________________
<PAGE>
LINCOLN LIFE Lincoln National Life Insurance Co., Fort Wayne, IN 46801-1110, 219-455-2000
- ------------------------------------------------------------------------------------------------------------------------------------
CONDITIONAL NO COVERAGE WILL BECOME EFFECTIVE PRIOR TO DELIVERY OF THE POLICY APPLIED
RECEIPT FOR UNLESS AND UNTIL ALL THE CONDITIONS OF THIS RECEIPT ARE MET. NO AGENT OR
BROKER HAS THE AUTHORITY TO ALTER OR WAIVE ANY OF ITS TERMS OR CONDITIONS.
NO AGENT OR BROKER IS AUTHORIZED TO TAKE A DEPOSIT OR ISSUE THIS RECEIPT AND
NO INSURANCE IS PROVIDED IF THE PROPOSED INSURED HAS WITHIN THE PAST 12
MONTHS BEEN TREATED FOR OR HAD HEART DISEASE, STROKE, CANCER, OR DIABETES.
CONDITIONS WHICH MUST BE MET BEFORE INSURANCE MAY BECOME EFFECTIVE
PRIOR TO DELIVERY OF THE POLICY:
1. An amount equal to at least one full planned modal premium must be submitted, i.e., if requested premium mode
is monthly, then one month's premium must be submitted;
2. All medical examinations, tests, x-rays, and electrocardiograms required by the Company's rules must be
completed within 60 days from the date of this receipt;
3. Each person proposed for coverage must be, on the effective date indicated below, a risk acceptable to the
Company exactly as applied for according to the Company's rules and practices, without modification of plan,
premium rate, or amount of coverage;
4. On the effective date the state of health and all factors affecting the insurability of each person proposed
for coverage must be as stated in applications required by the Company; and
5. The application may NOT request an amount of insurance on each person proposed for coverage that exceeds
$600,000, including accidental death benefit.
EFFECTIVE DATE: If all conditions above are met, then insurance, subject to all terms and conditions of the
policy applied for (as if the policy applied for had already been issued and delivered), will become effective
on the latest of: (a) the date of the application; or (b) the date of completion of all underwriting
requirements stated in (2) above; or (c) any date of issue requested in the application.
IMPORTANT NOTE: On each person proposed for coverage, the amount of insurance, including accidental death
benefit, which may become effective prior to delivery of the policy applied for will not exceed the lower of:
(a) the amount of insurance applied for on this application, or (b) $600,000.
IF ANY OF THE ABOVE CONDITIONS IS NOT MET, THE LIABILITY OF THE COMPANY WILL BE LIMITED TO THE RETURN OF THE
AMOUNT OF MONEY SUBMITTED.
I HAVE READ THE CONDITIONAL RECEIPT, AND I UNDERSTAND AND AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THESE HAVE
BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
DATE
Signature of applicant X________________________________________________________________________________
Any check for which this Conditional Receipt is issued must be made payable to the Company.
Do not make check payable to the agent or leave the payee blank.
Received cash check $_____________ from ___________________________________________________________
on ______________________ in connection with an application for life insurance, including any
riders for which application has been made.
Signature of agent or broker X__________________________________________________________________________________
(DO NOT DETACH)
- ------------------------------------------------------------------------------------------------------------------------------------
EFT Instructions: Complete information, sign and date authorization, attach blank check marked "VOID"
AUTHORIZATION Proposed insured ________________________________ Bank name _________________________
I authorize Lincoln National Life Insurance Company (LNL) to collect premiums and other payments by electronic
fund transfer (EFT), or to effect a charge by any other commercially accepted practice. The enclosed blank check
(marked "VOID") is drawn on the account from which deductions are to be made. This Authorization will apply to
any conversion, renewal, or change later made in the policy, and in no way affects the terms of the policy.
If I change my financial institution or my account number, or want to discontinue this agreement, I agree to
give 30 days notice to LNL. Notice to the financial institution only is not sufficient. LNL may terminate this
agreement if any debit is not paid upon presentation, Any debit returned to LNL marked "insufficient funds or
uncollected funds" will automatically be processed against the account a second time. LNL assumes no
responsibility for bank charges or, in the case of Variable Universal Life, for investment losses on these
debits.
DATE
Signature of bank account owner X______________________________________________________
(DO NOT DETACH)
<PAGE>
LINCOLN LIFE Lincoln National Life Insurance Co., Fort Wayne, IN 46801-1110, 219-455-2000
- ------------------------------------------------------------------------------------------------------------------------------------
CONDITIONAL NO COVERAGE WILL BECOME EFFECTIVE PRIOR TO DELIVERY OF THE POLICY APPLIED
RECEIPT FOR UNLESS AND UNTIL ALL THE CONDITIONS OF THIS RECEIPT ARE MET. NO AGENT OR
BROKER HAS THE AUTHORITY TO ALTER OR WAIVE ANY OF ITS TERMS OR CONDITIONS.
NO AGENT OR BROKER IS AUTHORIZED TO TAKE A DEPOSIT OR ISSUE THIS RECEIPT AND
Customer copy NO INSURANCE IS PROVIDED IF THE PROPOSED INSURED HAS WITHIN THE PAST 12
MONTHS BEEN TREATED FOR OR HAD HEART DISEASE, STROKE, CANCER, OR DIABETES.
CONDITIONS WHICH MUST BE MET BEFORE INSURANCE MAY BECOME EFFECTIVE
PRIOR TO DELIVERY OF THE POLICY:
1. An amount equal to at least one full planned modal premium must be submitted, i.e., if requested premium mode
is monthly, then one month's premium Must be Submitted;
2. All medical examinations, tests, x-rays, and electrocardiograms required by the Company's rules must be
completed within 60 days from the date of this receipt;
3. Each person proposed for coverage must be, on the effective date indicated below, a risk acceptable to the
Company exactly as applied for according to the Company's rules and practices, without modification of plan,
premium rate, or amount of coverage;
4. On the effective date the state of health and all factors affecting the insurability of each person proposed
for coverage must be as stated in applications required by the Company; and
5. The application may NOT request an amount of insurance on each person proposed for coverage that exceeds
$600,000, including accidental death benefit.
EFFECTIVE DATE: If all conditions above are met, then insurance, subject to all terms and conditions of the
policy applied for (as it the policy applied for had already been issued and delivered), will become effective
on the latest of: (a) the date of the application; or (b) the date of completion of all underwriting
requirements stated in (2) above; or (c) any date of issue requested in the application.
IMPORTANT NOTE: On each person proposed for coverage, the amount of insurance, including accidental death
benefit, which may become effective prior to delivery of the policy applied for will not exceed the lower of:
(a) the amount of insurance applied for on this application, or (b) $600,000.
IF ANY OF THE ABOVE CONDITIONS IS NOT MET, THE LIABILITY OF THE COMPANY WILL BE LIMITED TO THE RETURN OF THE
AMOUNT OF MONEY SUBMITTED.
I HAVE READ THE CONDITIONAL RECEIPT, AND I UNDERSTAND AND AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THESE HAVE
BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
DATE
Signature of applicant X________________________________________________________________________________________
Any check for which this Conditional Receipt is issued must be made payable to the Company.
Do not make check payable to the agent or leave the payee blank.
Received cash check $______________________ from _________________________
on _________________ in connection with an application for life insurance, including any riders
for which application has been made.
DATE
Signature of agent or broker X _________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
EFT Instructions: Complete information, sign and date authorization, attach blank check marked "VOID"
AUTHORIZATION Proposed Insured __________________________________________ Bank name _____________
Customer copy I authorize Lincoln National Life Insurance Company (LNL) to collect premiums and other payments by electronic
fund transfer (FFT), or to effect a charge by any other commercially accepted practice. The enclosed blank check
(marked "VOID") is drawn on the account from which deductions are to be made. This Authorization will apply to
any conversion, renewal, or change later made in the policy, and in no way affects the terms of the policy.
If I change my financial institution or my account number, or want to discontinue this agreement, I agree to
give 30 days notice to LNL. Notice to the financial institution only is not sufficient. LNL may terminate this
agreement if any debit is not paid upon presentation. Any debit returned to LNL marked "insufficient funds or
uncollected funds" will automatically be processed against the account a second time. LNL assumes no
responsibility for bank charges or, in the case of Variable Universal Life, for investment losses on these
debits.
Signature of bank account owner X ______________________________________________________
<PAGE>
LINCOLN LIFE Lincoln National Life insurance Co., Fort Wayne, IN 46801-1110, 219-455-2000
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTIGATIVE As part of our regular underwriting procedure, an investigative consumer report may be obtained
CONSUMER which will provide applicable information concerning character, general reputation, personal
REPORTS characteristics, arid mode of living. This information will he obtained through personal interviews with
your friends, neighbors, and associates. You may (1) request to be personally interviewed and/or (2) request a
copy of the investigative consumer report. Further information on the nature and
Customer copy scope of the report will be provided upon written request to the Underwriting Manager, Lincoln
National Life insurance Co., P.O. Box 1110, Fort Wayne, Indiana 46801. You may receive a copy of
such report by mailing a written request to us, your agent, or the reporting agency after
proper identification.
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVACY NOTICE Personal information may be collected from persons other than you. Such information, as well as
other personal or privileged information subsequently collected by us or your agent, may in certain
circumstances be disclosed to third parties without authorization. You have a right of access and
Customer copy correction with respect to all personal information collected. A detailed notice of information practices
will be furnished to you upon request.
- ------------------------------------------------------------------------------------------------------------------------------------
IMPORTANT The underwriting process (evaluation and classification of risks) is necessary to assure reasonable cost
NOTICE of insurance and provide a mechanism by which policyholders pay their fair share of the cost. In
considering your application, information from various sources is considered, including your own state-
ments, the results of your physical examination (if required), arid any reports we obtain from
Customer copy doctors or medical facilities where you have received treatment or consultation.
Information regarding your insurability and/or any past or future claims will be treated as confidential.
We, or our reinsurers, may, however, make a brief report thereon to the Medical Information Bureau, a
non-profit corporation, which operates as an information exchange on behalf of its members. If you
apply to another Bureau member company for life or health insurance coverage, or a claim for benefits
is submitted to such a company, the Bureau, upon request, will supply such company with the
information it may have in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have
in your file. if you question the accuracy of information in the Bureau's file, you may contact the
Bureau and seek a correction in accordance with the procedures set forth in the Federal Fair Credit
Reporting Act. The address of the Bureau's information office is Post Office Box 105, Essex Station,
Boston, MA 02112, telephone number (617) 426-3660. We, or our reinsurers, may also release
information in our file to other life insurance companies to whom you may apply for life or health
insurance, or to whom a claim may be submitted.
- ------------------------------------------------------------------------------------------------------------------------------------
AGREEMENT I UNDERSTAND AND AGREE THAT:
1. This application is made up of Part One, Part One TR (if completed), and Part Two if required by
Lincoln National Life Insurance Company (the "Company"). The application, any policy issued as a
Customer copy result of it, and any papers attached to the policy by the Company will form the entire contract of
This is a copy insurance.
of the agreement 2. Only an officer of the Company (the President, a Vice President, the Secretary, or an Assistant
you signed in Secretary) may make or alter any contract or agree not to enforce any of the Company's rights.
the application No agent, broker, or medical examiner is authorized to accept risks, pass on insurability,
make or alter contracts, or waive any of the Company's other rights or requirements.
Notice to or knowledge imptuted to any agent, broker, or medical examiner will not be notice to
or knowledge to the Company unless it is set out in writing in this application.
3. I have read the statements and answers in this application. To the best of my knowledge and belief,
they are true, complete, and correctly stated. They will be the basis for any policy issued based on
this application.
4. Acceptance of the policy will mean acceptance of its terms and ratification of any changes noted on
the "Home Office Corrections or Additions" addendum in the policy. The following changes must be
agreed to by me in writing: age at issue; plan or amount of insurance; premium; classification of
risks; or added benefits.
5. Unless the policy becomes effective as specified in the Conditional Receipt attached to this
application, the Company will incur no liability until: (1) any policy applied for has been delivered
to and accepted by me; and (2) the first premium is paid. When I accept the policy, the state of
health of the Proposed insured and/or applicant or any other factor affecting insurability must be the
same as set forth in this application.
6. I HAVE RECEIVED THE CONDITIONAL RECEIPT IF MONEY WAS SUBMITTED WITH THIS APPLICATION.
I HAVE READ THE CONDITIONAL RECEIPT AND AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THEY
HAVE BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
THIS PAGE MUST BE DELIVERED TO THE PROPOSED INSURED
</TABLE>
<PAGE>
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY BE
FIXED OR MAY VARY DEPENDING ON THE INVESTMENT EXPERIENCE OF THIS POLICY AND ON
THE DEATH BENEFIT OPTION SELECTED AS DESCRIBED IN THE DEATH BENEFIT SECTION OF
THIS POLICY.
THE CASH SURRENDER VALUE MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
EXPERIENCE OF THIS POLICY. NO MINIMUM CASH SURRENDER VALUE IS GUARANTEED.
We agree to pay the Proceeds to the Beneficiary after receipt of due proof of
the death of the Insured while this Policy is in force and before the Maturity
Date.
We agree to pay the Proceeds to the Owner if the Insured is living on the
Maturity Date.
READ THIS POLICY CAREFULLY. This is a legal contract between the Owner and the
Lincoln National Life Insurance Company.
RIGHT TO RETURN THIS POLICY. This Policy may be returned to the agent through
whom it was purchased or to our Home Office by the latest of. (1) 10 days
after its receipt, or (2) 45 days after Part 1 of the application was signed,
or (3) 10 days after we mail or deliver the Notice of Withdrawal Right. Upon
cancellation this Policy will be void from the beginning. The refund will be
the total of all premiums paid for this Policy.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ Jon A. Boscia /s/ C. Suzanne Womack
JON A. BOSCIA, PRESIDENT C. SUZANNE WOMACK, SECRETARY
Flexible Premium Variable Life Insurance Policy
Net Cash Surrender Value Payable at Maturity
Death Benefit Payable at Death Prior to Maturity Date
Adjustable Death Benefit
Flexible Premiums Payable During Lifetime
of Insured to Maturity Date
Nonparticipating - No Dividends
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
POLICY SCHEDULE
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
THE CONTRACT 1
OWNERSHIP, BENEFICIARY, AND ASSIGNMENT 2
PREMIUM, GRACE PERIOD, GUARANTEED DEATH BENEFIT, CONTINUATION OF
INSURANCE AND REINSTATEMENT 2
THE ACCOUNT 3
INVESTMENT AMOUNT 4
POLICY VALUES 4
SURRENDER 5
LOANS 5
DEATH BENEFIT 5
CHANGES 6
PROCEEDS 6
PAYMENT OPTIONS 7
RIDERS AND AMENDMENTS, IF ANY
</TABLE>
As used in this Policy, the terms "we", "us", and "our" refer to The Lincoln
National Life Insurance Company.
"Insured," as used in this Policy, means the person so named on the Policy
Schedule.
VUL2 9/87
<PAGE>
POLICY SCHEDULE
MATURITY DATE IS THE POLICY ANNIVERSARY FOLLOWING THE INSURED'S NINETY-NINTH
BIRTHDAY. COVERAGE MAY EXPIRE PRIOR TO THE MATURITY DATE IF NO PREMIUMS ARE PAID
AFTER THE INITIAL PREMIUM OR IF SUBSEQUENT PREMIUMS ARE INSUFFICIENT TO CONTINUE
COVERAGE TO SUCH DATE. COVERAGE MAY ALSO BE AFFECTED BY A CHANGE IN CURRENT
VALUES.
POLICY NUMBER: 20 123456 POLICY DATE: NOVEMBER 1, 1995
INSURED: ABRAHAM LINCOLN MATURITY DATE: NOVEMBER 1, 2059
SPECIFIED AMOUNT AMOUNT: PLANNED INITIAL PREMIUM: $16,000
$100,000 TYPE 1
INCLUDES THE POLICY VALUE ISSUE PREMIUM: $15,136
MALE AGE: 35 PLANNED PERIODIC PREMIUM:
RATING CLASS: PREFERRED AMOUNT $0.00
FREQUENCY: ANNUAL
MONTHLY ANNIVERSARY DAY: 01
PERCENT OF PREMIUM CHARGE:
MINIMUM SPECIFIED AMOUNT: $10,000 0.00% OF ALL PREMIUMS
CHARGE FOR TRANSFER: $0.00 MORTALITY AND EXPENSE RISK
CHARGE RATE:
.85% FIRST 10 YEARS; .75%
THEREAFTER
LOAN COLLATERAL RATE: 4%
ADMINISTRATIVE CHARGE RATE:
POLICY LOAN RATE: 6% IN ARREARS .30% FIRST 10 YEARS; .10%
THEREAFTER
DEATH BENEFIT FACTOR: 1.0032737 GUARANTEED DEATH BENEFIT CHARGE
RATE:
.10% FIRST 10 YEARS; .00%
THEREAFTER
<PAGE>
POLICY SCHEDULE
POLICY DATE: NOVEMBER 1, 1995 POLICY NUMBER: 20 123456
INSURED: ABRAHAM LINCOLN
TABLE OF SURRENDER CHARGES
<TABLE>
<CAPTION>
POLICY SURRENDER CHARGES AS A
YEAR PERCENT OF INITIAL
PREMIUM
<S> <C>
1 9.0%
2 8.5%
3 8.0%
4 7.0%
5 6.0%
6 5.0%
7 4.0%
8 3.0%
9 2.0%
10 1.0%
</TABLE>
<PAGE>
POLICY SCHEDULE
LIST OF SUBACCOUNTS
POLICY NUMBER: 20 123456 POLICY DATE: NOVEMBER 1, 1995
INSURED: ABRAHAM LINCOLN
EACH SUBACCOUNT OF THE LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE SEPARATE
ACCOUNT F INVESTS IN A SPECIFIC FUND. LISTED BELOW ARE THE SUBACCOUNTS, THE
FUNDS, AND THE INITIAL ALLOCATION OF NET PREMIUMS.
<TABLE>
<CAPTION>
SUBACCOUNT FUND ALLOCATION
<S> <C> <C>
GROWTH AMERICAN VARIABLE INSURANCE SERIES 100%
GROWTH FUND
GROWTH-INCOME AMERICAN VARIABLE INSURANCE SERIES 0%
GROWTH-INCOME FUND
HIGH-YIELD BOND AMERICAN VARIABLE INSURANCE SERIES 0%
HIGH-YIELD BOND FUND
U.S. GOVERNMENT AMERICAN VARIABLE INSURANCE SERIES 0%
GUARANTEED/AAA- U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
RATED SECURITIES
CASH MANAGEMENT AMERICAN VARIABLE INSURANCE SERIES 0%
CASH MANAGEMENT FUND
ASSET ALLOCATION AMERICAN VARIABLE INSURANCE SERIES 0%
ASSET ALLOCATION FUND
INTERNATIONAL AMERICAN VARIABLE INSURANCE SERIES 0%
INTERNATIONAL FUND
BOND AMERICAN VARIABLE INSURANCE SERIES 0%
BOND FUND
</TABLE>
<PAGE>
TABLE OF GUARANTEED
MAXIMUM INSURANCE RATES
STANDARD RATE CLASSIFICATION
<TABLE>
<CAPTION>
MALE FEMALE
MONTHLY COST OF INSURANCE MONTHLY COST OF INSURANCE
ATTAINED RATE PER ATTAINED RATE PER ATTAINED RATE PER ATTAINED RATE PER
AGE $1,000 AGE $1,000 AGE $1,000 AGE $1,000
<S> <C> <C> <C> <C> <C> <C> <C>
0 .21838 50 $.58367 0 $.15669 50 .427681
1 .08584 51 .63540 1 .07000 51 .45854
2 .08167 52 .69465 2 .06667 52 .49358
3 .08001 53 .76141 3 .06500 53 .53112
4 .07667 54 .83486 4 .06334 54 .57033
5 .07334 55 .91417 5 .06167 55 .61037
6 .06917 56 .99850 6 .06000 56 .64959
7 .06500 57 1.08701 7 .05917 57 .68714
8 .06250 58 1.18223 8 .05750 58 .72553
9 .06084 59 1.28665 9 .05667 59 .76725
10 .06250 60 1.40196 10 .05667 60 .81650
11 .06750 61 1.53151 11 .05834 61 .87911
12 .07584 62 1.67865 12 .06084 62 .95758
13 .08917 63 1.84339 13 .06417 63 1.05361
14 .10251 64 2.02576 14 .06834 64 1.16051
15 .11835 65 2.22243 15 .07251 65 1.27496
16 .13168 66 2.43257 16 .07667 66 1.39361
17 .14335 67 2.65620 17 .08001 67 1.51228
18 .15086 68 2.89586 18 .08251 68 1.63517
19 .15669 69 3.15995 19 .08584 69 1.77147
20 .15836 70 3.45859 20 .08751 70 1.93290
21 .15836 71 3.79938 21 .09001 71 2.13204
22 .15586 72 4.19082 22 .09168 72 2.37730
23 .15336 73 4.63303 23 .09334 73 2.67296
24 .14919 74 5.11772 24 .09584 74 3.01238
25 .14585 75 5.63575 25 .09751 75 3.39062
26 .14335 76 6.17962 26 .10001 76 3.80106
27 .14169 77 6.74266 27 .10251 77 4.24041
28 .14169 78 7.32916 28 .10668 78 4.71462
29 .14252 79 7.95867 29 .11001 79 5.24065
30 .14585 80 8.65171 30 .11418 80 5.83889
31 .15002 81 9.42806 31 .11835 81 6.52817
32 .15586 82 10.30596 32 .12252 82 7.32324
33 .16253 83 11.27913 33 .12752 83 8.22459
34 .17086 84 12.32677 34 .13418 84 9.21837
35 .18087 85 13.42535 35 .14169 85 10.29491
36 .19254 86 14.55978 36 .15169 86 11.44790
37 .20754 87 15.72082 37 .16336 87 12.67276
38 .22338 88 16.90865 38 .17670 88 13.97426
39 .24173 89 18.13036 39 .19254 89 15.36072
40 .26257 90 19.40436 40 .21004 90 16.85005
41 .28508 91 20.76404 41 .22922 91 18.47427
42 .30926 92 22.27016 42 .24756 92 20.29451
43 .33511 93 24.07690 43 .26674 93 22.44349
44 .36347 94 26.51576 44 .28592 94 25.22305
45 .39432 95 30.20651 45 .30593 95 29.24956
46 .42601 96 36.35803 46 .32677 96 35.72116
47 .46021 97 47.20997 47 .34845 97 46.86829
48 .49775 98 66.20322 48 .37264 98 66.09429
49 .53779 49 .39933
The above rates are based on the The above rates are based on the
Commissioners 1980 Male Standard Commissioners 1980 Female Standard
Ordinary Mortality Table, age last Ordinary Mortality Table, age last
birthday. birthday.
</TABLE>
VULN2 9/87
<PAGE>
THE CONTRACT
The Contract. The entire contract consists of:
a. this Policy;
b. the application and any supplemental application; and
c. any amendments.
This Policy is issued in consideration of the application and payment of the
Issue Premium.
A change in this Policy will be binding on us only if the change is in writing,
and the change is made by our President, Vice President, Secretary, or Assistant
Secretary.
NONPARTICIPATION. This Policy is nonparticipating. It will not share in our
profits or surplus earnings.
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
the validity of this Policy only if:
a. the statements are contained in the application for issue, reissue, or
reinstatement, or in any supplemental application; and
b. a copy of that application or supplemental application is attached to this
Policy.
This Policy will not be contestable after it has been in force for 2 years
during the lifetime of the Insured.
Any increase in coverage or any reinstatement will not be contestable after that
increase or reinstatement has been in force 2 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 "a" and "b"
above.
SUICIDE. If the Insured commits suicide, while sane or insane, within 2 years
from the Policy Date, our total liability under this Policy will be the premiums
paid, minus any policy loan, and minus any loan interest due.
If the Insured commits suicide, while sane or insane, within 2 years from the
effective date of any increase in insurance or any reinstatement, our total
liability with respect to such increase or reinstatement will be its Cost of
Insurance.
POLICY DATE. The Policy Date is shown on the Policy Schedule. Policy
anniversaries occur annually on the same month and day as the Policy Date.
RECORD DATE. The Record Date is the date we record this Policy on our books as
an in force policy.
EFFECTIVE DATE OF COVERAGE. The effective dates of coverage under this Policy
will be as follows:
1. For all coverage provided in the original application, the effective date
will be the Policy Date, provided this Policy has been delivered and the
Issue Premium has been paid prior to death of the Insured and prior to any
change in health of the Insured as shown in the application.
2. For any increase to coverage, the effective date will be the first Monthly
Anniversary Day on or next following the day we approve the application for
the increase.
3. For any insurance that has been reinstated, the effective date will be the
first Monthly Anniversary Day on or next following the day we approve the
application for reinstatement.
TERMINATION. All coverage under this Policy will terminate when any one of the
following occurs:
1. The grace period ends without payment of required premium.
2. This Policy is surrendered.
3. The Insured dies.
4. This Policy matures.
MATURITY DATE. The Maturity Date is the date this Policy matures. It is the last
date insurance coverage can remain in force and the date any remaining Net Cash
Surrender Value will be payable. The date is shown on the Policy Schedule.
Coverage will end prior to the Maturity Date if the premiums paid and the Net
Investment Results credited are not sufficient to continue coverage to such
date.
AGE. Age means the lnsured's age last birthday on the Policy Date. Attained age
means age last birthday on the policy anniversary on or next preceding any
Monthly Anniversary Day.
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.
ANNUAL REPORT. We will send a report, without charge, to the Owner at least once
each year. It will show:
a. the current Policy Value;
b. the current Net Cash Surrender Value;
c. the amount of Policy Value in each Subaccount;
d. the current Death Benefit;
e. any current policy loans; and
f. activity since the last report:
1) premium paid; and
2) all charges.
The report will also include any other data that may be required where this
contract is delivered.
PROJECTION OF BENEFITS AND VALUES. We will provide a report to the Owner which
shows projected future results. The request must be in writing on a form
suitable to us. The report
<PAGE>
will be based on assumptions in regard to:
a. the Death Beneflt(s) as may be specified by the Owner;
b. planned premium payments as may be specified by the Owner; and
c. such other assumptions as are necessary and specified by us and/or the
Owner.
A reasonable fee may be charged for this report.
OWNERSHIP, BENEFICIARY, AND
ASSIGNMENT
Owner. Owner means the Owner identified in the application or a successor. All
the 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.
CHANGE OF OWNER. The Owner may transfer all ownership rights and privileges to a
new owner. The request must be in writing on a form suitable to us. The change
will be effective when we receive it. We will not be responsible for any payment
or other action we have taken before having recorded the transfer. A change of
ownership will not, in and of itself, affect the interest of any Beneficiary.
BENEFICIARY. The Beneficiary:
a. will receive the Proceeds when the Insured dies;
b. is named in the application for this Policy; and
c. may be changed by the Owner. The change is subject to the terms shown in
the Change of Beneficiary provision. The request must be in writing on a
form suitable to us. We reserve the right to require this Policy for
endorsement of a change of Beneficiary designation.
If not otherwise provided:
1. The interest of any Beneficiary who dies before the Insured will pass to
any other Beneficiaries according to their interests.
2. If no Beneficiary survives the Insured, the Proceeds will be paid in one
sum to the Owner, if living. If the Owner is not living, the Proceeds will
be paid to the Owner's estate,
CHANGE OF BENEFICIARY. The Owner may change the Beneficiary designation:
a. while the Insured is alive; and
b. if the prior designation does- not prohibit such a change.
A change will revoke any prior designation.
ASSIGNMENT. An assignment of this Policy will not be binding on us unless:
a. it is in writing on a form suitable to us; and
b. it is received by us at our Home Office.
We will not be responsible for the validity of any assignment. We reserve the
right to require this Policy for endorsement of any assignment.
PREMIUM, GRACE PERIOD,
GUARANTEED DEATH BENEFIT,
CONTINUATION OF INSURANCE,
AND REINSTATEMENT
PAYMENT OF PREMIUMS. The Issue Premium shown on the Policy Schedule is due on
the Policy Date. Additional premium payments may be made at any time prior to
the Maturity Date. The Initial Premium is the sum of all premiums paid during
the first policy year.
The amounts and frequency of planned premium payments are shown on the Policy
Schedule. Changes in frequency and increases or decreases in amount of Planned
Periodic Premium payments may be made by the Owner. Premiums may not be paid
- -after the Maturity Date shown on the Policy Schedule.
The Issue Premium and any other premiums will be credited to the Policy on the
later of the Policy Date or the date we receive the premium. All premiums
credited to this Policy prior to the Record Date will be allocated to the
Subaccount which invests in the Cash Management Series. When the value of the
assets is next determined, the value of the amount in the Cash Management Series
will be reallocated to the various Subaccounts in accord with the initial
allocation.
This Policy will not take effect until it has been delivered and the Issue
Premium has been paid prior to death of the Insured and prior to any change in
health of the Insured as shown in the application.
Premiums are payable at the Home Office or to any authorized agent. Receipts
will be furnished upon request.
We will send premium payment reminder notices to the Owner on written request.
The notices may be sent annually, semiannually, or quarterly.
Section 101(a) of the Internal Revenue Code of 1954, as amended, provides for
the exclusion of death benefits from gross income for life insurance contracts.
Section 7702 of the Code deflnes the term 'life insurance contract.' It provides
a maximum limitation on premiums which may not be exceeded if the policy is to
qualify for the exclusion. Any portion of a premium payment received by us in
excess of that limitation will be refunded, within 7 days, to the Owner.
GRACE PERIOD. If the Net Cash Surrender Value on a Monthly
<PAGE>
Anniversary Day is not sufficient to cover the Cost of Insurance for the month
following such Monthly Anniversary Day, a grace period will be allowed for the
payment of a premium sufficient to keep this Policy in force until the end orthe
grace period. The Net Cash Surrender Value and the Cost of Insurance are
described in the Policy Values section. Notice of such premium will be mailed to
the last known address of the Owner and any assignee of record. The grace period
will end 61 days after the notice is mailed. If such premium is not paid within
the grace period, all coverage under this Policy will terminate with no value at
the end of the 61 day grace period. If a claim by death during the grace period
becomes payable under this Policy, any overdue Cost of Insurance will be
deducted from the Proceeds.
GUARANTEED DEATH BENEFIT. If this Policy terminates due to the Grace Period
provision without any outstanding loan, a Death Benefit equal to the sum of the
premiums paid into the Policy will be maintained until the Maturity Date of this
Policy, payable upon the death of the Insured.
CONTINUATION OF INSURANCE. Insurance coverage under this Policy will be
continued in force until the Net Cash Surrender Value is insufficient to cover
the Cost of Insurance. This provision will not continue this Policy beyond the
Maturity Date.
REINSTATEMENT. If this Policy terminates, as provided in the Grace Period
section, it may be reinstated at any time within 5 years after the date of
termination and prior to the Maturity Date. The reinstatement is subject to:
a. receipt of evidence of insurability satisfactory to us; and
b. payment of a premium sufficient to keep this Policy in force for a minimum
of 2 months.
The effective date of a reinstatement will be the first Monthly Anniversary Day
on or next following the day we approve the application for reinstatement.
If this Policy is reinstated, coverage provided by the Guaranteed Death Benefit
provision ceases.
THE ACCOUNT
THE ACCOUNT. Account, where used without qualification, refers to the Separate
Account called Lincoln National Flexible Premium Variable Life Separate Account
F. This is a unit investment trust registered with the SEC under the Investment
Company Act of 1940. It was established under and is subject to the insurance
laws of Indiana. The assets of the Account are owned by us, but are kept
separate from the assets of our general investment account.
SUBACCOUNTS. The Account has several Subaccounts. They are listed on the Policy
Schedule. Invested premium amounts will be allocated among the Subaccounts
according to the percentages listed on the Policy Schedule. No allocation may be
less than 10%, nor may any allocation be any fractional percent.
The allocation of future invested premium amounts may be changed at any time if
the policy is not in default. The request for change must be in writing on a
form suitable to us. The change will take effect on the date the request is
received in our Home Office.
THE FUNDS. The Subaccounts invest in various underlying funds, as shown on the
Policy Schedule. Each of these Funds is registered with the SEC under the
Investment Company Act of 1940 and has its own investment goals. The investment
goals of each Fund are explained in the Prospectus.
The assets of the account will be valued once daily at the close of trading on
each day the New York Stock Exchange is open. If the value of an asset is needed
on a day that it has not been valued, the value of that asset when it was most
recently valued will be used.
The assets in the Account are used to support the Investment Amounts under
policies like this one. To the extent those assets do not exceed this amount,
they are used to support those policies; those assets are not used to support
any other business conducted. The excess over this amount may be used in any
other way.
CHANGE IN INVESTMENT POLICY AND CHANGE OF FUND. A Fund might make a material
change in its investment policy. In that case, a notice of the change will be
sent to the Owner. Within 60 days after receipt of the notice, or within 60 days
after the effective date of the change, if later, this Policy may be exchanged
for a new policy of fixed benefit insurance on the Insured's life. The
conditions for exchange and the specifications for the new policy are described
under Exchange of Policy.
A Fund might, in our judgment, become unsuitable for investment by a Subaccount.
This might happen because of a change in investment policy, or a change in the
laws or regulations, or because the shares are no longer available for
investment, or for some other reason. If that occurs, we have the right to
invest in a different fund.
Any Change in Investment Policy or Change of Fund will follow approval by the
SEC and will be filed with and approved by the Insurance Commissioner of the
State of Indiana. If required, approval of such change will also be filed with
the Insurance Department of the state where this Policy is delivered.
INVESTMENT AMOUNT
INVESTMENT AMOUNT. The Investment Amount for this Policy is the amount of the
Policy Value allocated to the Subaccounts. It is equal to the Policy Value minus
any outstanding loan. The amount of the Investment Amount and its allocation to
the Subaccounts depend on (1) how the Owner chooses to allocate Net Premiums;
(2) whether or not there are transfer amounts among Subaccounts; (3) the
investment performance of the Subaccounts to which amounts are allocated or
transferred; (4) the amount and timing of premium payments made; and (5) the
existence of
<PAGE>
any loan. The Investment Amount exists only if the Policy is not in default past
the Grace Period.
TRANSFER AMONG SUBACCOUNTS. Amounts may be transferred among Subaccounts as
often as six times in a contract year, if the Policy is not in default. The
request to transfer amounts must be in writing on a form suitable to us. The
transfer will take effect on the date it is received at our Home Office. The
Charge for Transfer is shown on the Policy Schedule.
POLICY VALUES
NET PREMIUM. The Net Premium equals the premium paid less the Percent of Premium
Charge shown on the Policy Schedule.
POLICY VALUE. 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 Loan Collateral Rate shown on the Policy
Schedule on any outstanding loan;
d. any invested Net Premium received.
Minus the sum of the following:
e. any decrease due to Net Investment Results in the value of the Subaccounts
to which the Investment Amount is allocated;
f. the Cost of Insurance for the following month;
g. any amount charged against the Investment Amount for federal or other
governmental income taxes.
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 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 Loan Collateral Rate shown on the Policy
Schedule on any outstanding loan;
d. any invested Net Premiums received.
Minus the sum of the following:
e. any decrease due to Net Investment Results in the value of the Subaccounts
to which the Investment Amount is allocated;
f. any amount charged against the Investment Amount for federal or other
governmental income taxes.
The Policy Value on the Policy Date will be the initial Net Premium minus the
Cost of Insurance for the first month.
When the the Cost of Insurance is deducted, it will be deducted in proportion to
the values of the Subaccounts, or by any other method requested by the Owner and
acceptable to us.
COST OF INSURANCE. The Cost of Insurance is the cost for this Policy and is
determined on a monthly basis. The cost for this Policy is equal to:
a. the Death Benefit on the Monthly Anniversary Day, divided by
b. the Death Benefit Factor shown on the Policy Schedule; minus
c. the Policy Value on the Monthly Anniversary Day without regard to the Cost
of Insurance; the result times
d. the cost of insurance rate as described below in the Cost of Insurance
Rates section.
If there have been increases in the Specified Amount, then the Policy Value will
be first considered a part of the initial Specified Amount. If the Policy Value
exceeds the initial Specified Amount, it will then be considered a part of
additional Specified Amounts resulting from increases in the order of the
increases.
COST OF INSURANCE RATES. The monthly cost of insurance rate is based on the sex,
attained age, and rating class of the person insured. Monthly cost of insurance
rates may be changed by us from time to time. A change in the cost of insurance
rates will apply to all persons of the same attained age, sex, and rating class
and whose policies have been in effect for the same length of time. The cost of
insurance rates will not exceed those shown in the Table of Guaranteed Maximum
Insurance Rates. These rates are based on the mortality table named on the Table
of Guaranteed Maximum Insurance Rates.
MORTALITY AND EXPENSE RISK CHARGE, ADMINISTRATIVE CHARGE, AND GUARANTEED DEATH
BENEFIT CHARGE. A Mortality and Expense Risk Charge, an Administrative Charge,
and a Guaranteed Death Benefit Charge will be deducted from the Gross Investment
Results at a daily rate equivalent to the annual rate shown on the Policy
Schedule.
GROSS INVESTMENT RESULTS. The Gross Investment Results are equal to the change
in the market value of the assets of the Account 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 asset management charges, minus the Mortality and Expense Risk
Charge, minus the Administrative Charge, and minus the Guaranteed Death Benefit
Charge.
CASH SURRENDER VALUE. The Cash Surrender Value as of any date is equal to:
a. The Policy Value; minus
b. any Surrender Charge shown on the Policy
<PAGE>
Schedule.
SURRENDER CHARGE. The Table of Surrender Charges is shown on the Policy
Schedule.
NET CASH SURRENDER VALUE. The Net Cash Surrender Value as of any date is equal
to:
a. the Cash Surrender Value; minus
b. any outstanding policy loan; minus
c. any loan interest due.
INSUFFICIENT VALUE. If the Net Cash Surrender Value on any Monthly Anniversary
Day is not sufficient to cover the Cost of Insurance for the next month, this
Policy will terminate subject to the Grace Period section.
BASIS OF COMPUTATIONS. Guaranteed values are at least equal to those required by
law. They are based on the Commissioners 1980 Standard Ordinary Mortality Table,
Age Last Birthday. Where required, a detailed statement of the method of
computation of values has been filed with the insurance department of the state
in which this Policy was delivered.
If the Net Investment Results credited to the Policy Value at all times from the
date of issue should equal 4% with premiums and benefits determined accordingly
under the terms of the Policy, then the resulting Cash Surrender Values will
never be less than the minimum cash surrender values calculated according to the
Standard Nonforfeiture Law using 4% and the Commissioners 1980 Standard Ordinary
Mortality Table, Age Last Birthday.
SURRENDER
SURRENDER. The Owner may surrender this Policy for !he Net Cash Surrender Value.
The request must be in writing on a form suitable to us. It may be surrendered
at any time prior to termination of the Policy as provided in the Termination
provision.
Ordinarily, the surrender will be processed within 7 days from the date the
request for surrender is received at our Home Office.
LOANS
CASH LOANS. During the continuance of this Policy, we will grant a loan against
this Policy provided:
a. a written loan agreement is executed; and
b. this Policy is assigned to us.
This Policy will be the sole security for the loan. The amount of outstanding
loans with interest may not exceed the Cash Surrender Value as of the date of
the policy loan. Ordinarily, the loan will be processed within 7 days from the
date the request for a loan is received at our Home Office.
The amount of the loan will be deducted from the Investment Amount, but will
remain part of the Policy Value. The deduction will be made in proportion to the
values of the Subaccounts, or by any other method requested by the Owner and
acceptable to us. The loan amount will earn interest at not less than the Loan
Collateral Rate shown on the Policy Schedule.
If at any time the total policy loan plus loan interest equals or exceeds the
Cash Surrender Value, this Policy will become void, but not until 61 days after
notice has been mailed to the last known address of the Owner and any assignee
of record.
INTEREST ON POLICY LOANS. Interest on any loan will be at the Policy Loan Rate
shown on the Policy Schedule, payable annually in arrears. Interest not paid
when due will be deducted from the Investment Amount, but will remain part of
the Policy Value. It will be added to the loan and bear interest at the same
Policy Loan Rate.
LOAN REPAYMENTS. Loan repayments will be allocated to the Subaccounts in accord
with the most recent premium allocation or by any other method requested by the
Owner and acceptable to us.
DEATH BENEFIT
DEATH BENEFIT COVERAGE. Subject to the provisions of this Policy, the lnsured's
Death Benefit at any time prior to the Maturity Date will be equal to the
Insured's Specified Amount.
The Insured's Death Benefit, however, will never be less than the following
percentage of the Policy Value:
In the case of an The applicable
Insured with an percentage will
attained age as of decrease by a
the beginning of the ratable portion
contract year of: for each full year:
<TABLE>
<CAPTION>
More But Not
Than: More Than: From: To:
<S> <C> <C> <C>
0 40 250% 250%
40 45 250% 215%
45 50 215% 185%
50 55 185% 150%
55 60 150% 130%
60 65 130% 120%
65 70 120% 115%
70 75 115% 105%
75 90 105% 105%
90 95 105% 100%
95 99 100% 100%
</TABLE>
CHANGES
CHANGES IN AMOUNT OF INSURANCE COVERAGE. The Insured's Specified Amount may be
increased or decreased. The request for change must be from the Owner and in
writing on a form suitable to us. The change is subject to:
<PAGE>
1. Any decrease will become effective on the first Monthly Anniversary Day on
or next following the day we receive the request. Any such decrease will
reduce insurance in the following order:
a) against insurance provided by the most recent increase;
b) against the next most recent increases successively; and
c) against insurance provided under the original application.
2. The lnsured's Specified Amount after any requested decrease may not be less
than the Minimum Specified Amount shown on the Policy Schedule.
3. Any request for an increase must be applied for on a supplemental
application.
Such increase will be subject to:
a. evidence of insurability satisfactory to us;
b. our issue rules and limits at the time of increase; and
c. the sufficiency of the Net Cash Surrender Value to cover the next Cost
of Insurance deduction.
Any increase will become effective on the effective date shown on a supplement
to the Policy Schedule.
All rights to return or exchange the Policy will apply anew to the amount of the
increase.
EXCHANGE OF POLICY. Before the second anniversary this 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 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 rating class and issue age as
this Policy. No evidence of insurability will be required. The Net Cash
Surrender value of the new policy will equal that of this Policy on the Date of
Exchange. Subsequently, monthly fees 2nd 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 suitable to us. This
Policy must be surrendered to us, and be at our Home Office while the 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 Anni-
versary Day on or next following the latest of:
a) the date the Owner requests the change 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.
This Policy also may be exchanged after a material change in a Fund's investment
policy. This situation is described under The Account.
PROCEEDS
PROCEEDS. Proceeds mean the amount payable on;
a. the Maturity Date; or
b. the surrender of this Policy; or
c. the death of the Insured.
The Proceeds to be paid on the death of the Insured will be:
a. the Death Benefit; minus
b. any outstanding policy loan; minus
c. any loan interest due.
The Proceeds to be paid on the surrender of this Policy or on the Maturity Date
will be the Net Cash Surrender Value.
PAYMENT OF PROCEEDS. Any amount to be paid at the death of the Insured or on any
other termination of 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
may be applied to any Payment Option.
CLAIMS OF CREDITORS. To the extent allowed by law, Proceeds will not be subject
to any claims of a Beneficiary's creditors.
PAYMENT OPTIONS
Upon written request, we will apply all or part of the Proceeds payable under
this Policy in accordance with any one of the options below. These options will
be available only with our consent if:
a. the Proceeds to be settled under any option are $2,500 or less; or
b. any installment or interest payment is $25 or less; or
c. any payee is a corporation, partnership, association, trustee, or assignee.
While the Insured is alive, the Owner may elect any Payment Option. The Owner
may change any election if that right has been reserved.
At the time Proceeds are payable, a Beneficiary may elect or change any Payment
Option if Proceeds are available to the Beneficiary in one sum.
The Option Date is any date this Policy terminates under the Termination
provision.
OPTION A: Payment for a Designated Number of Years. We will pay equal monthly
installments for the number of years elected. Payments will begin on the Option
Date. The amount of each installment will be determined from the Option A
<PAGE>
Table. The Option A Table is based on a guaranteed interest rate of 4% per year
compounded yearly.
OPTION B: Payment of Life Income. We will pay equal monthly installments
beginning on the Option Date. Payments will continue while the payee is alive.
Payments are guaranteed for 10, 15, or 20 years, as elected, and for life
thereafter. The amount of payment will depend on the age and sex of the payee
and may be determined from the Option B Table. If the payee is not an
individual, the amount of payment will depend on the age and sex of a person
chosen by the payee and agreed to by us. Payments will continue while the chosen
person is alive. Payment will be subject to acceptable proof of age. We may
require proof that the person on whose life the pay ment is based is alive when
each payment is due.
OPTION C: Proceeds Left at Interest. We will retain the Proceeds while the payee
is alive and will pay interest at a rate of not less than 4% per year. The
interest may be paid monthly, quarterly. semiannually, or annually, as elected,
or may be left with us to accumulate.
OPTION D: Payment of a Designated Amount. We will pay equal monthly, quarterly,
semiannual, or annual payments until the Proceeds with any interest are
exhausted. Payments will begin on the Option Date. The payment amount must be at
least $120 per year per $1,000 of Proceeds applied. Interest will be payable at
a rate of not less than 4% per year compounded yearly.
ADDITIONAL OPTIONS. Any Proceeds payable under this Policy may also be settled
under any other method of settlement we offer on the Option Date.
ADDITIONAL INTEREST. Additional interest as we determine may be paid or credited
from time to time in addition to the payments guaranteed under a Payment Option.
PAYMENT CONTRACTS. When Proceeds become payable under a Payment Option, a
Payment Contract will be issued to the payee in exchange for this Policy. The
effective date of a Payment Contract will be the Option Date.
Payment Contracts may not be assigned.
A change in payment may be made only if it is provided for in the Payment
Contract.
WITHDRAWALS OF PROCEEDS UNDER PAYMENT CONTRACT. Proceeds may be withdrawn under
a Payment Option if provided in the Payment Contract. Under Payment for a
Designated Number of Years, the sum of the remaining guaranteed payments
discounted at an interest rate of 4% compounded annually may be withdrawn. Under
Payment of a Designated Amount and Proceeds Left at Interest, all or part of the
remaining proceeds and any interest earned but not paid may be withdrawn.
Proceeds may not be withdrawn from any of the Payment of Life Income Options. We
may postpone payment of any withdrawal for not more than 6 months from the date
we receive the written request.
DEATH OF PAYEE UNDER PAYMENT CONTRACT. If any payments remain to be paid under a
Payment Option when the payee dies, payment will be made according to the
Payment Contract.
<PAGE>
OPTIONAL METHODS OF SETTLEMENT
AMOUNT OF INSTALLMENT FOR EACH $1,000 OF PROCEEDS APPLIED
<TABLE>
<CAPTION>
OPTION A TABLE OPTION B TABLE
FOR MALES FOR FEMALES
NUMBER OF AMOUNT OF SETTLEMENT AGE NUMBER OF MONTHLY NUMBER OF MONTHLY
YEARS MONTHLY OF PAYEE INSTALLMENTS INSTALLMENTS
PAYABLE INSTALLMENT LAST BIRTHDAY CERTAIN CERTAIN
120 180 240 120 180 240
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $84.84 10* $3.56 $3.55 $3.55 $3.49 $3.49 $3.49
2 43.25 11 3.57 3.56 3.56 3.50 3.50 3.50
3 29.40 12 3.58 3.58 3.57 3.51 3.51 3.51
4 22.47 13 3.59 3.59 3.58 3.52 3.52 3.52
5 18.32 14 3.60 3.60 3.60 3.53 3.53 3.53
6 15.56 15 3.62 3.61 3.61 3.54 3.54 3.54
7 13.59 16 3.63 3.63 3.62 3.55 3.55 3.55
8 12.12 17 3.65 3.64 3.64 3.56 3.56 3.56
9 10.97 18 3.66 3.66 3.65 3.57 3.57 3.57
10 10.06 19 3.68 3.67 3.67 3.59 3.59 3.58
11 9.31 20 3.70 3.69 3.69 3.60 3.60 3.60
12 8.69 21 3.71 3.71 3.70 3.62 3.61 3.61
13 8.17 22 3.73 3.73 3.72 3.63 3.63 3.62
14 7.72 23 3.75 3.75 3.74 3.64 3.64 3.64
15 7.34 24 3.77 3.77 3.76 3.66 3.66 3.65
16 7.00 25 3.79 3.79 3.78 3.68 3.67 3.67
17 6.71 26 3.82 3.81 3.80 3.70 3.69 3.69
18 6.44 27 3.84 3.83 3.82 3.71 3.71 3.71
19 6.21 28 3.86 3.86 3.85 3.73 3.73 3.72
20 6.00 29 3.89 3.88 3.87 3.75 3.75 3.74
21 5.81 30 3.92 3.91 3.90 3.77 3.77 3.76
22 5.64 31 3.94 3.94 3.92 3.80 3.79 3.78
23 5.49 32 3.97 3.97 3.95 3.82 3.81 3.81
24 5.35 33 4.01 4.00 3.98 3.84 3.84 3.83
25 5.22 34 4.04 4.03 4.01 3.87 3.86 3.85
35 4.07 4.06 4.04 3.89 3.89 3.88
36 4.11 4.10 4.07 3.92 3.92 3.91
37 4.15 4.13 4.11 3.95 3.94 3.93
38 4.19 4.17 4.14 3.98 3.97 3.96
39 4.23 4.21 4.18 4.02 4.01 3.99
40 4.27 4.25 4.22 4.05 4.04 4.02
41 4.32 4.29 4.26 4.09 4.07 4.06
42 4.37 4.34 4.30 4.12 4.11 4.09
43 4.42 4.39 4.34 4.16 4.15 4.13
44 4.47 4.43 4.38 4.20 4.19 4.17
45 4.53 4.48 4.43 4.25 4.23 4.20
46 4.58 4.54 4.47 4.29 4.27 4.25
47 4.64 4.59 4.52 4.34 4.32 4.29
48 4.71 4.65 4.57 4.39 4.37 4.33
49 4.77 4.71 4.63 4.45 4.42 4.38
</TABLE>
*Ages 10 and under.
<PAGE>
OPTION B TABLE
(CONTINUED)
<TABLE>
<CAPTION>
FOR MALES FOR FEMALES
SETTLEMENT AGE NUMBER OF MONTHLY NUMBER OF MONTHLY
OF PAYEE INSTALLMENTS INSTALLMENTS
LAST BIRTHDAY CERTAIN CERTAIN
120 180 240 120 180 240
<S> <C> <C> <C> <C> <C> <C>
50 $4.84 $4.77 $4.68 $4.50 $4.47 $4.43
51 4.91 4.84 4.73 4.56 4.53 4.48
52 4.99 4,81 4.79 4.62 4.59 4.53
53 5.07 4.98 4.85 4.69 4.65 4.58
54 5.15 5.05 4.91 4.76 4.71 4.64
55 5.24 5.13 4.97 4.83 4.78 4.70
56 5.33 5.21 5.03 4.91 4.85 4.76
57 5.43 5.29 5.09 4.99 4.92 4.82
58 5.54 5.37 5.15 5.08 5.00 4.88
59 5.65 5.46 5.21 5.17 5.08 4.95
60 5.76 5.55 5.27 5.27 5.16 5.01
61 5.88 5.64 5.34 5.37 5.25 5.08
62 6.01 5.74 5.40 5.48 5.34 5.15
63 6.14 5.84 5.45 5.59 5.44 5.22
64 6.28 5.93 5.51 5.71 5.53 5.29
65 6.43 6.03 5.57 5.84 5.63 5.35
66 6.58 6.13 5.62 5.97 5.74 5.42
67 6.73 6.23 5.67 6.11 5.84 5.48
68 6.89 6.32 5.71 6.26 5.95 5.54
69 7.05 6.42 5.75 6.42 6.06 5.60
70 7.22 6.51 5.79 6.58 6.17 5.66
71 7.39 6.60 5.82 6.75 6.28 5.71
72 7.57 6.68 5.85 6.93 6.38 5.76
73 7.74 6.76 5.88 7.12 6.49 5.80
74 7.91 6.83 5.90 7.31 6.59 5.83
75 8.08 6.90 5.92 7.50 6.68 5.87
76 8.25 6.96 5.94 7.70 6.77 5.89
77 8.42 7.02 5.95 7.89 6.86 5.92
78 8.58 7.07 5.97 8.09 6.93 5.94
79 8.73 7.12 5.97 8.28 7.00 5.95
80 8.88 7.16 5.98 8.47 7.06 5.96
81 9.02 7.19 5.99 8.65 7.11 5.97
82 9.15 7.22 5.99 8.82 7.15 5.98
83 9.26 7.24 6.00 8.98 7.19 5.99
84# 9.37 7.27 6.00 9.13 7.22 5.99
</TABLE>
#Ages 84 and over.
<PAGE>
Flexible Premium Variable Life Insurance Policy
Net Cash Surrender Value Payable at Maturity
Death Benefit Payable at Death Prior to Maturity Date
Adjustable Death Benefit
Flexible Premiums Payable During Lifetime of
Insured to Maturity Date
Nonparticipating - No Dividends
If you have any questions concerning this Policy or if
anyone suggests that you change or replace this Policy,
please contact your Lincoln National Life agent or the
Home Office of the Company.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 1110
FORT WAYNE, INDIANA 46801
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
<PAGE>
Exhibit 1(8)
Proposed Form of
Agreement to Purchase Shares
<PAGE>
FUND PARTICIPATION AGREEMENT
----------------------------
THIS AGREEMENT, entered into on this ___ day of _____________, 1987 among
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY ("Lincoln National"), a life
insurance company organized under the laws of the State of Indiana for itself
and on behalf of FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F OF THE LINCOLN
NATIONAL LIFE INSURANCE COMPANY ("Account"), a separate account established
by Lincoln National in accordance with the laws of the State of Indiana, and
AMERICAN PATHWAY FUND ("Fund"), an open-end management investment company
organized under the laws of the State of Massachusetts.
WITNESSETH:
WHEREAS, the Account has been established by Lincoln National pursuant to
the Indiana Insurance Code in connection with certain variable life insurance
contracts ("Contracts") proposed to be issued to the public by Lincoln National
through the Account; and
WHEREAS, the Account is registered as a unit investment trust under the
Investment Company Act of 1940; and
WHEREAS, the income, gains and losses, whether or not realized, from assets
allocated to the Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Account without regard to other income,
gains or losses of Lincoln National; and
WHEREAS, the Account is subdivided into various subaccounts
("Subaccounts") under which income, gains and losses, whether or not
realized, from assets allocated to each such Subaccount are, in accordance
with the applicable Contracts, to be credited to or charged against such
Subaccounts without regard to other income, gains or losses of other
Subaccounts or of Lincoln National; and
WHEREAS, the Fund is divided into various series ("Series"), each Series
being subject to separate investment policies and restrictions which may not
be changed without a majority vote of the shareholders of such Series; and
WHEREAS, certain Series will serve as the underlying investment medium for
certain Subaccounts; and
<PAGE>
WHEREAS, American Funds Distributors, Inc., the principal underwriter for
the Contracts to be funded by the Account, is a broker-dealer registered as such
under the Securities Exchange Act of 1934;
NOW THEREFORE, in consideration of the foregoing and of mutual covenants
and conditions set forth herein and for other good and valuable consideration,
Lincoln National, the Account, and the Fund, hereby agree as follows:
1. The Contracts funded through the Account will provide for the
allocation of net amounts among certain Subaccounts for investment in such
shares of the Series as may be offered from time to time in the prospectus of
the Contracts and the prospectus of the Fund. The selection of the particular
Subaccount is to be made by the Contract owner, and such selection may be
changed or purchase payments may be transferred among Subaccounts in accordance
with the terms of the Contracts.
2. Fund shares to be made available to certain Subaccounts shall be sold
by the respective Series and purchased by Lincoln National for the corresponding
Subaccount at the net asset value (without the imposition of a sales load) next
computed after receipt of each order by the Fund, as established in accordance
with the provisions of the then current prospectus of the Fund. Shares of a
particular Series shall be ordered in such quantities and at such times as
determined by Lincoln National to be necessary to meet the requirements of the
Contracts. Orders or payments for shares purchased will be sent promptly to the
Fund and will be delivered in the manner established from time to time by the
Fund.
The Fund reserves the right to delay any transfer of its shares until the
payment check has cleared. The Fund reserves the right to suspend sales if the
Board of Trustees of the Fund deems it appropriate and in the best interests of
the Fund or in response to the order of an appropriate regularity authority.
3. Transfer of the Fund's shares will be by book entry only. No stock
certificates will be issued to the Account. Shares ordered from a particular
Series will be recorded in an appropriate title for the corresponding Subaccount
on the books of Lincoln National. Lincoln National will provide to the Fund a
list of Contract owners (and their addresses) upon written notice from any
officer of the Fund.
4. The Fund shall furnish notice promptly to Lincoln National of any
dividend or distribution payable on any shares underlying Subaccounts. All of
such dividends and distributions as are payable on shares of a Series recorded
in the title for the corresponding Subaccount shall be automatically reinvested
in
-2-
<PAGE>
additional shares of that Series. The Fund shall notify Lincoln National of the
number of shares so issued. Lincoln National will provide the Fund a list of
Contract owners upon written notice from the Fund's Board.
5. The Fund shall pay all its expenses incidental to its performance
under this Agreement. The Fund shall see to it that all of its shares are
registered and authorized for issue in accordance with applicable federal and
state laws prior to their purchase by Lincoln National for the Subaccount. The
Fund shall bear the expenses for the cost of registration of its shares,
preparation of its prospectuses, proxy materials and reports, the printing and
distribution of such items to each Contract owner who has allocated net amounts
to any Subaccount, the preparation of all statements and notices required by any
federal or state law, or taxes imposed upon the Series on the issue or transfer
of the Fund's shares subject to this Agreement.
6. Lincoln National shall make no representations concerning the Fund's
shares except those contained in the then current prospectus of the Fund and in
printed information subsequently issued on behalf of the Fund or approved in
writing by the Fund as supplemental to such prospectus.
7. It is understood among the parties to this Agreement that shares of
the Fund may be offered to separate accounts of various insurance companies in
addition to Lincoln National and in connection with insurance policies or
contracts other than the Contracts (herein described as "mixed and shared
funding"). It is also understood among the parties that shares of the Fund and
each Series will not be offered directly to the public.
The parties to this Agreement recognize that, due to differences in tax
treatment or other considerations, the interests of various owners participating
in one or more of the Series might, at some time, be in conflict. Lincoln
National shall consider whether disclosure in the Contract prospectus regarding
the potential risks of mixed and shared funding is appropriate. Each party
shall report to the other party any potential or existing conflict of which it
becomes aware. The Board of Trustees of the Fund shall promptly notify Lincoln
National of the existence of an irreconcilable material conflict and its
implications. If such a conflict exists, Lincoln National will, at its own
expense, take whatever action it deems is necessary to remedy such conflict: in
any case, Contract owners will not be required to bear such expenses. The
parties undertake to comply with any applicable regulation of the Securities and
Exchange Commission which may be adopted relating to mixed and shared funding.
8. Lincoln National shall be responsible for assuring that the Account
calculates pass-through voting privileges of Contract
-3-
<PAGE>
owners in a manner consistent with the method of calculating pass-through voting
privileges set forth in the current prospectus for American Pathway II.
9. The Fund agrees to comply with the diversification requirements of
Internal Revenue Code section 817(h) and any regulations thereunder (including
temporary regulations).
10. This Agreement shall terminate:
a. at the option of Lincoln National or of the Fund upon nine
months' advance written notice to the other;
b. at the option of Lincoln National upon institution of formal
enforcement proceedings against the Fund by the Securities and
Exchange Commission;
c. upon a majority vote of the Contract owners having an interest in
a particular Subaccount to substitute the shares of another
investment company for the corresponding Fund shares in
accordance with the terms of the Contracts for which those Fund
shares had been selected to serve as the underlying investment
medium. Lincoln National will give 30 days' prior written notice
to the Fund of the date of any proposed vote to substitute Fund
shares; and
d. in the event the Fund's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such
law precludes the use of such shares as an underlying investment
for the Contracts issued or to be issued by Lincoln National. In
such event, prompt notice shall be given by Lincoln National or
the Fund to the other.
11. Each notice required by this Agreement shall be given in writing and
delivered via certified mail - return receipt requested.
12. The obligations of the Fund under this Agreement are not binding upon
any of the Trustees, officers, employees, agents or shareholders of the Fund
individually, but bind only the Fund's assets. Lincoln National and the Account
agree to look solely to the assets of the Fund for the satisfaction of any
liability of the Fund with respect to this Agreement and will not seek recourse
against the members of the Board of Trustees of the Fund, or its officers,
employees, agents or shareholders, of any of them, or any of their personal
assets for such satisfaction.
-4-
<PAGE>
13. This Agreement shall be construed in accordance with the laws of the
State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and attested as of the date first above written.
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY FOR ITSELF
AND ON BEHALF OF SEPARATE
ACCOUNT F
Attest:
By:
- ----------------------------------- -------------------------------
AMERICAN PATHWAY FUND
Attest:
By:
- ----------------------------------- -------------------------------
-5-
<PAGE>
[LETTERHEAD OF LINCOLN NATIONAL CORPORATION]
October 15, 1987
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: The Lincoln National Life Insurance Company Flexible Premium
Variable Life Insurance Contracts - Registration No. 33-14692
Gentlemen and Ladies:
I have made such examination of law and examined such documents and
records as I have deemed necessary or appropriate to render the opinion
expressed below.
I am of the opinion that, upon acceptance by Lincoln National Flexible
Premium Variable Life Account F of The Lincoln National Life Insurance Company
in accordance with the prospectus of payments made by purchasers of the flexible
premium variable life contracts which are the subject of the above referenced
registration statement, the purchasers will have legally issued, fully paid and
non-assessible interests in such contracts.
I consent to the filing of this opinion as an exhibit to Registration
Statement No. 33-14692.
Very truly yours,
/s/ John L. Steinkamp
John L. Steinkamp
Vice President and
Associate General Counsel
<PAGE>
April 15, 1998
Gentlemen:
This Opinion is furnished in connection with the filing of Post-Effective
Amendment #14 to Registration #33-14692 for the Lincoln Life Flexible
Premium Variable Life Account F. In my capacity as Second Vice President -
Business Engineering, I am familiar with the Registration Statement, its
exhibits, and the policy forms associated with the Registration Statement. In
my opinion:
1. The fees and charges deducted under the contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected
to be incurred, and the risks assumed by the Lincoln National Life
Insurance Company.
2. The illustrations of death benefits, policy values, and accumulated
premiums shown in Appendix B to the Prospectus contained in the
Registration Statement, based on the assumptions stated in the
illustrations, are consistent with the assumptions stated in the
policies. The rate structure of the policies has not been designed so
as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to the
prospective purchaser of policies that are Standard Male Nonsmokers or
Smokers Age 35 or Age 55 than to prospective purchasers for policies
that are Males or Females at other ages or classifications.
3. The information contained in the illustrations in the section of the
Prospectus entitled "Policy Benefits", based on the assumptions stated
in the examples, is consistent with the provisions of the policies.
I hereby consent to the use of this opinion as an Exhibit to Post-Effective
Amendment # 14 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus contained in the Registration Statement.
Sincerely,
/s/ Denis G. Schwartz
Denis G. Schwartz, FSA
Second Vice President
Business Engineering
<PAGE>
Exhibit 6
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-6
No. 333-40745), the Post-Effective Amendment No. 14 to the Registration
Statement (Form S-6 No. 33-14692), and the related Statements of Additional
Information appearing therein and pertaining to Lincoln Life Flexible
Premium Variable Life Account F, and to the use therein of our reports dated
(a) February 5, 1998, with respect to the statutory-basis financial
statements of The Lincoln National Life Insurance Company, and (b) March 20,
1998, with respect to the financial statements of Lincoln Life Flexible
Premium Variable Life Account F.
/s/ Ernst & Young
Fort Wayne, Indiana
April 21, 1998
