<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 2000
REGISTRATION NO. 333-40745
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 2
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LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
(AMERICAN LEGACY ESTATE BUILDER)
(Formerly: Lincoln National Flexible Premium Life Account F)
(Exact Name of Registrant)
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)
------------------------
Elizabeth Frederick, Esquire
The Lincoln National Life Insurance Company
1300 South Clinton Street, P.O. Box 1110
Fort Wayne, IN 46801
(Name and complete address of agent for service)
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Copy to:
Jeffrey Brine, Esquire
350 Church Street
Hartford, CT 06103
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Title and amount of securities being registered: Flexible premium variable
life insurance policies.
Approximate date of proposed public offering: Continuous
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Form 24f-2 for Registrant for the fiscal year ending
December 31, 1999 was filed March 24, 2000.
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 2000, pursuant to paragraph (b) of Rule 485
/ / on (date), pursuant to paragraph (a) of Rule 485.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
FOR LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
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N-8B-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Cover Page
3 Not applicable
4 Lincoln Life
5 Lincoln Life
6 The Separate Account
7 Not Required
8 Not Required
9 Legal Proceedings
10 The Separate Account; Right to Examine Policy; Surrender of the Policy; Withdrawals; Proceeds and Payment
Options; Addition, Deletion, or Substitution of Investments; Transfer Between Subaccounts; Policy Lapse
and Reinstatement; Voting Rights; Premium Payment and Allocation of Premiums; Death Benefits and Death
Benefit Types; Policy Changes; Policy Value; Proceeds and Payment Options
11 Lincoln Life; The General Account; The Separate Account
12 The Separate Account; Lincoln Life
13 Charges and Deductions
14 Requirements for Issuance of a Policy
15 Premium Payment and Allocation of Premiums
16 Premium Payment and Allocation of Premiums; Percent of Premium Charge; Charges and Deductions
17 Surrender of the Policy
18 The Separate Account
19 Reports and Records
20 Not Applicable
21 Loans
22 Not Applicable
23 Safekeeping of the Account's Assets
24 General Provisions
25 Lincoln Life
26 Not Applicable
27 Lincoln Life
28 Executive Officers and Directors of Lincoln National Life Insurance Company
29 Lincoln Life
30 Not Applicable
31 Not Applicable
32 Not Applicable
</TABLE>
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<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
33 Not Applicable
34 Not Applicable
35 Distribution of the Policy
36 Not Required
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41 Lincoln Life; Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Not Applicable
45 Not Applicable
46 Not Applicable
47 The Separate Account
48 Not Applicable
49 Not Applicable
50 The Separate Account
51 Lincoln Life; Premium Payment and Allocation of Premiums; Surrender of the Policy; Withdrawals; Proceeds;
Policy Lapse and Reinstatement; Charges and Deductions
52 Addition, Deletion and Substitution of Investments
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Required
57 Not Required
58 Not Required
59 Not Required
</TABLE>
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
<TABLE>
<S> <C>
Home Office Location and Administrative Mailing Address:
The Lincoln National Life Insurance Co.
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
Telephone Number: 1-800-942-5500
</TABLE>
This prospectus describes a flexible premium variable life insurance contract
(the "policy") offered by The Lincoln National Life Insurance Company ("Lincoln
Life", "we," the "company").
The Class 2 shares of the funds (the "funds") of American Funds Insurance
Series, also known as the American Variable Insurance Series, (the "series") are
available through the Lincoln Life Flexible Premium Variable Life Account F
("Separate Account"). Each fund has its own investment objective. The policy
owner (the "owner" or "you") is the person named in the policy schedule who has
all of the policy ownership rights. You should review each fund's prospectus,
which describes each fund in detail before making your decision. The funds
available through the Separate Account are:
- - Asset Allocation Fund
- - Bond Fund
- - Cash Management Fund
- - Global Growth Fund
- - Global Small Capitalization Fund
- - Growth Fund
- - Growth-Income Fund
- - High-Yield Bond Fund
- - International Fund
- - U.S. Government/AAA-Rated Securities Fund
This policy is designed to provide life insurance protection. Review your
personal financial objectives and discuss them with a qualified financial
counselor before you buy a variable life insurance policy. This policy may, or
may not, be appropriate for your individual financial goals. The value of the
policy depends on the investment results of the funding options you select. If
your plan already benefits from favorable tax treatment be sure your policy
meets your other financial goals before purchasing.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance contract with the policy. This
Separate Account prospectus is being furnished along with the prospectuses for
the funds. Both should be read carefully to understand the policy being offered.
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
THIS POLICY MAY NOT BE AVAILABLE IN ALL STATES, AND THIS PROSPECTUS ONLY OFFERS
THE POLICY FOR SALE IN JURISDICTIONS WHERE SUCH OFFER AND SALE ARE LAWFUL.
Prospectus Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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SUMMARY OF THE POLICY 1
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LINCOLN LIFE, THE GENERAL ACCOUNT AND THE SEPARATE ACCOUNT
Lincoln Life 6
The General Account 6
The Separate Account 7
Fund participation agreement 7
The American Funds Insurance Series 7
The investment advisor 8
Addition, deletion or substitution of investments 8
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THE POLICY
Requirements for issuance of a policy 9
Units and unit values 9
Premium payment and allocation of premiums 9
Dollar cost averaging program 11
Effective date and record date 11
Right to examine policy 11
Policy termination 11
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CHARGES AND DEDUCTIONS
Surrender charges 12
Cost of insurance charges 12
Policy value charge 13
Other policy charges 13
Charges against the Separate Account 14
Reduction of charges 14
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POLICY BENEFITS
Death benefit 15
Policy changes 16
Policy value 16
Transfer between subaccounts 17
Transfer to and from the General Account 17
Withdrawals 18
Loans 18
Policy lapse and reinstatement 19
No lapse benefit 19
Surrender of the policy 19
Proceeds and payment options 20
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GENERAL PROVISIONS
The contract 21
Suicide 21
Representations and contestability 21
Incorrect age or sex 21
Change of owner or beneficiary 21
Assignment 22
Reports and records 22
Projection of benefits and values 22
Postponement of payments 22
Accelerated Benefit Election Rider 23
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DISTRIBUTION OF THE POLICY 23
ADVERTISING 23
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TAX ISSUES
Taxation of life insurance contracts in general 24
Policies which are MECS 25
Policies which are not MECS 26
Other considerations 26
Tax Status of Lincoln Life 27
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VOTING RIGHTS 27
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STATE REGULATION OF LINCOLN LIFE AND THE SEPARATE ACCOUNT 28
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SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS 28
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LEGAL PROCEEDINGS 28
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EXPERTS 29
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ADDITIONAL INFORMATION 29
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OFFICERS & DIRECTORS OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 29
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APPENDIX A: Illustrations of policy values 32
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FINANCIAL STATEMENTS
Separate Account Financial Statements F-1
Company Financial Statements S-1
</TABLE>
<PAGE>
SUMMARY OF THE POLICY
Your policy is a flexible premium variable life insurance policy, which provides
for the payment of a death benefit to a beneficiary upon the insured's death.
The policy's value will change with the investment performance of the funds you
select. Policy values may be accessed through loans, withdrawals, and
surrenders. Regulations in your state may vary Policy provisions.
Key Policy Features:
- - A death benefit with a "no lapse benefit" that guarantees that your policy
will stay in force even though net investment results and policy charges might
otherwise cause your policy to lapse (See Policy lapse and reinstatement,
page 19); and
- - Limited flexible premium payments with a minimum initial premium of $10,000
(See page 9);
You may use the net cash surrender value of your policy (what you would get if
you surrendered the policy) to pay the monthly deductions and continue the
policy in force as long as sufficient value is available. Be careful; if the
investment options you choose do not do as well as you expect, there may not be
enough value to continue your policy inforce without more premium payments.
Charges against policy values for the cost of insurance (See Cost of insurance
charges, page 12) increase as the insured gets older. Unless the policy is "in
the corridor", the death benefit will be the specified amount regardless of the
net cash surrender value when the insured dies. (See Death benefit, page 15.)
You may borrow within described limits against your policy. You may surrender
the policy in full or withdraw part of its value. Loans against and surrenders
of a modified endowment contract ("MEC") may have adverse tax effects. The
taxation of life insurance death benefits and distributions is complex. (See Tax
Issues, page 24). The taxation of loans, withdrawals and surrenders from a life
insurance policy which is a MEC is generally less favorable than from a non-MEC.
Consult your tax advisor. A surrender charge is applied if the policy is totally
surrendered.
At all times your policy must qualify as life insurance under the Internal
Revenue Code of 1986, as amended (the "Code") to receive favorable tax treatment
under federal law. If these requirements are met, you may benefit from such tax
treatment. Lincoln Life reserves the right to return your premium payment if it
results in your policy failing to meet Federal tax law requirements.
INITIAL CHOICES TO BE MADE
The initial owner of the policy (the "owner" or "you") is named in the "policy
schedule" and has all of the policy ownership rights. If no owner is named, the
insured (the person whose life is insured under the policy) is the owner. If a
policy has been absolutely assigned, the assignee is the owner.
You, as the owner, have three important initial choices to make:
- - your death benefit amount; and
- - the amount of premium you want to pay; and
- - how your premium is allocated among the funding options you select.
DEATH BENEFIT AMOUNT
We pay the death benefit to the beneficiary(ies), calculated on the date the
insured died, less outstanding loan account balances, other outstanding amounts
due, and surrendered amounts.
You designate the beneficiary in the application, and may change the beneficiary
by request in writing to Lincoln Life. If no beneficiary survives the insured,
you or your estate will receive the benefit.
1
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Sometimes, due to poor investment results and to cost of insurance charges,
additional premium payments are needed to keep your policy in force.
Your no lapse benefit guarantees your policy will not lapse for a specific
length of time. Currently, for an insured age 75 or younger on the policy date,
the no lapse benefit expires 10 years after that date (1 year for older ages).
The policy date is the earlier of the date we receive the full initial premium
or the date on which we approve the policy for issue. The policy date is set
forth in your policy. We reserve the right to lengthen or shorten this benefit
for future new policies. (See No lapse benefit, page 19.)
You may also apply for an Accelerated Benefit Election Rider, described on page
23.
AMOUNT OF PREMIUM PAYMENT
When you decide how much premium to pay, you should decide whether you would be
willing to have your policy taxed as a MEC. Premium payments may be changed
within the limits described in the Premium payment section on page 9. If your
policy lapses because your monthly deductions are larger than the net cash
surrender value, you may reinstate your policy. (See Policy lapse and
reinstatement, page 19.)
The initial premium, paid at policy issue, must be at least 80%, and is normally
100%, of the federal maximum premium limitation at issue (as defined in Section
7702 of the Internal Revenue Code of 1986, as amended. However, any owner who at
any time has not yet paid the current federal maximum premium limitation may,
subject to certain restrictions, make premium payments at any time, in any
amount and at any frequency.
In most instances your policy will be a MEC because your initial premium will
exceed the Code's 7-pay limitation on premium payments (the "7-pay limitation")
on the policy. That is, your paid premium will exceed the total premiums paid
for a similar policy having fully funded benefits in the first seven policy
years.
When you first receive your policy you will have 10 days (more in some states)
to look it over. This is called the "right-to-examine" period. During this time
period your initial premium payment will be deposited in our General Account.
(See Right to examine policy, page 11.)
HOW ARE MY PREMIUMS PROCESSED?
You determine in the application what portions of net premiums are to be
allocated to the General Account and/or the various subaccounts of the Separate
Account. Your initial net premiums are automatically allocated to the Lincoln
Life General Account. After the record date, the policy value and all subsequent
net premiums will automatically be invested according to your instructions. 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 General Account and the subaccounts of the Separate Account.
SELECTION OF FUNDING VEHICLES
You must choose the fund(s) in which you want to place each net premium payment.
Ten subaccounts make up the Separate Account, the "variable" part of the
contract. Each subaccount invests exclusively in the shares of a specified fund.
If the mutual fund(s) you select goes up in value, the cash value of your policy
(net of charges and expenses) also goes up. If the funds lose value, so does the
cash value of your policy.
Each portfolio described below is an investment vehicle for one or more
insurance company separate accounts. A given portfolio may have a similar
investment objective and principal investment strategy to those for another
mutual fund managed by the same investment advisor or subadvisor. However,
because of timing of investments and other variables we cannot guarantee that
there will be any
2
<PAGE>
correlation between the two investments. Even though the management, strategies
and the objectives of the funds are similar, the investment results may vary.
You may also choose to place all or part of your premium payment into the
General Account. Premium payments put into the General Account become part of
Lincoln Life's General Account, do not share the investment experience of the
Separate Account and have a guaranteed minimum interest rate of 4% per year. For
additional information, see the General Account on page 6.
WHAT FUNDS ARE AVAILABLE TO SELECT?
You can allocate amounts to one or more subaccounts of the Separate Account.
Your investment amount is the portion of the policy value allocated to the
Separate Account. The Separate Account is Lincoln Life Flexible Premium Variable
Life Account F, established by Lincoln Life to receive and invest net premiums
paid under the policy. Currently you may select from the Class 2 shares of the
American Funds Insurance Series, which consists of ten funds. Below is a brief
description of the investment objective and principal strategy of each fund.
There can be no assurance that any of the stated investment objectives will be
achieved.
ASSET ALLOCATION FUND -- The fund seeks to provide you with high total return
(including income and capital gains) consistent with preservation of capital
over the long-term by investing in a diversified portfolio of common stocks and
other equity securities; bonds and other intermediate and long-term debt
securities, and money market instruments (debt securities maturing in one year
or less).
BOND FUND -- The fund seeks to maximize your level of current income and
preserve your capital by investing primarily in bonds. The fund is designed for
investors seeking income and more price stability than stocks, and capital
preservation over the long-term.
CASH MANAGEMENT FUND -- The fund seeks to provide you an opportunity to earn
income on your cash reserves while preserving the value of your investment and
maintaining liquidity by investing in a diversified selection of high quality
money market instruments.
GLOBAL GROWTH FUND -- The fund seeks to make your investment grow over time by
investing primarily in common stocks of companies located around the world. The
fund is designed for investors seeking capital appreciation through stocks.
Investors in the fund should have a long-term perspective and be able to
tolerate potentially wide price fluctuations.
GLOBAL SMALL CAPITALIZATION FUND -- The fund seeks to make your investment grow
over time by investing primarily in stocks of smaller companies located around
the world that typically have market capitalizations of $50 million to
$1.2 billion. The fund is designed for investors seeking capital appreciation
through stocks. Investors in the fund should have a long-term perspective and be
able to tolerate potentially wide price fluctuations.
GROWTH FUND -- The fund seeks to make your investment grow by investing
primarily in common stocks of companies that appear to offer superior
opportunities for growth of capital. The fund is designed for investors seeking
capital appreciation through stocks. Investors in the fund should have a
long-term perspective and be able to tolerate potentially wide price
fluctuations.
GROWTH-INCOME FUND -- The fund seeks to make your investment grow and provide
you with income over time by investing primarily in common stocks or other
securities which demonstrate the potential for appreciation and/or dividends.
The fund is designed for investors seeking both capital appreciation and income.
3
<PAGE>
HIGH-YIELD BOND FUND -- The fund seeks to provide you with a high level of
current income and secondarily capital appreciation by investing primarily in
lower quality debt securities (rated Ba or BB or below by Moody's Investors
Service, Inc. or Standard & Poor's Corporation), including those of non-U.S.
issuers. The fund may also invest in equity securities that provide an
opportunity for capital appreciation.
INTERNATIONAL FUND -- The fund seeks to make your investment grow over time by
investing primarily in common stocks of companies located outside the United
States. The fund is designed for investors seeking capital appreciation through
stocks. Investors in the fund should have a long-term perspective and be able to
tolerate potentially wide price fluctuations.
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND -- The fund seeks to provide you with
a high level of current income, as well as preserve your investment. The fund
invests primarily in securities that are guaranteed by the "full faith and
credit" pledge of the U.S. Government and securities that are rated AAA or Aaa
by Moody's Investors Service, Inc. or Standard & Poor's Corporation or unrated
but determined to be of equivalent quality.
For more detail, see the prospectus for the American Funds Insurance Series.
WHAT CHARGES AND DEDUCTIONS ARE MADE FROM MY POLICY?
SURRENDER CHARGE. We deduct surrender charges from the total amount paid to you
if you surrender the entire policy within the first twelve years. The surrender
charge will not exceed $43 per $1000 of specified amount or 6.5% of premiums
paid. For more details see Surrender charges on page 12.
COST OF INSURANCE CHARGE. Your policy has a cost of insurance charge which
reduces the policy value on each monthly anniversary day. The cost of insurance
charge ceases when the insured attains age 100. See Cost of insurance charges on
page 12 for more detailed information.
POLICY VALUE CHARGE. The policy value is the sum of all amounts allocated to the
Separate Account and to the General Account at any time, plus any outstanding
loan. The policy value will be reduced on each monthly anniversary day by the
policy value charge. The policy value charge for the first 10 policy years is
.10% of the policy value each month (1.20% annually), and thereafter is
.0166666% of the policy value each month (.20% annually). The policy value
charge ceases when the insured attains age 100. The policy value charge recovers
our expenses incurred in the sale and issue of the policies (such as premium tax
and other taxes, commissions, and underwriting and issue expenses), and some
ongoing maintenance expenses. We deduct a $5.00 monthly administrative charge
from the policy value on any monthly anniversary day when the policy value is
less than $50,000. There are other possible additional policy charge deductions
including a maximum $10.00 transfer charge for a transfer of funds between the
General Account and the Subaccounts and a $20.00 charge for partial withdrawals
of policy values from the account. (See other policy charges on page 13.)
CHARGES AGAINST THE SEPARATE ACCOUNT. A daily mortality and expense risk charge
currently .0016438% (equivalent to an annual rate of .60%) is imposed on the
daily net assets of the Separate Account. This charge is guaranteed not to
exceed .00246575% (equivalent to an annual rate of .90%).
No deductions are currently made from the Separate Account for federal or state
income taxes, but we reserve the right to do so.
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 investment advisory fees and other expenses incurred by
those funds. It is estimated that, in the aggregate, such fees and expenses for
the funds, expressed as an annual percentage of each fund's net assets, will
range from .36% to
4
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.82%. In addition to these fees and expenses, and pursuant to a 12b-1 plan, the
Class 2 shares of each fund also bear expenses equal to .25% annually of each
fund's net assets. See Charges against the Separate Account on page 13 for more
detailed information.
DO I HAVE ACCESS TO THE POLICY VALUES?
You may borrow up to 100% of the net cash surrender value. Subject to some
restrictions and charges, you may withdraw portions of the net cash surrender
value. Loans reduce the death benefit proceeds by the amount of the loan.
Withdrawals reduce the specified amount by the amount of the withdrawal. Both
loans and withdrawals reduce future policy values and may have adverse federal
income tax consequences.
If you decide to borrow against your policy, annual interest will be charged in
arrears. The loan amount will be deducted proportionately from the funding
vehicles you have at that time. The loan amount, or loan account value, also
earns interest at a current annual rate of 6%, with a minimum of 4%. A loan
reduces the specified amount and voids the no lapse benefit, if applicable,
until the loan is repaid. (See Loans, page 18.)
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, or
payment of the death benefit. During the right-to-examine period, you may return
the policy for a refund of all premiums paid. After the right-to-examine period,
you may surrender the policy and receive its net cash surrender value.
BUYING VARIABLE LIFE INSURANCE
The policies this prospectus offers are variable life insurance policies which
provide death benefit protection. Investors not needing death benefit protection
should consider other forms of investment, as there are extra costs and expenses
of providing the insurance feature. Further, life insurance purchasers who are
risk-averse or want more predictable premium levels or benefits may be more
comfortable buying more traditional, non-variable life insurance. Variable life
insurance is a flexible tool for financial and investment planning for persons
needing death benefit protection, willing to assume risk, and to monitor
investment choices they have made.
A customer may be able to pay a large single premium, using the policy primarily
as a savings and investment vehicle for potential tax advantages. A parent or
grandparent may find a policy on the life of a child or grandchild a useful
gifting opportunity, or the basis of an investment program for the donee.
Sufficient premiums must always be paid to keep a policy inforce, and there is a
risk of lapse if premiums are too low in relation to the insurance amount and if
investment results are less favorable than anticipated. The no lapse provision
may help to assure a death benefit even if investment results are unfavorable.
Flexibility also results from being able to select, monitor and change
investment choices within a policy. With the wide variety of fund options
available, it is possible to fine tune an investment mix and change it to meet
changing personal objectives or investment conditions. Policy owners should
monitor their investment choices on an ongoing basis.
Variable life insurance has significant tax advantages under current tax law. A
transfer of values from one fund to another within the policy generates no
taxable gain or loss. Investment income and realized capital gains within a fund
are automatically reinvested without being taxed to the policy owners. Policy
values accumulate on a tax-deferred basis. These situations would normally
result in immediate tax liabilities in the case of direct investment in mutual
funds.
5
<PAGE>
The ability of policy owners to access policy values is easily achieved with
variable life insurance. Unless a policy has become a "modified endowment
contract" (See Tax treatment of policy benefits on page 24), an owner can borrow
policy values tax-free, without surrender charges, and at very low net interest
cost. Policy loans can be a source of retirement income. By contrast, variable
annuity withdrawals are generally taxable to the extent of accumulated income,
may be subject to a charge deducted from the policy value, a surrender charge,
and will result in penalty tax if made before age 59 1/2.
Accumulated policy values may under limited circumstances also be part of the
eventual death benefit payable. If a policy is heavily funded and investment
performance is very favorable, the death benefit may increase because of tax law
requirements that the death benefit be a certain multiple of policy value
depending on the Insured's age (See table under Policy benefits, page 14.) The
death benefit is income-tax free and may, with proper estate planning, be
estate-tax free.
Certain costs and expenses of variable life insurance ownership which are
directly related to policy values (i.e. asset-based costs) are not unlike those
incurred through investment in mutual funds or variable annuities. Surrender
charges, which decrease over time and premium taxes may be applicable to your
policy; these charges are explained in more detail beginning on page 12. A
significant additional cost of variable life insurance is the "cost of
insurance" charge which is imposed on the "amount at risk" (approximately the
death benefit, less policy value). This charge increases with age, and varies by
underwriting classification, smoking status, and in most states by gender. The
effect of these costs and expenses can be seen in illustrations in this
prospectus (see Appendix A).
LINCOLN LIFE, THE GENERAL ACCOUNT AND THE SEPARATE ACCOUNT
LINCOLN LIFE
Lincoln National Life Insurance Co. 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. ("LNC"), 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
2005 Market Street, Philadelphia, PA 19103. Through its affiliated companies,
collectively Lincoln Financial Group, LNC provides wealth accumulation and
protection products and services including annuities, life insurance, 401(k)
plans, life-health reinsurance, institutional management and mutual funds.
THE GENERAL ACCOUNT
The General Account refers to the General Account of Lincoln Life. The General
Account consists of all assets owned by Lincoln Life other than those allocated
to any of its separate accounts, including the Separate Account. The General
Account supports Lincoln Life's insurance and annuity obligations. Because of
applicable exemptive and exclusionary provisions, interests in the General
Account have not registered under the Securities Act of 1933, and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940 ("1940 Act").
6
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THE SEPARATE ACCOUNT
We established the Lincoln Life Flexible Premium Variable Life Account F
("Account F"), on May 29, 1987 to fund variable life insurance policies.
Although the assets of the Separate Account are our property, the laws of
Indiana under which the Separate Account was established provide that the
Separate Account assets attributable to the policies are not chargeable with
liabilities arising out of any other business of Lincoln Life. 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 it supports. The assets of the
Separate Account will be valued once daily at the close of regular trading
(currently 4:00 p.m. Eastern Time) on each day the New York Stock Exchange is
open.
The Separate Account has been registered as an investment company under the 1940
Act 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 Securities and Exchange Commission.
The Separate Account is divided into ten subaccounts. Each subaccount invests
exclusively in Class 2 shares of one of the funds comprising the American Funds
Insurance Series: Asset Allocation Fund, Bond Fund, Cash Management Fund, Global
Growth Fund, Global Small Capitalization Fund, Growth Fund, Growth-Income Fund,
High-Yield Bond Fund, International Fund, U.S. Government/AAA Rated Securities
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 we may
conduct. The funds are also invested in by variable annuity contract holders.
Should we become aware of any material irreconcilable conflict, either potential
or existing, between its variable annuity and variable life insurance contract
owners, we have agreed to notify the series' Board of Trustees and to remedy, at
our own expense, any such conflict.
There is no assurance that any fund of the American Variable Insurance
Series will achieve its stated investment objective.
FUND PARTICIPATION AGREEMENT
Lincoln Life has entered into an agreement with a fund group under which Lincoln
Life makes ten funds available under the policies and performs certain
administrative services.
THE AMERICAN FUNDS INSURANCE SERIES
The series was organized as a Massachusetts business trust in 1983 and is
registered as a diversified, open-end management investment company under the
1940 Act.
The series has ten separate portfolios of funds. The series' Board of Trustees
may at any time establish additional funds or classes, which may or may not be
available to the Separate Account.
Under the multi-class system adopted by the series, pursuant to Rule 18f-3 under
the 1940 Act, shares of each multi-class fund represent an equal pro rata
interest in that fund and, generally, have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that:
(1) each class has a different designation;
(2) each class of shares bears its class expenses;
(3) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its distribution arrangement; and
7
<PAGE>
(4) each class has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests
of any other class.
Each fund has two classes of shares, designated as Class 1 shares and Class 2
shares. Class 1 and 2 differ primarily in that Class 2 shares are subject to a
12b-1 plan. Only Class 2 shares are available under the policy. Lincoln Life,
together with affiliates, expects to receive a portion of the 12b-1 fees
attributable to its investment on behalf of the Separate Account in the funds.
Such portion is anticipated to be at the annual rate of approximately .25% of
the value of the Separate Account's investment in the funds and constitutes
reimbursement to Lincoln Life for certain expenses incurred in connection with
certain administrative and distribution support services provided to the series.
Expenses currently designated as class expenses by the series' Board of Trustees
under the plan pursuant to Rule 18f-3 include, for example, service fees paid
under a 12b-1 plan. See the prospectus for the series for more information about
the 12b-1 plan it has adopted for its Class 2 shares.
THE INVESTMENT ADVISOR
Capital Research and Management Company ("CRMC"), 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. CRMC is located at
333 South Hope Street, Los Angeles, Calif. 90071 and 135 South State College
Boulevard, Brea, Calif. 92821, and is registered with the 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. We reserve the right,
subject to compliance with applicable law and prior approval of the Securities
and Exchange Commission, 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.
We reserve 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 Commission, to the extent required by the 1940 Act
or other applicable law. A substituted fund may have higher charges than the one
it replaces. Nothing contained herein shall prevent the Separate Account from
purchasing other securities for other classes of policies, or from permitting a
conversion between classes of policies on the basis of requests made by policy
owners.
Lincoln Life also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new fund or series of a fund
or in shares of another investment company, with a specified investment
objective. Lincoln Life may eliminate or establish one or more subaccounts when
marketing needs, tax or investment conditions warrant, and any new subaccounts
may be made available to existing policy owners on a basis to be determined by
Lincoln Life.
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 1940 Act, 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.
8
<PAGE>
THE POLICY
REQUIREMENTS FOR ISSUANCE OF A POLICY
Individuals wishing to purchase a policy must send a completed application to
our administrative mailing address. The minimum acceptable premium is $10,000. A
policy will generally be issued only to insureds 80 years of age or younger who
supply evidence of insurability satisfactory to us. Acceptance is subject to our
underwriting rules and, except in California, we reserve the right to reject an
application for any reason.
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 you purchase 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, withdrawals and withdrawal charges, transfers of values out of a
subaccount, income tax deductions (if any), policy value charges, monthly
administrative charges, 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 amounts
allocated to each subaccount plus the amounts allocated to the General Account
plus any outstanding loan. The value of each 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), 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.
PREMIUM PAYMENT AND ALLOCATION OF PREMIUMS
Subject to certain limitations, you have flexibility in determining the
frequency and amount of premiums. The initial 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 initial premium will not guarantee
that the policy will remain in force. The amount of the initial premium is based
on the insured's issue age and the specified amount of the policy and is
normally approximately equal to 100% of the federal maximum premium limitation
at issue, as described below. The initial premium may be as little as 80% of the
federal maximum premium limitation at issue, but if the initial premium is less
than 98% of the limitation, higher cost of insurance charges will result.
Any owner who has not chosen to pay the federal maximum premium limitation at
issue may pay additional premiums up to the limitation at any time. We reserve
the right to require evidence of insurability if the payment of any premium will
increase the death benefit by more than the amount of the premium paid. The
failure to pay the maximum premium will not of itself cause the policy to lapse,
nor will the payment of the maximum premium guarantee that the policy will
remain in force. The policy will lapse any time outstanding loans exceed policy
value less surrender charge, or policy
9
<PAGE>
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.) Subject to the initial premium
requirements and the maximum premium limitations established under section 7702
of the Code, you may make unscheduled premium payments at any time in any amount
during the lifetime of the insured. 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.
PREMIUM LIMITATIONS. In no event can the total of all premiums paid 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, we
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. Further premiums will
not 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 MEC. A policy will
become a MEC if premiums paid into the policy exceed certain limits referred to
as the 7-pay limitation. Because the initial premium exceeds the 7-pay
limitation, the policy will be a MEC unless it has been purchased with cash
values transferred from a pre-existing life insurance policy which is not a MEC.
Any such must meet the requirements for a taxfree exchange. The taxation of life
insurance death benefits and distributions is complex and is discussed in detail
under "Federal tax matters". Taxation of loans, withdrawals, and surrenders of a
life insurance policy that becomes a MEC is generally less favorable than such
distributions from a life insurance policy that is not a MEC.
ALLOCATION OF NET PREMIUMS. In the application for a policy, you can allocate
net premiums or portions thereof to the General Account and the 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
General Account. Net premiums received prior to the record date will be credited
to the policy on the later of the policy date or the date the premium is
received. The record date is the date the policy is recorded on the books of
Lincoln Life as an in-force policy, and may coincide with the policy date. Net
premiums will continue to be allocated to the General Account until the record
date. When the assets of the Separate Account are next valued following the
record date, the value of the policy's assets in the General Account will
automatically be transferred to the General Account and the subaccounts of the
Separate Account in accord with your 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 your instructions in the application. The
minimum percentage of each premium that may be allocated to the General Account
or 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 us.
You can also make arrangements with us to allow the allocation of future net
premiums to be changed upon telephone request.
The value of the amount allocated to subaccounts of the Separate Account will
vary with the investment experience of these subaccounts and the owner bears the
entire investment risk. The value of the amount allocated to the General Account
will earn a current interest rate guaranteed to be at least 4% per year. You
should periodically review your allocations of premiums and values in light of
market conditions, interest rates, and overall estate planning requirements.
10
<PAGE>
DOLLAR COST AVERAGING PROGRAM
You may wish to make monthly transfers from the General Account to one or more
of the subaccounts over a 12, 24 or 36-month period through the Dollar Cost
Averaging ("DCA") program. Under the program, at least $5000 is to be
transferred from the General Account 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 allocated to the General Account has been
exhausted, whichever occurs sooner. DCA may also be terminated upon written
request by the owner.
DCA 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 us.
EFFECTIVE DATE AND RECORD DATE
For all coverage provided in the original application, the effective date will
be the policy date, provided the policy has been delivered and the initial
premium has been paid prior to death and prior to any change in health or any
other factor affecting insurability of the insured as shown in the application.
The policy date is ordinarily the earlier of the date the full initial premium
is received or the date on which the policy is approved for issue by Lincoln
Life, and is specified in the policy. Policy years, months and anniversaries are
measured from the policy date.
For any increase, the effective date will be the first monthly anniversary date
(the same date each month as the policy date) 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.
The date the policy is recorded on the books of Lincoln Life as an in-force
policy is the record date. Ordinarily, the policy will be recorded as in-force
within three business days after the later of the date we receive the last
outstanding requirement or the date of underwriting approval. The record date
controls the timing of the transfer of initial assets from the General Account
to the various subaccounts.
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 10 days after receipt of the policy, 45 days after
Part 1 of the application is completed, or 10 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 our administrative mailing address 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, or
3) the insured dies.
11
<PAGE>
Under certain defined conditions, we will continue to keep the policy in force
despite insufficient net cash surrender value (See No lapse benefit, page 19.)
CHARGES AND DEDUCTIONS
Charges are described in the following paragraphs. Lincoln Life may make a
profit on any of these charges, and may use the profit from a charge for any
purpose, including covering shortfalls from other charges.
Charges will be deducted in connection with the policy to compensate Lincoln
Life for:
1) providing the insurance benefit set forth in the policy;
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 pages.
SURRENDER CHARGES
Surrender charges are deducted upon surrender of the policy during the first 12
policy years. The following table shows the surrender charge as a percent of
premiums paid. The surrender charge will not exceed $43 per $1,000 of specified
amount. Surrender charges are higher in the earlier years of the policy,
reducing its net cash surrender value. Thus if you surrender the policy in the
early years, and there have been significantly unfavorable investment results,
there may be little or no money to return to you.
<TABLE>
<CAPTION>
DURING POLICY YEARS PERCENT OF PREMIUMS PAID
<S> <C>
- --------------------------------------------------------------------------------------------
1 and 2 6.5%
3 and 4 6.0%
5 and 6 5.5%
7 and 8 5.0%
9 and 10 4.5%
11 4.0%
12 2.0%
</TABLE>
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
and the General Account.
The current cost of insurance charges depend currently upon these variables:
1) the amount of the initial premium as a percentage of the federal maximum
premium limitation;
2) the classification of the insured;
3) the amount of policy value; and
4) the maximum cost of insurance deduction allowed under state insurance
laws.
The current cost of insurance deduction each month is calculated by multiplying
the policy value by the appropriate percentage rate described below. The current
cost of insurance deduction may never
12
<PAGE>
exceed the maximum cost of insurance deduction allowed under state insurance
laws. The cost of insurance charge ceases when the insured reaches age 100.
If the initial premium is at least 98% of the federal maximum premium limitation
at issue, the current monthly percentage rate used to calculate the cost of
insurance deduction is .05% for select non-tobacco users and .10% for select
tobacco users. If the initial premium is less than 98% of the maximum
limitation, higher percentage rates will be used. If the insured's
classification is other than select non-tobacco user or select tobacco user,
higher percentages will also be used.
The current monthly cost of insurance rates may be changed by Lincoln Life from
time to time. A change in the current 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 1980 Commissioner's Standard
Ordinary Mortality Table, Age Last Birthday, for attained ages under sixteen; on
the 1980 Commissioner's Standard Ordinary Nonsmoker Mortality Table, Age Last
Birthday, or the 1980 Commissioner's Standard Ordinary Smoker Mortality Table,
Age Last Birthday, for attained ages sixteen and over, depending on the tobacco
usage of the insured. Select rate classes have guaranteed rates which do not
exceed 100% of the applicable table. In states requiring unisex rates, in
federally qualified pension plan sales, in employer sponsored situations, and in
any other situation where unisex rates are required by law, the cost of
insurance rates (whether current or guaranteed) are not based on sex.
The rate class of an insured will affect the cost of insurance rate. Lincoln
Life currently places insureds into a select rate class or rate classes
involving a higher mortality risk. In an otherwise identical policy, insureds in
the select rate class will have a lower cost of insurance than those in rate
classes with higher mortality risk.
POLICY VALUE CHARGE
On the policy date and on each monthly anniversary day following, a policy
charge will be deducted from the policy value. Ordinarily, the policy value
charge is deducted in proportion to the values in the subaccounts.
The policy value will be reduced on each monthly anniversary day by the policy
value charge. The policy value charge for the first 10 policy years is .10% of
the policy value each month (1.20% annually), and thereafter is 0.166666% of the
policy value each month (.20% annually). The policy value charge ceases when the
insured attains age 100. The policy value charge recovers our expenses incurred
in the sale and issue of the policies (such as premium tax and other taxes,
commissions, and underwriting and issue expenses), and some ongoing maintenance
expenses.
OTHER POLICY CHARGES
We deduct a $5.00 monthly administrative charge from the policy value on any
monthly anniversary day when the policy value is less than $50,000. Currently,
no charge is made for transfers of amounts among the General Account and the
subaccounts, although a maximum of $10 per transfer may be charged in the
future. We deduct $20 from the amount of any withdrawal of policy value other
than full surrender of the policy. The monthly administrative charge, the
transfer charge, and the withdrawal charge cease when the insured reaches age
100.
We also reserve 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.
13
<PAGE>
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. It is estimated that, in the aggregate, such fees and
expenses for the funds, expressed as an annual percentage of each fund's net
assets, will range from .35% to .81%. Each of the funds also deducts a 12b-1 fee
for Class 2 shares equal to .25% annually of each fund's net assets. These
charges and other fund expenses have the effect of reducing the investment
results credited to the subaccounts.
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:
<TABLE>
<CAPTION>
Total Annual
Fund Operating Total Fund
Expenses Without Total Operating Expenses
Asset Management Other 12(b)1 Waivers or Waivers and with Waivers or
Fund Fee* Expenses* Fees* Reductions* Reductions* Reductions*
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Asset Allocation .43% .01% .25% .69% 0.0 .69%
Bond .51% .02% .25% .78% 0.0 .78%
Cash Management .44% .01% .25% .70% 0.0 .70%
Global Growth .68% .03% .25% .96% 0.0 .96%
Global Small Capitalization .78% .03% .25% 1.06% 0.0 1.06%
Growth .38% .01% .25% .64% 0.0 .64%
Growth-Income .34% .01% .25% .60% 0.0 .60%
High-Yield Bond .50% .01% .25% .76% 0.0 .76%
International .55% .05% .25% .85% 0.0 .85%
U.S. Gov't/AAA-Rated .51% .01% .25% .77% 0.0 .77%
</TABLE>
*Expressed as an annual percentage of each fund's average daily net assets.
See the funds' prospectus for more complete information about the expenses of
the funds.
MORTALITY AND EXPENSE RISK CHARGE. A daily mortality and expense risk charge
currently equal to .0016438% (equivalent to an annual rate of .60%) of the daily
net assets of the Separate Account is imposed. This charge is guaranteed not to
exceed .00246575% (equivalent to an annual rate of .90%).
The mortality risk assumed is that insureds may live for a shorter period of
time than estimated and, therefore, death benefits will be payable sooner than
expected. The expense risk assumed is that expenses incurred in issuing and
administering the policies will be greater than estimated.
REDUCTION OF CHARGES
The surrender charge, the policy value charge, and the monthly administrative
charge set forth in this prospectus may be reduced because of special
circumstances that result in lower sales or administrative expenses. In
particular, these charges will be reduced 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 bona-fide full-time
employees of LNC or CRMC 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 and administrative expenses resulting
from the special circumstances. Reductions will not be unfairly discriminatory
against any person, including the affected policy owners and owners of all other
policies funded by the Separate Account.
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<PAGE>
POLICY BENEFITS
DEATH BENEFIT
As long as the policy remains in force (see Policy lapse and reinstatement),
Lincoln Life will, upon proof of the insured's death, pay the death benefit
proceeds of the policy to the named beneficiaries. 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.) 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.
The initial death benefit on your variable life insurance policy is equal to the
specified amount you choose at the time of purchase. The specified amount is the
minimum death benefit payable under the policy so long as the policy remains
inforce. The death benefit proceeds will be reduced by any outstanding loans and
any unpaid charges, and increased by unearned loan interest. We may also impose
certain limitations on the maximum specified amount allowable.
The death benefit is calculated as 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 table below lists the specified percentage applicable to the given attained
age:
<TABLE>
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 dies at or 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
15
<PAGE>
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 withdrawn from the 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.
POLICY CHANGES
The specified amount may not be voluntarily increased or decreased. Withdrawals
reduce the specified amount by an amount proportionate to the amount of policy
value withdrawn. For example, if 10% of the policy value is withdrawn, the
specified amount will be reduced by 10% of the specified amount.
POLICY VALUE
The policy provides for the accumulation of policy value. 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 withdrawals, 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 premium, minus the sum
of the following: the cost of insurance for the first month, the monthly
administrative charge (if any), and the policy value charge 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 4% per year on amounts allocated to the General
Account;
d. Interest at not less than the rate shown on the policy schedule on any
outstanding loan amount; and
e. Any premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to net investment results in the value of the subaccounts
to which the investment amount is allocated;
g. Any withdrawals;
h. Any amount charged against the investment amount for federal or other
governmental income taxes;
i. The cost of insurance for the following month;
j. The monthly administrative charge, if any, for the following month;
k. The policy value charge for the following month; and
l. Any charges for extra benefits.
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<PAGE>
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 4% per year on amounts allocated to the General
Account;
d. Interest at not less than the rate shown on the policy schedule on any
outstanding loan amount; and
e. Any net premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to net investment results in the value of the subaccounts
to which the investment amount is allocated;
g. Any withdrawals; and
h. Any amount charged against the investment amount for federal or other
governmental income taxes.
The charges and deductions described above are further discussed in the Charges
and deductions section beginning on page 11.
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 12b-1 fee, any miscellaneous expenses incurred by the fund, and the
mortality and expense risk charge for the period, and increased by the per unit
share of any dividends credited by the fund to the subaccount during the period.
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.
The charges listed above are explained further in "Charges against the Separate
Account."
TRANSFER BETWEEN SUBACCOUNTS
Any time after the record date, you 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 us. Transfers may be made by telephone request only if the
owner has previously authorized telephone transfer in writing on a form suitable
to us. We 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, we 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 our administrative address. The minimum
amount which may be transferred between subaccounts is $100. The maximum number
of transfers allowed in a policy year is twelve. A transfer charge of $10 is
made for each transfer and may be deducted from the amount transferred; however,
the transfer charge is currently being waived for all transfers.
TRANSFER TO AND FROM THE GENERAL ACCOUNT
Any time after the record date, you may also request to transfer amounts from
the Separate Account to the General Account. Transfers from the General Account
to the Separate Account are subject to some restrictions. A maximum of 20% of
the policy value allocated to the General Account may be
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transferred to the Separate Account in any period of 12 consecutive months.
However, as a current practice, the 20% maximum transfer limitation does not
apply for the first six policy months. There is no minimum transfer amount;
however, if the amount allocated to the General Account is $500 or less, the
owner may transfer the entire allocated amount out of the General Account. A
transfer charge of $10 is made for each transfer and may be deducted from the
amount transferred; however, the transfer charge is currently being waived for
all transfers.
WITHDRAWALS
Anytime during the lifetime of the insured, you may make a cash withdrawal from
the policy value. The amount and timing of the withdrawal is subject to certain
limitations. The minimum withdrawal is $1000. Only one withdrawal may be made
during a policy year. During the first 10 policy years, the maximum withdrawal
is 10% of the net cash surrender value at the time of the withdrawal.
Withdrawals may result in tax liability. Withdrawals other than full surrender
of the policy incur a $20 withdrawal charge.
Withdrawals reduce the specified amount by an amount proportionate to the amount
of policy value withdrawn. For example, if 10% of the policy value is withdrawn,
the specified amount will be reduced by 10% of the specified amount. Ordinarily,
the amount of any withdrawal will be deducted from the General Account and
subaccounts in proportion to the values of each.
LOANS
You may, upon written request, borrow against the policy. You must execute a
written loan agreement with us. The policy will be the sole security for the
loan, and the policy must be assigned to us 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 our administrative mailing address. Payments
may be postponed under certain circumstances. (See Postponement of payments.)
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.)
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.) In addition, the presence of any outstanding policy
loan reduces death benefit proceeds and negates the no lapse benefit (if
present) until the loan is repaid.
DEDUCTION OF LOAN AND LOAN INTEREST. Unless we agree otherwise, the amount of
any loan will be deducted from the General Account and the subaccounts at the
time the loan is taken in proportion to the value in each. The amount of any
unpaid loan interest will be added to the loan and deducted from the General
Account and the subaccounts at the end of the policy year in which the loan
interest was earned. Ordinarily, the amount of any loan or unpaid loan interest
will be deducted from the General Account and the subaccounts in proportion to
the values of each.
The amount of any loan (including any unpaid loan interest added to the loan)
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%. Any interest
not paid when due will be added to the existing loan amount and will also be
charged interest at the same policy loan rate.
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Such amounts 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 on 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.
EFFECT OF LOANS ON POLICY CHARGES. The existence of a policy loan on a monthly
anniversary day does not directly affect the calculation of the policy value
charge, the cost of insurance charge, or the monthly administrative charge;
these charges are currently determined by the policy value, which includes any
policy loan. The mortality and expense risk charge, asset management expenses,
12b-1 fees, and miscellaneous funds expenses are not incurred on any policy
loan.
LOAN REPAYMENTS. Loan repayments will ordinarily be allocated to the General
Account and the subaccounts in accord with the most recent premium allocation.
Any loan not repaid at the time of surrender of the policy 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 unless the
No Lapse benefit is in effect. Lapse will 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 we send 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.
You may reinstate a lapsed policy within five years after the date of lapse by
submitting evidence of insurability satisfactory to us 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. The above will not apply if
the policy had been previously surrendered.
NO LAPSE BENEFIT
Provided no outstanding loan exists on the policy, the policy provides a no
lapse benefit (except in Illinois). The no lapse benefit guarantees that the
policy will not lapse due to insufficient net cash surrender value prior to the
no lapse benefit expiration date shown on the policy schedule. Currently, the no
lapse benefit expires 10 years from the policy date if the issue age of the
insured is age 75 or younger. For issue ages 76 and older, the no lapse benefit
expires 1 year from the policy date. We may at any time lengthen or shorten the
no lapse benefit for future new policies, but will not unfairly discriminate
among policy owners in determining the length of the no lapse benefit.
SURRENDER OF THE POLICY
You 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
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in writing on a form suitable to us. The request will be effective the date the
request is received at our administrative mailing address, or at a later date if
you so request.
Ordinarily, the surrender will be processed within seven days from the date the
request for surrender is received. However, if you have money due from the
General Account, payment or transfers from the General Account may be deferred
up to six months at Lincoln Life's option. If Lincoln Life exercises its right
to defer any payment from the General Account, interest will be paid as required
by law from the date the recipient would otherwise have been entitled to receive
the payment. The tax treatment of a surrendered policy is discussed under Tax
Issues.
All coverage under the policy will automatically terminate and may not be
reinstated if the owner makes a full surrender.
PROCEEDS AND PAYMENT OPTIONS
PROCEEDS. The amount payable under the policy 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 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 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 us at the
time payment is to be made. Under certain conditions, payment options will only
be available with our consent. 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, our approval is needed before any proceeds
can be applied to a payment option. The payment option selected, as well as the
time the election is made, may have tax consequences.
You 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 us on the option date. Additional interest as we may
determine may be paid or credited from time to time in addition to the payments
guaranteed under a payment option.
When proceeds become payable under a payment option, a payment contract will be
issued to the payee in exchange for the policy. Such payment contract may not be
assigned. Any change in payment option may be made only if it is provided for in
the payment contract. Under some of the payment options, proceeds may be
withdrawn under such payment option if provided for in the payment contract. The
amount to be withdrawn varies by the payment option.
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GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of the policy plus the application and any
supplemental application, plus any riders, plus any amendments. The policy is
issued in consideration of the application and payment of the initial premium.
Only statements in the application and any supplemental applications can be used
to contest the validity of the policy or defend a claim. These statements are,
in the absence of fraud, considered representations and not warranties. A change
in the policy will be binding on us 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 our profit or surplus
earnings.
SUICIDE
If the insured commits suicide, while sane or insane, within two years from the
policy date, our total liability 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 reinstatement, our total liability with respect to such
reinstatement will be the premiums paid, minus any withdrawals, since the
effective date of the reinstatement, minus any policy loan plus loan interest
thereon.
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 reinstatement will not be contestable after
that 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 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 as necessary to that which would
be purchased by the most recent cost of insurance charge 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 while the insured is living. The request must be in writing on a form
suitable to us and received at our administrative address. Once recorded the
change will be effective as of the date signed. The change will be effective the
day that the request is received at our administrative mailing address. We 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.
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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, provided that any prior designation does
not prohibit such a change. A change will revoke any prior designation of the
beneficiary. A change request must be in writing on a form suitable to us and
received at our administrative address. Once recorded, the change will be
effective as of the date signed. We reserve 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. 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 us unless it is in writing
on a form suitable to us and is received at our administrative mailing office.
We will not be responsible for the validity of any assignment, and reserve the
right to require the policy for endorsement of any assignment. An assignment of
the policy may have tax consequences.
REPORTS AND RECORDS
We will maintain all records relating to the Separate Account. We 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 policy 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, we will
provide to policy owners semi-annually, or otherwise as may be required by
regulations under the 1940 Act, a report containing information about the
operations of the funds.
We have entered into an agreement with Delaware Management Company, Inc., and
Delaware Service Company, Inc. 2005 Market Street, Philadelphia, PA 19203,
affiliates of Lincoln Life, to provide accounting services to the Separate
Account.
PROJECTION OF BENEFITS AND VALUES
At the owner's request, we will provide a report to the owner which shows
projected future results. The request must be in writing to our administrative
mailing address on a form suitable to us. The report will be comparable in
format to those shown in Appendix A and will be based on assumptions in regard
to the death benefit as may be specified by the owner, planned premium payments
as may be specified by the owner, and such other assumptions as are necessary
and specified either by the owner or us. A reasonable fee may be charged for
this projection.
POSTPONEMENT OF PAYMENTS
Payments of any amount payable on surrender, loan, withdrawal, or benefits
payable at death 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 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.
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Requests for surrender, policy loan, or withdrawal 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 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. This rider is available to issue ages 0 through 80.
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. The rider 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. There may be separate charge(s) for any other rider(s) that become part
of the policy.
DISTRIBUTION OF THE POLICY
Lincoln Life offers the policy in all jurisdictions where it is licensed to do
business. The home office address of Lincoln Life is 1300 South Clinton Street,
Fort Wayne, Ind. 46802. American Fund Distributors, Inc. ("AFD"), the principal
underwriter for the policies, is registered with the 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 policy will be sold by individuals who, in addition to being appointed as
life insurance agents, are also registered representatives of Lincoln Financial
Advisors Inc., a registered broker-dealer affiliated with Lincoln Life. 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 appointed as our agents. These representatives ordinarily receive
commissions and service fees up to 5.25% 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 our
resources.
ADVERTISING
Lincoln Life is ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's, Duff & Phelps and A.M. Best Company. The
purpose of these ratings is to reflect the financial strength or claims-paying
ability of Lincoln Life. The ratings are not intended to reflect the investment
experience or financial strength of the Separate Account. We may advertise these
ratings from time to time. In addition, we may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend us or the policies. We may also occasionally
include in advertisements comparisons of currently taxable and tax deferred
investment programs, based on selected tax brackets, or discussions of
alternative investment vehicles and general economic conditions.
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We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of of ethical
standards covering the various aspects of sales and services for individually
sold life insurance and annuities.
TAX ISSUES
INTRODUCTION. The Federal income tax treatment of the policy is complex and
sometimes uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax rules
that may affect you and your policy, and is not intended as tax advice. This
discussion also does not address other Federal tax consequences, or state or
local tax consequences, associated with the policy. As a result, you should
always consult a tax adviser about the application of tax rules to your
individual situation.
TAXATION OF LIFE INSURANCE CONTRACTS IN GENERAL
TAX STATUS OF THE POLICY. Section 7702 of the Code establishes a statutory
definition of life insurance for Federal tax purposes. We believe that the
policy will meet the statutory definition of life insurance, which places
limitations on the amount of premium payments that may be made and the contract
values that can accumulate relative to the death benefit. As a result, the death
benefit payable under the policy will generally be excludable from the
beneficiary's gross income, and interest and other income credited under the
policy will not be taxable unless certain withdrawals are made (or are deemed to
be made) from the policy prior to the insured's death, as discussed below. This
tax treatment will only apply, however, if (1) the investments of the Separate
Account are "adequately diversified" in accordance with Treasury Department
regulations, and (2) we, rather than the you, are considered the owner of the
assets of the Separate Account for Federal income tax purposes.
INVESTMENTS IN THE SEPARATE ACCOUNT MUST BE DIVERSIFIED. For a policy to be
treated as a life insurance contract for Federal income tax purposes, the
investments of the Separate Account must be "adequately diversified." IRS
regulations define standards for determining whether the investments of the
Separate Account are adequately diversified. If the Separate Account fails to
comply with these diversification standards, you could be required to pay tax
currently on the excess of the contract value over the contract premium
payments. Although we do not control the investments of the subaccounts, we
expect that the subaccounts will comply with the IRS regulations so that the
Separate Account will be considered "adequately diversified."
RESTRICTION ON INVESTMENT OPTIONS. Federal income tax law limits your right to
choose particular investments for the policy. Because the IRS has not issued
guidance specifying those limits, the limits are uncertain and your right to
allocate contract values among the subaccounts may exceed those limits. If so,
you would be treated as the owner of the assets of the Separate Account and thus
subject to current taxation on the income and gains from those assets. We do not
know what limits may be set by the IRS in any guidance that it may issue and
whether any such limits will apply to existing policies. We reserve the right to
modify the policy without your consent to try to prevent the tax law from
considering you as the owner of the assets of the Separate Account.
NO GUARANTEES REGARDING TAX TREATMENT. We make no guarantee regarding the tax
treatment of any policy or of any transaction involving a policy. However, the
remainder of this discussion assumes that your policy will be treated as a life
insurance contract for Federal income tax purposes and that the tax law will not
impose tax on any increase in your contract value until there is a distribution
from your policy.
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TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In general, the amount
of the death benefit payable from a policy because of the death of the insured
is excludable from gross income. Certain transfers of the policy for valuable
consideration, however, may result in a portion of the death benefit being
taxable.
If the death benefit is not received in a lump sum and is, instead, applied
under one of the settlement options, payments generally will be prorated between
amounts attributable to the death benefit which will be excludable from the
beneficiary's income and amounts attributable to interest (accruing after the
insured's death) which will be includible in the beneficiary's income.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing provisions of the Code,
except as described below, any increase in your contract value is generally not
taxable to you unless amounts are received (or are deemed to be received) from
the policy prior to the insured's death. If there is a total withdrawal from the
policy, the surrender value will be includible in the your income to the extent
the amount received exceeds the "investment in the contract." (If there is any
debt at the time of a total withdrawal, such debt will be treated as an amount
received by the owner.) The "investment in the contract" generally is the
aggregate amount of premium payments and other consideration paid for the
policy, less the aggregate amount received under the policy previously to the
extent such amounts received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from the policy
constitute income to you depends, in part, upon whether the policy is considered
a "modified endowment contract" (a "MEC") for Federal income tax purposes.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. A policy will be classified as a MEC if
premiums are paid more rapidly than allowed by a "7-pay test" under the tax law
or if the policy is received in exchange for another policy that is a MEC. In
general, this policy will constitute a MEC unless (1) it was received in
exchange for another life insurance contract which was not a MEC, and (2) no
premium payments (other than the exchanged contract) are paid into the policy
during the first seven contract years. In addition, even if the policy initially
is not a MEC, it may in certain circumstances become a MEC. These circumstances
would include a later increase in benefits, any other material change of the
policy (within the meaning of the tax law), and a withdrawal or reduction in the
death benefit during the first seven contract years.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER MECS. If the
policy is a MEC, withdrawals from the policy will be treated first as
withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the contract value
exceeds the investment in the policy. The Code treats any amount received as a
loan under a policy, and any assignment or pledge (or agreement to assign or
pledge) any portion of your contract value, as a withdrawal of such amount or
portion. Your investment in the policy is increased by the amount includible in
income with respect to such assignment, pledge, or loan.
PENALTY TAXES PAYABLE ON WITHDRAWALS. A 10% penalty tax may be imposed on any
withdrawal (or any deemed distribution) from your MEC which you must include in
your gross income. The 10% penalty tax does not apply if one of several
exceptions exists. These exceptions include withdrawals or surrenders that: you
receive on or after you reach age 59 1/2, you receive because you became
disabled (as defined in the tax law), or you receive as a series of
substantially equal periodic payments for your life (or life expectancy).
SPECIAL RULES IF YOU OWN MORE THAN ONE MEC. In certain circumstances, you must
combine some or all of the life insurance contracts which are MECs that you own
in order to determine the amount of withdrawal (including a deemed withdrawal)
that you must include in income. For example, if
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you purchase two or more MECs from the same life insurance company (or its
affiliates) during any calendar year, the Code treats all such policies as one
contract. Treating two or more policies as one contract could affect the amount
of a withdrawal (or a deemed withdrawal) that you must include in income and the
amount that might be subject to the 10% penalty tax described above.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS. If the policy is not a MEC, the amount of any
withdrawal from the policy will generally be treated first as a non-taxable
recovery of premium payments and then as income from the policy. Thus, a
withdrawal from a policy that is not a MEC will not be includible in income
except to the extent it exceeds the investment in the policy immediately before
the withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY
YEARS. Section 7702 places limitations on the amount of premium payments that
may be made and the contract values that can accumulate relative to the death
benefit. Where cash distributions are required under Section 7702 in connection
with a reduction in benefits during the first 15 years after the policy is
issued (or if withdrawals are made in anticipation of a reduction in benefits,
within the meaning of the tax law, during this period), some or all of such
amounts may be includible in income. A reduction in benefits may occur when the
face amount is decreased, withdrawals are made, and in certain other instances.
TAX TREATMENT OF LOANS. If your policy is not a MEC, a loan you receive under
the policy is generally treated as your indebtedness. As a result, no part of
any loan under such a policy constitutes income to you so long as the policy
remains in force. Nevertheless, in those situations where the interest rate
credited to the loan account equals the interest rate charged to you for the
loan, it is possible that some or all of the loan proceeds may be includible in
your income. If a policy lapses (or if all contract value is withdrawn) when a
loan is outstanding, the amount of the loan outstanding will be treated as
withdrawal proceeds for purposes of determining whether any amounts are
includible in the your income.
OTHER CONSIDERATIONS
INSURED LIVES PAST AGE 100. If the insured survives beyond the end of the
mortality table used to measure charges under the policy, which ends at age 100,
we believe the policy will continue to qualify as life insurance for Federal tax
purposes. However, there is some uncertainty regarding this treatment, and it is
possible that you would be viewed as constructively receiving the cash value in
the year the insured attains age 100.
COMPLIANCE WITH THE TAX LAW. We believe that the maximum amount of premium
payments we have determined for the policies will comply with the Federal tax
definition of life insurance. We will monitor the amount of premium payments,
and, if the premium payments during a contract year exceed those permitted by
the tax law, we will refund the excess premiums within 60 days of the end of the
policy year and will pay interest and other earnings (which will be includible
in income subject to tax) as required by law on the amount refunded. We also
reserve the right to increase the death benefit (which may result in larger
charges under a policy) or to take any other action deemed necessary to maintain
compliance of the policy with the Federal tax definition of life insurance.
DISALLOWANCE OF INTEREST DEDUCTIONS. If an entity (such as a corporation or a
trust, not an individual) purchases a policy or is the beneficiary of a policy
issued after June 8, 1997, a portion of the interest on indebtedness unrelated
to the policy may not be deductible by the entity. However, this rule does not
apply to a policy owned by an entity engaged in a trade or business which covers
the life of an individual who is a 20-percent owner of the entity, or an
officer, director, or employee of the
26
<PAGE>
trade or business, at the time first covered by the policy. This rule also does
not apply to a policy owned by an entity engaged in a trade or business which
covers the joint lives of the 20% owner of the entity and the owner's spouse at
the time first covered by the policy.
FEDERAL INCOME TAX WITHHOLDING. We will withhold and remit to the IRS a part of
the taxable portion of each distribution made under a policy unless you notify
us in writing at or before the time of the distribution that tax is not to be
withheld. Regardless of whether you request that no taxes be withheld or whether
the Company withholds a sufficient amount of taxes, you will be responsible for
the payment of any taxes and early distribution penalties that may be due on the
amounts received. You may also be required to pay penalties under the estimated
tax rules, if your withholding and estimated tax payments are insufficient to
satisfy your total tax liability.
CHANGES IN THE POLICY AND CHANGES IN THE LAW. Changing the owner, exchanging the
contract, and other changes under the policy may have tax consequences (in
addition to those discussed herein) depending on the circumstances of such
change. The above discussion is based on the Code, IRS regulations, and
interpretations existing on the date of this Prospectus. However, Congress, the
IRS, and the courts may modify these authorities, sometimes retroactively.
TAX STATUS OF LINCOLN LIFE
Under existing Federal income tax laws, Lincoln Life does not pay tax on
investment income and realized capital gains of the Separate Account. Lincoln
Life does not expect that it will incur any Federal income tax liability on the
income and gains earned by the Separate Account. We, therefore, do not impose a
charge for Federal income taxes. If Federal income tax law changes and we must
pay tax on some or all of the income and gains earned by the Separate Account,
we may impose a charge against the Separate Account to pay the taxes.
VOTING RIGHTS
To determine how many votes each policy owner is entitled to direct with respect
to a Fund, first we will calculate the dollar amount of your account value
attributable to that Fund. Second, we will divide that amount by $100.00. The
result is the number of votes you may direct.
We will vote the shares of each fund held in the Separate Account at special
meetings of the shareholders of the particular fund in accordance with
instructions received by the Administrative Office in proper written form from
persons having a voting interest in the Separate Account. Lincoln Life will vote
shares for which it has not received instructions in the same proportion as it
votes shares in the Separate Account for which it has received instructions. The
funds do not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the appropriate fund not more than sixty (60) days prior
to the meeting of the particular fund. Voting instructions will be solicited by
written communication at least fourteen (14) days prior to the meeting.
27
<PAGE>
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, we are subject to the insurance laws and regulations of other
states within which it is licensed or may become licensed to operate. Generally,
the insurance department of any other state applies the laws of the state of
domicile in determining permissible investments.
SAFEKEEPING OF THE 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. There is a primary fidelity bond covering Lincoln Life
directors and employees with a limit in the amount of $25,000,000 for a single
loss and a $50,000,000 aggregate loss limit issued by Fidelity and Deposit
Company of Maryland.
The funds do not issue certificates. Thus, we hold the Separate Account's assets
in an open account in lieu of stock certificates.
LEGAL PROCEEDINGS
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of these proceedings are routine
and in the ordinary course of business. In some instances they include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for equitable relief. After consultation with legal counsel
and a review of available facts, it is management's opinion that the ultimate
liability, if any, under these suits will not have a material adverse effect on
the financial position of Lincoln Life.
Lincoln Life is presently defending several lawsuits in which Plaintiffs seek to
represent national classes of policyholders in connection with alleged fraud,
breach of contract and other claims relating to the sale of interest-sensitive
universal and participating whole life insurance policies. As of the date of
this prospectus, the courts have not certified a class in any of the suits.
Plaintiffs seek unspecified damages and penalties for themselves and on behalf
of the putative class. Although the relief sought in these cases is substantial,
the cases are in the preliminary stages of litigation, and it is premature to
make assessments about potential loss, if any. Management is defending these
suits vigorously. The amount of liability, if any, which may ultimately arise as
a result of these suits cannot be reasonably determined at this time.
The principal underwriter, AFD, is not engaged in any material litigation of any
nature.
28
<PAGE>
EXPERTS
The financial statements of the Separate Account and the statutory-basis
financial statements 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 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.
Legal matters included in this prospectus have been examined by Robert A.
Picarello, Esq. as stated in the opinion filed as an exhibit to the registration
statement.
Actuarial matters included in this prospectus have been examined by Vaughn W.
Robbins, FSA as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the 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.
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],
VICE PRESIDENT formerly; Second Vice President
[1/90-4/96], The Lincoln National Life
Insurance Company.
- -------------------------------------
ROLAND C. BAKER Vice President [1/95-present] The
VICE PRESIDENT Lincoln National Life Insurance Co.,
1801 S. Meyers Rd. President and Director, First Penn
Oakbrook Terrace, IL 60181 Pacific Life Insurance Company.
- -------------------------------------
JON A. BOSCIA President, Chief Executive Officer and
PRESIDENT AND DIRECTOR Director, Lincoln National Corporation
1500 Market Street [1/98-present], Formerly: President,
Suite 3900 Chief Executive Officer and Director
Philadelphia, PA 19102 [10/96-1/98] and President and Chief
Operating Officer [5/94-10/96], The
Lincoln National Life Insurance
Company.
- -------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT* PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
- -----------------------------------------------------------------------------
JOHN H. GOTTA Chief Executive Officer of Life
CHIEF EXECUTIVE OFFICER OF LIFE Insurance, Senior Vice President and
INSURANCE, SENIOR VICE PRESIDENT AND Assistant Secretary [12/99-present]
ASSISTANT SECRETARY The Lincoln National Life Insurance
350 Church Street Company. Formerly: Senior Vice
Hartford, CT 06103 President and Assistant Secretary
[4/98-12/99]; Senior Vice President
[2/98-4/98]; Vice President and
General Manager [1/98-2/98] The
Lincoln National Life Insurance Co.
Formerly: Senior Vice President,
Connecticut General Life Insurance
Company [3/96-12/97]; Vice President,
Connecticut (Massachusetts Mutual)
Mutual Life Insurance Company
[8/94-3/96].
- -------------------------------------
J. MICHAEL HEMP President and Director [7/97-present],
SENIOR VICE PRESIDENT Lincoln Financial Advisors Inc.;
350 Church Street Senior Vice President [formerly Vice
Hartford, CT 06103 President] [10/95-present], The
Lincoln National Life Insurance
Company.
- -------------------------------------
STEPHEN H. LEWIS Interim Chief Executive Officer of
INTERIM CHIEF EXECUTIVE OFFICER OF Annuities and Senior Vice President,
ANNUITIES AND SENIOR VICE PRESIDENT [12/99-present]. Formerly: Senior Vice
President, [5/94-12/99] The Lincoln
National Life Insurance Company.
- -------------------------------------
H. THOMAS MCMEEKIN President and Director 5/94-present,
DIRECTOR Lincoln Investment Management, Inc.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
- -------------------------------------
GARY W. PARKER Senior Vice President [4/00-present],
SENIOR VICE PRESIDENT Vice President, Product Management,
350 Church Street [7/98-3/00] The Lincoln National Life
Hartford, CT 06103 Insurance Company. Formerly: Senior
Vice President, Life Products
[10/97-6/98]; Vice President,
Marketing Services [9/89-10/97] Life
of Virginia.
- -------------------------------------
LAWRENCE T. ROWLAND Executive Vice President
EXECUTIVE VICE PRESIDENT AND DIRECTOR [10/96-present] Formerly: Senior Vice
One Reinsurance Place President [1/93-10/96], The Lincoln
1700 Magnavox Way National Life Insurance Company
Fort Wayne, IN 46802 Chairman, Chief Executive Officer,
President and Director
[10/96-present], Formerly: Senior Vice
President [10/95-10/96].
- -------------------------------------
KEITH J. RYAN Vice President, Controller and Chief
VICE PRESIDENT, CONTROLLER AND CHIEF Accounting Officer [1/96-present] The
ACCOUNTING OFFICER Lincoln National Life Insurance
Company.
- -------------------------------------
TODD R. STEPHENSON Senior Vice President, Chief Financial
SENIOR VICE PRESIDENT, CHIEF Officer and Assistant Treasurer
FINANCIAL OFFICER AND ASSISTANT [3/99-present] Formerly: Senior Vice
TREASURER President and Chief Operating Officer
[1/98-3/99] Lincoln Life & Annuity
Distributors, Inc.; Senior Vice
President and Chief Operating Officer
[1/98-3/99] Lincoln Financial Advisors
Corp.; Senior Vice President,
Treasurer, Chief Financial Officer and
Director, American States Insurance
Co. [2/95-12/97].
- -------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT* PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
- -----------------------------------------------------------------------------
RICHARD C. VAUGHAN Executive Vice President and Chief
DIRECTOR Financial Officer, Lincoln National
Centre Square Corporation [1/95-present].
West Tower
1500 Market Street
Suite 3900
Philadelphia, PA 19102
- -------------------------------------
MICHAEL R. WALKER Senior Vice President [1/98-present],
SENIOR VICE PRESIDENT Vice President [1/96-1/98] The Lincoln
350 Church Street National Life Insurance Company.
Hartford, CT 06103 Formerly: Vice President [3/93-1/96]
Employers Health Insurance Co.
- -------------------------------------
ROY V. WASHINGTON Vice President [7/96-present]
VICE PRESIDENT formerly, Associate Counsel
[2/95-7/96] The Lincoln National Life
Insurance Company.
</TABLE>
*Unless otherwise indicated, the principal business address is 1300 South
Clinton Street, Fort Wayne, Indiana 46801.
31
<PAGE>
APPENDIX A
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. The
illustrations assume 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 gross annual 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 1980 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 are then reduced by the asset
management charge (current average .51%), the mortality and expense risk charge
(.60% current, .90% guaranteed maximum), 12b-1 fees (.25%), and other expenses
incurred by the funds including printing, mailing, Directors' fees, etc.
(current average .02%) so that the actual numbers in the illustrations are net
of these charges and expenses. Thus, a 12% gross annual return yields a net
annual return of 10.47% using current charges, and 10.14% using guaranteed
charges. Similarly, gross annual returns of 6% and 0% yield net annual returns
of 4.55% and -1.37% respectively using current charges, and 4.23% and -1.67%
respectively using guaranteed charges.
All illustrated policy values and net cash surrender values reflect all fees and
charges made under the policies, including the monthly administrative charge,
the policy value charge, and the cost of insurance charges.
32
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 45, Select Tobacco
$32,890 specified amount
$10,000 initial premium using current 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $ 10,500 $32,890 $32,890 $ 32,890 $ 9,570 $10,146 $ 10,721 $ 8,920 $ 9,496 $ 10,071
2 11,025 32,890 32,890 32,890 9,156 10,295 11,499 8,506 9,645 10,849
3 11,576 32,890 32,890 32,890 8,757 10,447 12,337 8,157 9,847 11,737
4 12,155 32,890 32,890 32,890 8,373 10,602 13,242 7,773 10,002 12,642
5 12,763 32,890 32,890 32,890 8,004 10,761 14,217 7,454 10,211 13,667
- ------
6 13,401 32,890 32,890 32,890 7,648 10,923 15,270 7,098 10,373 14,720
7 14,071 32,890 32,890 32,890 7,305 11,088 16,409 6,805 10,588 15,909
8 14,775 32,890 32,890 32,890 6,975 11,256 17,647 6,475 10,756 17,147
9 15,513 32,890 32,890 32,890 6,657 11,428 18,996 6,207 10,978 18,546
10 16,289 32,890 32,890 32,890 6,351 11,604 20,470 5,901 11,154 20,020
- ------
15 20,789 32,890 32,890 42,415 5,247 13,190 31,653 5,247 13,190 31,653
20 26,533 32,890 32,890 60,130 4,286 15,037 49,287 4,286 15,037 49,287
25 33,864 32,890 32,890 89,471 3,449 17,188 77,131 3,449 17,188 77,131
30 43,219 32,890 32,890 129,732 2,722 19,694 121,245 2,722 19,694 121,245
40 70,400 32,890 32,890 318,301 1,537 26,010 303,143 1,537 26,010 303,143
- ------
50 114,674 32,890 35,708 746,817 640 35,354 739,423 640 35,354 739,423
60 186,792 32,890 54,200 1,979,696 259 54,200 1,979,696 259 54,200 1,979,696
70 304,264 32,890 84,575 5,353,616 225 84,575 5,353,615 225 84,575 5,353,615
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .60%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charges, monthly administrative charge, and policy value charge.
33
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 45, Select Tobacco
$32,890 specified amount
$10,000 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $ 10,500 $32,890 $32,890 $ 32,890 $ 9,508 $10,086 $ 10,664 $ 8,858 $ 9,436 $ 10,014
2 11,025 32,890 32,890 32,890 9,013 10,162 11,379 8,363 9,512 10,729
3 11,576 32,890 32,890 32,890 8,514 10,226 12,147 7,914 9,626 11,547
4 12,155 32,890 32,890 32,890 8,009 10,277 12,976 7,409 9,677 12,376
5 12,763 32,890 32,890 32,890 7,496 10,313 13,870 6,946 9,763 13,320
------
6 13,401 32,890 32,890 32,890 6,972 10,331 14,837 6,422 9,781 14,287
7 14,071 32,890 32,890 32,890 6,434 10,329 15,881 5,934 9,829 15,381
8 14,775 32,890 32,890 32,890 5,878 10,303 17,012 5,378 9,803 16,512
9 15,513 32,890 32,890 32,890 5,299 10,247 18,239 4,849 9,797 17,789
10 16,289 32,890 32,890 32,890 4,693 10,160 19,572 4,243 9,710 19,122
------
15 20,789 32,890 32,890 39,857 1,275 9,661 29,744 1,275 9,661 29,744
20 26,533 0 32,890 55,634 0 7,576 45,602 0 7,576 45,602
25 33,864 0 32,890 81,458 0 2,042 70,223 0 2,042 70,223
30 43,219 0 0 116,360 0 0 108,748 0 0 108,748
40 70,400 0 0 277,078 0 0 263,884 0 0 263,884
------
50 114,674 0 0 630,942 0 0 624,695 0 0 624,695
60 186,792 0 0 1,623,242 0 0 1,623,242 0 0 1,623,242
70 304,264 0 0 4,260,316 0 0 4,260,316 0 0 4,260,316
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .90%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
34
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 45, Select Non-Tobacco
$42,170 specified amount
$10,000 initial premium using current charges
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
PREMIUMS -------------------------------- -------------------------------- --------------------------------
ACCUMULATED ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END OF AT 5% GROSS ANNUAL RETURN OF GROSS ANNUAL RETURN OF GROSS ANNUAL 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 $ 10,500 $42,170 $ 42,170 $ 42,170 $ 9,628 $ 10,207 $ 10,786 $ 8,978 $ 9,557 $ 10,136
2 11,025 42,170 42,170 42,170 9,267 10,420 11,639 8,617 9,770 10,989
3 11,576 42,170 42,170 42,170 8,918 10,639 12,564 8,318 10,039 11,964
4 12,155 42,170 42,170 42,170 8,580 10,864 13,567 7,980 10,264 12,967
5 12,763 42,170 42,170 42,170 8,252 11,094 14,656 7,702 10,544 14,106
- ------
6 13,401 42,170 42,170 42,170 7,935 11,331 15,837 7,385 10,781 15,287
7 14,071 42,170 42,170 42,170 7,627 11,574 17,119 7,127 11,074 16,619
8 14,775 42,170 42,170 42,170 7,329 11,824 18,509 6,829 11,324 18,009
9 15,513 42,170 42,170 42,170 7,041 12,080 20,017 6,591 11,630 19,567
10 16,289 42,170 42,170 42,170 6,761 12,343 21,653 6,311 11,893 21,203
- ------
15 20,789 42,170 42,170 45,502 5,779 14,484 33,957 5,779 14,484 33,957
20 26,533 42,170 42,170 65,650 4,898 17,053 53,812 4,898 17,053 53,812
25 33,864 42,170 42,170 99,227 4,108 20,137 85,541 4,108 20,137 85,541
30 43,219 42,170 42,170 145,579 3,400 23,838 136,055 3,400 23,838 136,055
40 70,400 42,170 42,170 362,069 2,195 33,611 344,828 2,195 33,611 344,828
- ------
50 114,674 42,170 48,409 873,806 1,226 47,930 865,154 1,226 47,930 865,154
60 186,792 42,170 73,948 2,316,321 761 73,948 2,316,321 761 73,948 2,316,321
70 304,264 42,170 115,389 6,263,939 663 115,389 6,263,939 663 115,389 6,263,939
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .60%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
35
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 45, Select Non-Tobacco
$42,170 specified amount
$10,000 initial premium using guaranteed charges
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
PREMIUMS ------------------------------- ------------------------------- -------------------------------
ACCUMULATED ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END OF AT 5% GROSS ANNUAL RETURN OF GROSS ANNUAL RETURN OF GROSS ANNUAL 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 $ 10,500 $42,170 $42,170 $ 42,170 $ 9,547 $10,125 $ 10,704 $ 8,897 $ 9,475 $ 10,054
2 11,025 42,170 42,170 42,170 9,096 10,246 11,464 8,446 9,596 10,814
3 11,576 42,170 42,170 42,170 8,647 10,361 12,284 8,047 9,761 11,684
4 12,155 42,170 42,170 42,170 8,197 10,469 13,170 7,597 9,869 12,570
5 12,763 42,170 42,170 42,170 7,747 10,569 14,127 7,197 10,019 13,577
- ------
6 13,401 42,170 42,170 42,170 7,293 10,660 15,162 6,743 10,110 14,612
7 14,071 42,170 42,170 42,170 6,834 10,739 16,281 6,334 10,239 15,781
8 14,775 42,170 42,170 42,170 6,366 10,803 17,491 5,866 10,303 16,991
9 15,513 42,170 42,170 42,170 5,887 10,850 18,800 5,437 10,400 18,350
10 16,289 42,170 42,170 42,170 5,393 10,877 20,218 4,943 10,427 19,768
- ------
15 20,789 42,170 42,170 42,170 2,796 11,207 30,969 2,796 11,207 30,969
20 26,533 0 42,170 58,875 0 10,504 48,258 0 10,504 48,258
25 33,864 0 42,170 87,620 0 7,514 75,535 0 7,514 75,535
30 43,219 0 0 126,642 0 0 118,357 0 0 118,357
40 70,400 0 0 305,446 0 0 290,901 0 0 290,901
- ------
50 114,674 0 0 699,609 0 0 692,683 0 0 692,683
60 186,792 0 0 1,799,905 0 0 1,799,905 0 0 1,799,905
70 304,264 0 0 4,723,982 0 0 4,723,982 0 0 4,723,982
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns average 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .90%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
36
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Female issue age 55, Select Tobacco
$72,400 specified amount
$25,000 initial premium using current 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $72,400 $ 72,400 $ 72,400 $24,013 $ 25,456 $ 26,897 $22,388 $ 23,831 $ 25,272
2 27,563 72,400 72,400 72,400 23,063 25,922 28,942 21,438 24,297 27,317
3 28,941 72,400 72,400 72,400 22,148 26,397 31,148 20,648 24,897 29,648
4 30,388 72,400 72,400 72,400 21,267 26,882 33,527 19,767 25,382 32,027
5 31,907 72,400 72,400 72,400 20,419 27,378 36,092 19,044 26,003 34,717
- ------
6 33,502 72,400 72,400 72,400 19,603 27,883 38,866 18,228 26,508 37,491
7 35,178 72,400 72,400 72,400 18,816 28,399 41,890 17,566 27,149 40,640
8 36,936 72,400 72,400 72,400 18,059 28,925 45,200 16,809 27,675 43,950
9 38,783 72,400 72,400 72,400 17,330 29,463 48,828 16,205 28,338 47,703
10 40,722 72,400 72,400 72,400 16,628 30,011 52,858 15,503 28,887 51,733
- ------
15 51,973 72,400 72,400 97,542 14,190 34,628 84,088 14,190 34,628 84,088
20 66,332 72,400 72,400 143,804 12,068 40,006 134,396 12,068 40,006 134,396
25 84,659 72,400 72,400 226,513 10,222 46,268 215,727 10,222 46,268 215,727
30 108,049 72,400 72,400 360,318 8,615 53,708 343,160 8,615 53,708 343,160
40 176,000 72,400 74,423 857,574 6,000 73,686 849,083 6,000 73,686 849,083
- ------
50 286,685 72,400 113,836 2,273,294 4,612 113,836 2,273,294 4,612 113,836 2,273,294
60 466,980 72,400 177,631 6,147,581 4,018 177,631 6,147,581 4,018 177,631 6,147,581
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .60%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
37
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Female issue age 55, Select Tobacco
$72,400 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $72,400 $ 72,400 $ 72,400 $23,773 $ 25,220 $ 26,668 $22,148 $ 23,595 $ 25,043
2 27,563 72,400 72,400 72,400 22,538 25,419 28,471 20,913 23,794 26,846
3 28,941 72,400 72,400 72,400 21,295 25,596 30,425 19,795 24,096 28,925
4 30,388 72,400 72,400 72,400 20,044 25,753 32,550 18,544 24,253 31,050
5 31,907 72,400 72,400 72,400 18,782 25,886 34,864 17,407 24,511 33,489
- ------
6 33,502 72,400 72,400 72,400 17,501 25,989 37,384 16,126 24,614 36,009
7 35,178 72,400 72,400 72,400 16,188 26,053 40,128 14,938 24,803 38,878
8 36,936 72,400 72,400 72,400 14,827 26,062 43,117 13,577 24,812 41,867
9 38,783 72,400 72,400 72,400 13,399 26,002 46,376 12,274 24,877 45,251
10 40,722 72,400 72,400 72,400 11,892 25,861 49,940 10,767 24,736 48,815
- ------
15 51,973 72,400 72,400 90,484 3,293 25,166 78,003 3,293 25,166 78,003
20 66,332 0 72,400 131,418 0 20,624 122,821 0 20,624 122,821
25 84,659 0 72,400 203,932 0 5,352 194,221 0 5,352 194,221
30 108,049 0 0 319,582 0 0 304,363 0 0 304,363
40 176,000 0 0 738,205 0 0 730,896 0 0 730,896
- ------
50 286,685 0 0 1,899,201 0 0 1,899,201 0 0 1,899,201
60 466,980 0 0 4,984,592 0 0 4,984,592 0 0 4,984,592
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .90%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
38
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Female issue age 55, Select Non-Tobacco
$81,375 specified amount
$25,000 initial premium using current 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $81,375 $ 81,375 $ 81,375 $24,158 $ 25,610 $ 27,059 $22,533 $ 23,985 $ 25,434
2 27,563 81,375 81,375 81,375 23,343 26,236 29,293 21,718 24,611 27,668
3 28,941 81,375 81,375 81,375 22,553 26,879 31,717 21,053 25,379 30,217
4 30,388 81,375 81,375 81,375 21,788 27,540 34,346 20,288 26,040 32,846
5 31,907 81,375 81,375 81,375 21,047 28,218 37,199 19,672 26,843 35,824
- ------
6 33,502 81,375 81,375 81,375 20,329 28,914 40,293 18,954 27,539 38,918
7 35,178 81,375 81,375 81,375 19,633 29,629 43,650 18,383 28,379 42,400
8 36,936 81,375 81,375 81,375 18,959 30,363 47,293 17,709 29,113 46,043
9 38,783 81,375 81,375 81,375 18,307 31,117 51,259 17,182 29,992 50,134
10 40,722 81,375 81,375 81,375 17,675 31,891 55,610 16,550 30,766 54,485
- ------
15 51,973 81,375 81,375 103,013 15,565 37,945 88,804 15,565 37,945 88,804
20 66,332 81,375 81,375 152,496 13,674 45,210 142,520 13,674 45,210 142,520
25 84,659 81,375 81,375 240,795 11,978 54,060 229,328 11,978 54,060 229,328
30 108,049 81,375 81,375 384,055 10,457 64,881 365,767 10,457 64,881 365,767
40 176,000 81,375 94,909 927,519 7,870 93,969 918,336 7,870 93,969 918,336
- ------
50 286,685 81,375 145,172 2,458,708 6,322 145,172 2,458,708 6,322 145,172 2,458,708
60 466,980 81,375 226,528 6,648,991 5,507 226,528 6,648,990 5,507 226,528 6,648,990
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .60%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge and policy value charge.
39
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Female issue age 55, Select Non-Tobacco
$81,375 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $81,375 $81,375 $ 81,375 $23,875 $25,323 $ 26,772 $22,250 $23,698 $ 25,147
2 27,563 81,375 81,375 81,375 22,749 25,633 28,687 21,124 24,008 27,062
3 28,941 81,375 81,375 81,375 21,621 25,928 30,761 20,121 24,428 29,261
4 30,388 81,375 81,375 81,375 20,491 26,209 33,010 18,991 24,709 31,510
5 31,907 81,375 81,375 81,375 19,353 26,472 35,452 17,978 25,097 34,077
- ------
6 33,502 81,375 81,375 81,375 18,201 26,712 38,103 16,826 25,337 36,728
7 35,178 81,375 81,375 81,375 17,026 26,920 40,980 15,776 25,670 39,730
8 36,936 81,375 81,375 81,375 15,815 27,085 44,104 14,565 25,835 42,854
9 38,783 81,375 81,375 81,375 14,551 27,194 47,497 13,426 26,069 46,372
10 40,722 81,375 81,375 81,375 13,224 27,238 51,204 12,099 26,113 50,079
- ------
15 51,973 81,375 81,375 92,922 5,849 27,781 80,105 5,849 27,781 80,105
20 66,332 0 81,375 135,516 0 25,099 126,650 0 25,099 126,650
25 84,659 0 81,375 210,806 0 13,361 200,767 0 13,361 200,767
30 108,049 0 0 331,233 0 0 315,460 0 0 315,460
40 176,000 0 0 767,293 0 0 759,696 0 0 759,696
- ------
50 286,685 0 0 1,974,036 0 0 1,974,036 0 0 1,974,036
60 466,980 0 0 5,181,002 0 0 5,181,002 0 0 5,181,002
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .90%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charges, monthly administrative charge, and policy value charge.
40
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 65, Select Tobacco
$85,100 specified amount
$50,000 initial premium using current 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $ 52,500 $85,100 $ 85,100 $ 85,100 $48,090 $ 51,034 $ 53,919 $44,840 $ 47,784 $ 50,669
2 55,125 85,100 85,100 85,100 46,247 52,090 58,145 42,997 48,840 54,895
3 57,881 85,100 85,100 85,100 44,471 53,167 62,702 41,471 50,167 59,702
4 60,775 85,100 85,100 85,100 42,762 54,266 67,617 39,762 51,267 64,617
5 63,814 85,100 85,100 85,100 41,116 55,389 72,998 38,366 52,639 70,248
- ------
6 67,005 85,100 85,100 90,850 39,531 56,534 79,000 36,781 53,784 76,250
7 70,355 85,100 85,100 96,671 38,005 57,704 85,549 35,505 55,204 83,049
8 73,873 85,100 85,100 102,898 36,536 58,897 92,702 34,036 56,397 90,201
9 77,566 85,100 85,100 109,579 35,121 60,115 100,531 32,871 57,865 98,281
10 81,445 85,100 85,100 116,773 33,759 61,358 109,134 31,509 59,108 106,884
- ------
15 103,946 85,100 85,100 182,141 29,097 71,462 173,468 29,097 71,462 173,468
20 132,665 85,100 87,870 286,605 25,041 83,686 272,862 25,041 83,686 272,862
25 169,318 85,100 103,570 444,559 21,511 98,638 423,389 21,511 98,638 423,389
30 216,097 85,100 118,963 672,218 18,439 117,785 665,562 18,439 117,785 665,562
40 351,999 85,100 181,964 1,781,943 14,715 181,964 1,781,943 14,715 181,964 1,781,943
- ------
50 573,370 85,100 283,939 4,818,841 12,819 283,939 4,818,841 12,819 283,939 4,818,841
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year of sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .60%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
41
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 65, Select Tobacco
$85,100 specified amount
$50,000 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $ 52,500 $85,100 $85,100 $ 85,100 $47,171 $50,149 $ 53,074 $43,921 $46,899 $ 49,824
2 55,125 85,100 85,100 85,100 44,178 50,187 56,440 40,928 46,937 53,190
3 57,881 85,100 85,100 85,100 40,999 50,102 60,157 37,999 47,102 57,157
4 60,775 85,100 85,100 85,100 37,602 49,847 64,297 34,602 46,847 61,297
5 63,814 85,100 85,100 85,100 33,940 49,394 68,947 31,190 46,644 66,197
- ------
6 67,005 85,100 85,100 85,347 29,956 48,738 74,215 27,206 45,988 71,465
7 70,355 85,100 85,100 90,531 25,573 47,833 80,116 23,073 45,333 77,616
8 73,873 85,100 85,100 96,074 20,694 46,622 86,554 18,194 44,122 84,054
9 77,566 85,100 85,100 102,007 15,201 45,033 93,584 12,951 42,783 91,334
10 81,445 85,100 85,100 108,380 8,953 42,979 101,289 6,703 40,729 99,039
- ------
15 103,946 0 85,100 166,539 0 23,881 158,609 0 23,881 158,609
20 132,665 0 0 258,075 0 0 245,786 0 0 245,786
25 169,318 0 0 394,501 0 0 375,715 0 0 375,715
30 216,097 0 0 587,670 0 0 581,852 0 0 581,852
40 351,999 0 0 1,511,916 0 0 1,511,916 0 0 1,511,916
- ------
50 573,370 0 0 3,968,133 0 0 3,968,133 0 0 3,968,133
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees= .25%; mortality and expense risk = .90%; and miscellaneous
expense = .02%. Values illustrated are also net of cost of insurance charge,
monthly administrative charge, and policy value charge.
42
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 65, Select Non-Tobacco
$96,100 specified amount
$50,000 initial premium using current 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $ 52,500 $96,100 $ 96,100 $ 96,100 $48,380 $ 51,342 $ 54,244 $45,130 $ 48,092 $ 50,994
2 55,125 96,100 96,100 96,100 46,807 52,720 58,848 43,557 49,470 55,598
3 57,881 96,100 96,100 96,100 45,282 54,134 63,843 42,282 51,134 60,843
4 60,775 96,100 96,100 96,100 43,805 55,587 69,262 40,805 52,587 66,262
5 63,814 96,100 96,100 96,100 42,375 57,079 75,141 39,625 54,329 72,391
- ------
6 67,005 96,100 96,100 96,100 40,989 58,610 81,519 38,239 55,860 78,769
7 70,355 96,100 96,100 99,985 39,647 60,183 88,482 37,147 57,683 85,982
8 73,873 96,100 96,100 106,680 38,347 61,798 96,108 35,847 59,298 93,608
9 77,566 96,100 96,100 113,838 37,087 63,457 104,438 34,837 61,207 102,188
10 81,445 96,100 96,100 121,510 35,867 65,159 113,561 33,617 62,910 111,311
- ------
15 103,946 96,100 96,100 190,737 31,879 78,202 181,654 31,879 78,202 181,654
20 132,665 96,100 98,549 302,209 28,303 93,856 287,818 28,303 93,856 287,818
25 169,318 96,100 118,275 477,479 25,096 112,643 454,742 25,096 112,643 454,742
30 216,097 96,100 137,235 729,341 22,221 135,876 722,120 22,221 135,876 722,120
40 351,999 96,100 209,913 1,933,369 18,333 209,913 1,933,369 18,333 209,913 1,933,369
- ------
50 573,370 96,100 327,551 5,228,336 15,971 327,551 5,228,336 15,971 327,551 5,228,336
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns can be achieved
for any one year or sustained over any period of time. All values are net of the
following charges: asset management = .51% (current average); 12b-1
fees = .25%; mortality and expense risk = .60%; and miscellaneous
expense = .02%. Values illustrated are also net of cost of insurance charge,
monthly administrative charge, and policy value charge.
43
<PAGE>
AMERICAN LEGACY ESTATE BUILDER
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 65, Select Non-Tobacco
$96,100 specified amount
$50,000 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 RETURN OF ANNUAL RETURN OF ANNUAL 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 $ 52,500 $96,100 $96,100 $ 96,100 $47,493 $50,460 $ 53,373 $44,243 $47,210 $ 50,123
2 55,125 96,100 96,100 96,100 44,880 50,833 57,023 41,630 47,583 53,773
3 57,881 56,100 96,100 96,100 42,145 51,110 60,994 39,145 48,110 57,994
4 60,775 96,100 96,100 96,100 39,263 51,276 65,338 36,263 48,276 62,338
5 63,814 96,100 96,100 96,100 36,199 51,311 70,116 33,449 48,561 67,366
- ------
6 67,005 96,100 96,100 96,100 32,910 51,187 75,403 30,160 48,437 72,653
7 70,355 96,100 96,100 96,100 29,339 50,872 81,295 26,839 48,372 78,795
8 73,873 96,100 96,100 97,581 25,411 50,319 87,911 22,911 47,819 85,411
9 77,566 96,100 96,100 103,816 21,040 49,439 95,244 18,790 47,189 92,994
10 81,445 96,100 96,100 110,482 16,130 48,180 103,254 13,880 45,930 101,004
- ------
15 103,946 0 96,100 170,850 0 36,579 162,715 0 36,579 162,715
20 132,665 0 0 266,469 0 0 253,780 0 0 253,780
25 169,318 0 0 409,246 0 0 389,758 0 0 389,758
30 216,097 0 0 610,336 0 0 604,293 0 0 604,293
40 351,999 0 0 1,570,228 0 0 1,570,228 0 0 1,570,228
- ------
50 573,370 0 0 4,121,179 0 0 4,121,179 0 0 4,121,179
</TABLE>
The hypothetical gross annual returns shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future gross annual returns. Actual gross annual returns 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 returns 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 gross annual returns
can be achieved for any one year or sustained over any period of time. All
values are net of the following charges: asset management = .51% (current
average); 12b-1 fees = .25%; mortality and expense risk = .90%; and
miscellaneous expense = .02%. Values illustrated are also net of cost of
insurance charge, monthly administrative charge, and policy value charge.
44
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
F-1
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
AVIS AVIS
AVIS GROWTH- AVIS AVIS ASSET AVIS
GROWTH- INCOME AVIS GROWTH ASSET ALLOCATION HIGH-YIELD
INCOME CLASS II GROWTH CLASS II ALLOCATION CLASS II BOND
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market -
Unaffiliated (Cost
$91,647,943) $114,242,054 $31,630,606 $2,739,023 $40,125,398 $2,648,780 $5,368,215 $1,093,853 $3,570,925
------------------------------ ----------- ---------- --------- ---------- --------- --------- --------- ---------
TOTAL ASSETS 114,242,054 31,630,606 2,739,023 40,125,398 2,648,780 5,368,215 1,093,853 3,570,925
Liability -- Payable to The
Lincoln National Life
Insurance Company 3,478 992 42 1,267 41 181 18 114
------------------------------ ----------- ---------- --------- ---------- --------- --------- --------- ---------
NET ASSETS $114,238,576 $31,629,614 $2,738,981 $40,124,131 $2,648,739 $5,368,034 $1,093,835 $3,570,811
------------------------------ =========== ========== ========= ========== ========= ========= ========= =========
Percent of net assets 100.00% 27.69% 2.40% 35.12% 2.32% 4.70% 0.96% 3.13%
------------------------------ =========== ========== ========= ========== ========= ========= ========= =========
NET ASSETS ARE REPRESENTED BY:
Legacy Life:
Units in accumulation period 4,882,767 -- 3,510,932 -- 2,038,221 -- 962,001
Unit value $ 4.853 $ -- $ 8.984 $ -- $ 2.512 $ -- $ 2.890
------------------------------ ---------- --------- ---------- --------- --------- --------- ---------
Value in accumulation period $23,697,444 $ -- $31,543,077 $ -- $5,120,988 $ -- $2,780,511
Legacy Life (10 Year):
Units in accumulation period 6,024,340 -- 4,011,672 -- 205,117 -- 762,564
Unit value $ 1.317 $ -- $ 2.139 $ -- $ 1.204 $ -- $ 1.036
------------------------------ ---------- --------- ---------- --------- --------- --------- ---------
Value in accumulation period $7,932,170 $ -- $8,581,054 $ -- $ 247,046 $ -- $ 790,300
Legacy Estate Builder:
Units in accumulation period -- 2,409,681 -- 1,481,176 -- 1,022,911 --
Unit value $ -- $ 1.137 $ -- $ 1.788 $ -- $ 1.069 $ --
------------------------------ ---------- --------- ---------- --------- --------- --------- ---------
Value in accumulation period $ -- $2,738,981 $ -- $2,648,739 $ -- $1,093,835 $ --
------------------------------ ---------- --------- ---------- --------- --------- --------- ---------
NET ASSETS $31,629,614 $2,738,981 $40,124,131 $2,648,739 $5,368,034 $1,093,835 $3,570,811
------------------------------ ========== ========= ========== ========= ========= ========= =========
<CAPTION>
AVIS AVIS U.S.
HIGH-YIELD GOVERNMENT/
BOND AAA-RATED
CLASS II SECURITIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
------------------------------
ASSETS:
Investments at Market -
Unaffiliated (Cost
$91,647,943) $ 197,498 $ 3,109,440
------------------------------ ---------- -----------
TOTAL ASSETS 197,498 3,109,440
Liability -- Payable to The
Lincoln National Life
Insurance Company 3 92
------------------------------ ---------- -----------
NET ASSETS $ 197,495 $ 3,109,348
------------------------------ ========== ===========
Percent of net assets 0.17% 2.72%
------------------------------ ========== ===========
NET ASSETS ARE REPRESENTED BY:
Legacy Life:
Units in accumulation period -- 840,577
Unit value $ -- $ 2.061
------------------------------ ---------- -----------
Value in accumulation period $ -- $ 1,732,263
Legacy Life (10 Year):
Units in accumulation period -- 1,315,199
Unit value $ -- $ 1.047
------------------------------ ---------- -----------
Value in accumulation period $ -- $ 1,377,085
Legacy Estate Builder:
Units in accumulation period 197,401 --
Unit value $ 1.000 $ --
------------------------------ ---------- -----------
Value in accumulation period $ 197,495 $ --
------------------------------ ---------- -----------
NET ASSETS $ 197,495 $ 3,109,348
------------------------------ ========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENT OF ASSETS AND LIABILITY (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
AVIS U.S.
GOVERNMENT/ AVIS
AAA-RATED AVIS CASH AVIS AVIS
SECURITIES CASH MANAGEMENT AVIS INTERNATIONAL AVIS BOND
CLASS II MANAGEMENT CLASS II INTERNATIONAL CLASS II BOND CLASS II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market -
Unaffiliated
(Cost $91,647,943) $ 106,759 $3,946,522 $340,195 $13,876,084 $ 934,536 $ 404,985 $ 163,457
------------------------------ ----------- ----------- ---------- ----------- ------------- ---------- ----------
TOTAL ASSETS 106,759 3,946,522 340,195 13,876,084 934,536 404,985 163,457
Liability--Payable to The
Lincoln National Life
Insurance Company 2 128 6 458 15 14 3
------------------------------ ----------- ----------- ---------- ----------- ------------- ---------- ----------
NET ASSETS $ 106,757 $3,946,394 $340,189 $13,875,626 $ 934,521 $ 404,971 $ 163,454
------------------------------ =========== =========== ========== =========== ============= ========== ==========
Percent of net assets 0.09% 3.45% 0.30% 12.15% 0.82% 0.35% 0.14%
------------------------------ =========== =========== ========== =========== ============= ========== ==========
NET ASSETS ARE REPRESENTED BY:
Legacy Life:
Units in accumulation period -- 2,045,038 -- 3,259,867 -- 329,529 --
Unit value $ -- $ 1.617 $ -- $ 3.851 $ -- $ 1.223 $ --
------------------------------ ----------- ----------- ---------- ----------- ------------- ---------- ----------
Value in accumulation period $ -- $3,306,066 $ -- $12,553,189 $ -- $ 402,866 $ --
Legacy Life (10 Year):
Units in accumulation period -- 592,299 -- 621,764 -- 2,014 --
Unit value $ -- $ 1.081 $ -- $ 2.127 $ -- $ 1.045 $ --
------------------------------ ----------- ----------- ---------- ----------- ------------- ---------- ----------
Value in accumulation period $ -- $ 640,328 $ -- $ 1,322,437 $ -- $ 2,105 $ --
Legacy Estate Builder:
Units in accumulation period 102,492 -- 318,364 -- 532,774 -- 159,790
Unit value $ 1.042 $ -- $ 1.069 $ -- $ 1.754 $ -- $ 1.023
------------------------------ ----------- ----------- ---------- ----------- ------------- ---------- ----------
Value in accumulation period $ 106,757 $ -- $340,189 $ -- $ 934,521 $ -- $ 163,454
------------------------------ ----------- ----------- ---------- ----------- ------------- ---------- ----------
NET ASSETS $ 106,757 $3,946,394 $340,189 $13,875,626 $ 934,521 $ 404,971 $ 163,454
------------------------------ =========== =========== ========== =========== ============= ========== ==========
<CAPTION>
AVIS
AVIS AVIS GLOBAL
AVIS GLOBAL GLOBAL SMALL
GLOBAL GROWTH SMALL CAPITALIZATION
GROWTH CLASS II CAPITALIZATION CLASS II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
------------------------------
ASSETS:
Investments at Market -
Unaffiliated
(Cost $91,647,943) $1,665,931 $1,327,313 $ 658,475 $ 334,059
------------------------------ ---------- ---------- -------------- --------------
TOTAL ASSETS 1,665,931 1,327,313 658,475 334,059
Liability--Payable to The
Lincoln National Life
Insurance Company 55 21 21 5
------------------------------ ---------- ---------- -------------- --------------
NET ASSETS $1,665,876 $1,327,292 $ 658,454 $ 334,054
------------------------------ ========== ========== ============== ==============
Percent of net assets 1.46% 1.16% 0.58% 0.29%
------------------------------ ========== ========== ============== ==============
NET ASSETS ARE REPRESENTED BY:
Legacy Life:
Units in accumulation period 679,507 -- 277,514 --
Unit value $ 2.304 $ -- $ 1.923 $ --
------------------------------ ---------- ---------- -------------- --------------
Value in accumulation period $1,565,647 $ -- $ 533,726 $ --
Legacy Life (10 Year):
Units in accumulation period 45,934 -- 64,421 --
Unit value $ 2.182 $ -- $ 1.936 $ --
------------------------------ ---------- ---------- -------------- --------------
Value in accumulation period $ 100,229 $ -- $ 124,728 $ --
Legacy Estate Builder:
Units in accumulation period -- 729,826 -- 172,053
Unit value $ -- $ 1.819 $ -- $ 1.941
------------------------------ ---------- ---------- -------------- --------------
Value in accumulation period $ -- $1,327,292 $ -- $ 334,054
------------------------------ ---------- ---------- -------------- --------------
NET ASSETS $1,665,876 $1,327,292 $ 658,454 $ 334,054
------------------------------ ========== ========== ============== ==============
</TABLE>
See accompanying notes.
F-3
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AVIS
AVIS GROWTH-
GROWTH- INCOME
INCOME CLASS II
COMBINED SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
NET INVESTMENT INCOME:
- Dividends from investment income $ 1,550,226 $ 429,919 $ --
- ---------------------------------------
- Dividends from net realized gains
on investments 5,730,418 2,394,172 --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (739,534) (270,306) --
Legacy Life (10 Year) -- -- --
Legacy Estate Builder -- -- --
- --------------------------------------- --------------- ---------- ----------
NET INVESTMENT INCOME 6,541,110 2,553,785 --
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 1,463,015 675,984 --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 2,258,647 1,384,066 --
- --------------------------------------- --------------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 3,721,662 2,060,050 --
- --------------------------------------- --------------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 10,262,772 $4,613,835 $ --
- --------------------------------------- =============== ========== ==========
YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME:
- Dividends from investment income $ 1,680,962 $ 476,520 $ 810
- ---------------------------------------
- Dividends from net realized gains
on investments 8,636,106 4,362,394 25,289
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (857,960) (310,608) --
Legacy Life (10 Year) (58,975) (25,710) --
Legacy Estate Builder (672) -- (256)
- --------------------------------------- --------------- ---------- ----------
NET INVESTMENT INCOME 9,399,461 4,502,596 25,843
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 1,703,213 692,243 3,414
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 2,432,664 (805,397) (9,372)
- --------------------------------------- --------------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 4,135,877 (113,154) (5,958)
- --------------------------------------- --------------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 13,535,338 $4,389,442 $ 19,885
- --------------------------------------- =============== ========== ==========
YEAR ENDED DECEMBER 31, 1999
NET INVESTMENT INCOME:
- Dividends from investment income $ 1,849,544 $ 545,592 $ 24,891
- ---------------------------------------
- Dividends from net realized gains
on investments 13,103,596 5,038,255 393,988
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (929,086) (308,791) --
Legacy Life (10 Year) (143,940) (58,257) --
Legacy Estate Builder (25,900) -- (8,407)
- --------------------------------------- --------------- ---------- ----------
NET INVESTMENT INCOME 13,854,214 5,216,799 410,472
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 2,164,037 666,511 (4,194)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 10,636,045 (2,816,650) (304,242)
- --------------------------------------- --------------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 12,800,082 (2,150,139) (308,436)
- --------------------------------------- --------------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 26,654,296 $3,066,660 $ 102,036
- --------------------------------------- =============== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
AVIS AVIS AVIS AVIS U.S.
GROWTH- AVIS ASSET AVIS HIGH-YIELD GOVERNMENT/
AVIS INCOME ASSET ALLOCATION HIGH-YIELD BOND AAA-RATED
GROWTH CLASS II ALLOCATION CLASS II BOND CLASS II SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
NET INVESTMENT INCOME:
- Dividends from investment income $ 95,703 $ -- $ 109,245 $ -- $ 331,279 $ -- $ 229,241
- ---------------------------------------
- Dividends from net realized gains
on investments 2,359,562 -- 204,654 -- 42,064 -- --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (205,231) -- (37,650) -- (47,419) -- (41,537)
Legacy Life (10 Year) -- -- -- -- -- -- --
Legacy Estate Builder -- -- -- -- -- -- --
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET INVESTMENT INCOME 2,250,034 -- 276,249 -- 325,924 -- 187,704
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 389,341 -- 167,622 -- 66,410 -- (2,010)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 1,361,804 -- 25,853 -- (2,082) -- 47,345
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 1,751,145 -- 193,475 -- 64,328 -- 45,335
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,001,179 $ -- $ 469,724 $ -- $ 390,252 $ -- $ 233,039
- --------------------------------------- =========== ========== ========== ========== ========== ========== ===========
YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME:
- Dividends from investment income $ 84,630 $ 62 $ 183,914 $ 1,571 $ 371,625 $ 881 $ 217,996
- ---------------------------------------
- Dividends from net realized gains
on investments 3,605,937 11,757 380,514 12,648 56,690 497 --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (254,155) -- (61,991) -- (45,754) -- (36,439)
Legacy Life (10 Year) (14,484) -- (996) -- (5,229) -- (6,609)
Legacy Estate Builder -- (100) -- (153) -- (40) --
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET INVESTMENT INCOME 3,421,928 11,719 501,441 14,066 377,332 1,338 174,948
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 800,646 3,866 151,243 1,609 (22,680) 462 14,475
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 2,572,876 1,818 (146,002) (8,448) (416,233) 313 53,797
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 3,373,522 5,684 5,241 (6,839) (438,913) 775 68,272
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,795,450 $ 17,403 $ 506,682 $ 7,227 $ (61,581) $ 2,113 $ 243,220
- --------------------------------------- =========== ========== ========== ========== ========== ========== ===========
YEAR ENDED DECEMBER 31, 1999
NET INVESTMENT INCOME:
- Dividends from investment income $ 58,307 $ -- $ 190,152 $ 24,370 $ 376,512 $ 13,264 $ 197,069
- ---------------------------------------
- Dividends from net realized gains
on investments 5,404,863 329,155 338,245 67,099 -- -- --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (322,798) -- (65,921) -- (36,625) -- (24,066)
Legacy Life (10 Year) (48,655) -- (1,908) -- (8,363) -- (11,254)
Legacy Estate Builder -- (5,840) -- (3,901) -- (730) --
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET INVESTMENT INCOME 5,091,717 323,315 460,568 87,568 331,524 12,534 161,749
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 1,074,666 17,122 39,583 (230) (65,391) (168) (2,997)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 8,426,702 229,696 (189,942) (57,543) (94,732) (6,972) (213,790)
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 9,501,368 246,818 (150,359) (57,773) (160,123) (7,140) (216,787)
- --------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $14,593,085 $ 570,133 $ 310,209 $ 29,795 $ 171,401 $ 5,394 $ (55,038)
- --------------------------------------- =========== ========== ========== ========== ========== ========== ===========
<CAPTION>
AVIS U.S.
GOVERNMENT/
AAA-RATED
SECURITIES
CLASS II
SUBACCOUNT
<S> <C>
- ---------------------------------------
YEAR ENDED DECEMBER 31, 1997
NET INVESTMENT INCOME:
- Dividends from investment income $ --
- ---------------------------------------
- Dividends from net realized gains
on investments --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life --
Legacy Life (10 Year) --
Legacy Estate Builder --
- --------------------------------------- -----------
NET INVESTMENT INCOME --
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments --
- --------------------------------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS --
- --------------------------------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ --
- --------------------------------------- ===========
YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME:
- Dividends from investment income $ 140
- ---------------------------------------
- Dividends from net realized gains
on investments --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life --
Legacy Life (10 Year) --
Legacy Estate Builder (9)
- --------------------------------------- -----------
NET INVESTMENT INCOME 131
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (24)
- --------------------------------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (24)
- --------------------------------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 107
- --------------------------------------- ===========
YEAR ENDED DECEMBER 31, 1999
NET INVESTMENT INCOME:
- Dividends from investment income $ 5,238
- ---------------------------------------
- Dividends from net realized gains
on investments --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life --
Legacy Life (10 Year) --
Legacy Estate Builder (430)
- --------------------------------------- -----------
NET INVESTMENT INCOME 4,808
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments (1,147)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (4,393)
- --------------------------------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (5,540)
- --------------------------------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (732)
- --------------------------------------- ===========
</TABLE>
F-5
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
AVIS
AVIS CASH
CASH MANAGEMENT AVIS
MANAGEMENT CLASS II INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
NET INVESTMENT INCOME:
- Dividends from investment income $210,279 $ -- $ 135,843
- ---------------------------------------
- Dividends from net realized gains
on investments -- -- 727,603
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (51,918) -- (83,012)
Legacy Life (10 Year) -- -- --
Legacy Estate Builder -- -- --
- --------------------------------------- ---------- ---------- -------------
NET INVESTMENT INCOME 158,361 -- 780,434
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 6,491 -- 158,689
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments (7,991) -- (550,676)
- --------------------------------------- ---------- ---------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (1,500) -- (391,987)
- --------------------------------------- ---------- ---------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $156,861 $ -- $ 388,447
- --------------------------------------- ========== ========== =============
YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME:
- Dividends from investment income $204,237 $ 1,143 $ 101,028
- ---------------------------------------
- Dividends from net realized gains
on investments -- -- 149,047
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (47,772) -- (91,139)
Legacy Life (10 Year) (1,092) -- (3,842)
Legacy Estate Builder -- (19) --
- --------------------------------------- ---------- ---------- -------------
NET INVESTMENT INCOME 155,373 1,124 155,094
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments (12,222) 6 53,969
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 7,669 (1,028) 1,097,536
- --------------------------------------- ---------- ---------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (4,553) (1,022) 1,151,505
- --------------------------------------- ---------- ---------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $150,820 $ 102 $ 1,306,599
- --------------------------------------- ========== ========== =============
YEAR ENDED DECEMBER 31, 1999
NET INVESTMENT INCOME:
- Dividends from investment income $170,550 $ 6,743 $ 172,947
- ---------------------------------------
- Dividends from net realized gains
on investments -- -- 1,259,259
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life (40,619) -- (108,817)
Legacy Life (10 Year) (4,582) -- (9,950)
Legacy Estate Builder -- (978) --
- --------------------------------------- ---------- ---------- -------------
NET INVESTMENT INCOME 125,349 5,765 1,313,439
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments (1,366) 2,224 370,107
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 9,583 (1,084) 4,460,741
- --------------------------------------- ---------- ---------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 8,217 1,140 4,830,848
- --------------------------------------- ---------- ---------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $133,566 $ 6,905 $ 6,144,287
- --------------------------------------- ========== ========== =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
AVIS AVIS
AVIS AVIS AVIS GLOBAL GLOBAL
INTERNATIONAL AVIS BOND GLOBAL GROWTH SMALL
CLASS II BOND CLASS II GROWTH CLASS II CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
NET INVESTMENT INCOME:
- Dividends from investment income $ -- $ 7,378 $ -- $ 1,339 $ -- $ --
- ---------------------------------------
- Dividends from net realized gains
on investments -- 1,765 -- 598 -- --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life -- (1,411) -- (1,050) -- --
Legacy Life (10 Year) -- -- -- -- -- --
Legacy Estate Builder -- -- -- -- -- --
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET INVESTMENT INCOME -- 7,732 -- 887 -- --
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments -- 222 -- 266 -- --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments -- 2,266 -- (1,938) -- --
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS -- 2,488 -- (1,672) -- --
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ -- $ 10,220 $ -- $ (785) $ -- $ --
- --------------------------------------- ============= ========== ========== ========== ========== ==============
YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME:
- Dividends from investment income $ 55 $ 30,142 $ 148 $ 5,536 $ 90 $ 423
- ---------------------------------------
- Dividends from net realized gains
on investments 247 3,145 27 25,115 1,484 1,289
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life -- (3,990) -- (5,797) -- (315)
Legacy Life (10 Year) -- (842) -- (120) -- (51)
Legacy Estate Builder (20) -- (9) -- (59) --
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET INVESTMENT INCOME 282 28,455 166 24,734 1,515 1,346
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 2 1,268 -- 13,668 1,328 (83)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 1,072 (17,253) (166) 83,169 3,493 14,832
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 1,074 (15,985) (166) 96,837 4,821 14,749
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,356 $ 12,470 -- $ 121,571 $ 6,336 $ 16,095
- --------------------------------------- ============= ========== ========== ========== ========== ==============
YEAR ENDED DECEMBER 31, 1999
NET INVESTMENT INCOME:
- Dividends from investment income $ 5,057 $ 28,187 $ 7,650 $ 14,111 $ 7,165 $ 1,522
- ---------------------------------------
- Dividends from net realized gains
on investments 68,122 66,584 51,531 57,489
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life -- (4,965) -- (12,983) -- (3,501)
Legacy Life (10 Year) -- (216) -- (412) -- (343)
Legacy Estate Builder (1,611) -- (552) -- (2,809) --
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET INVESTMENT INCOME 71,568 23,006 7,098 67,300 55,887 55,167
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 2,304 (6,186) (510) 17,021 9,171 46,821
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 162,031 (9,171) (5,252) 555,082 301,655 136,681
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 164,335 (15,357) (5,762) 572,103 310,826 183,502
- --------------------------------------- ------------- ---------- ---------- ---------- ---------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 235,903 $ 7,649 $ 1,336 $ 639,403 $ 366,713 $ 238,669
- --------------------------------------- ============= ========== ========== ========== ========== ==============
<CAPTION>
AVIS
GLOBAL
SMALL
CAPITALIZATION
CLASS II
SUBACCOUNT
<S> <C>
- ---------------------------------------
YEAR ENDED DECEMBER 31, 1997
NET INVESTMENT INCOME:
- Dividends from investment income $ --
- ---------------------------------------
- Dividends from net realized gains
on investments --
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life --
Legacy Life (10 Year) --
Legacy Estate Builder --
- --------------------------------------- --------------
NET INVESTMENT INCOME --
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments --
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments --
- --------------------------------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS --
- --------------------------------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ --
- --------------------------------------- ==============
YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME:
- Dividends from investment income $ 11
- ---------------------------------------
- Dividends from net realized gains
on investments 26
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life --
Legacy Life (10 Year) --
Legacy Estate Builder (7)
- --------------------------------------- --------------
NET INVESTMENT INCOME 30
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments (1)
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 12
- --------------------------------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 11
- --------------------------------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 41
- --------------------------------------- ==============
YEAR ENDED DECEMBER 31, 1999
NET INVESTMENT INCOME:
- Dividends from investment income $ 217
- ---------------------------------------
- Dividends from net realized gains
on investments 29,006
- ---------------------------------------
- Mortality and expense guarantees:
Legacy Life --
Legacy Life (10 Year) --
Legacy Estate Builder (642)
- --------------------------------------- --------------
NET INVESTMENT INCOME 28,581
- ---------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
- Net realized gain (loss) on
investments 696
- ---------------------------------------
- Net change in unrealized
appreciation or depreciation on
investments 57,645
- --------------------------------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 58,341
- --------------------------------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 86,922
- --------------------------------------- ==============
</TABLE>
F-7
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AVIS
AVIS GROWTH-
GROWTH- INCOME
INCOME CLASS II
COMBINED SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
NET ASSETS AT JANUARY 1, 1997 $49,781,763 $17,822,490 $ --
Changes from operations:
Net investment income 6,541,110 2,553,785 --
Net realized gain (loss) on
investments 1,463,015 675,984 --
Net change in unrealized appreciation
or depreciation on investments 2,258,647 1,384,066 --
- ---------------------------------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 10,262,772 4,613,835
---
Change from unit transactions:
Accumulation units:
Contract purchases 40,131,156 6,127,582 --
Contract redemptions (32,237,149) (2,980,748) --
- ---------------------------------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM UNIT TRANSACTIONS 7,894,007 3,146,834 --
- ---------------------------------------- ----------- ---------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 18,156,779 7,760,669 --
- ---------------------------------------- ----------- ---------- ---------
NET ASSETS AT DECEMBER 31, 1997 67,938,542 25,583,159 --
Changes from operations:
Net investment income 9,399,461 4,502,596 25,843
Net realized gain (loss) on
investments 1,703,213 692,243 3,414
Net change in unrealized appreciation
or depreciation on investments 2,432,664 (805,397) (9,372)
- ---------------------------------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 13,535,338 4,389,442 19,885
Change from unit transactions:
Accumulation units:
Contract purchases 48,372,978 10,526,122 283,611
Contract redemptions (44,315,588) (9,558,665) (123,810)
- ---------------------------------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM UNIT TRANSACTIONS 4,057,390 967,457 159,801
- ---------------------------------------- ----------- ---------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 17,592,728 5,356,899 179,686
- ---------------------------------------- ----------- ---------- ---------
NET ASSETS AT DECEMBER 31, 1998 85,531,270 30,940,058 179,686
Changes from operations:
Net investment income 13,854,214 5,216,799 410,472
Net realized gain (loss) on
investments 2,164,037 666,511 (4,194)
Net change in unrealized appreciation
or depreciation on investments 10,636,045 (2,816,650) (304,242)
- ---------------------------------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 26,654,296 3,066,660 102,036
Change from unit transactions:
Accumulation units:
Contract purchases 28,336,230 4,217,827 2,992,074
Contract redemptions (26,283,220) (6,594,931) (534,815)
- ---------------------------------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM UNIT TRANSACTIONS 2,053,010 (2,377,104) 2,457,259
- ---------------------------------------- ----------- ---------- ---------
Total increase (decrease) in net assets 28,707,306 689,556 2,559,295
- ---------------------------------------- ----------- ---------- ---------
Net assets at December 31, 1999 $114,238,576 $31,629,614 $2,738,981
- ---------------------------------------- =========== ========== =========
</TABLE>
See accompanying notes.
F-8
<PAGE>
<TABLE>
<CAPTION>
AVIS AVIS
AVIS GROWTH ASSET
GROWTH CLASS II ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ----------------------------------------------------------------------
NET ASSETS AT JANUARY 1,
1997 $ 13,758,873 $ -- $1,971,758
Changes from operations:
Net investment income 2,250,034 -- 276,249
Net realized gain
(loss) on
investments 389,341 -- 167,622
Net change in
unrealized
appreciation or
depreciation on
investments 1,361,804 -- 25,853
- ------------------------- ------------ ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 4,001,179 -- 469,724
Change from unit
transactions:
Accumulation units:
Contract purchases 4,236,409 -- 2,757,294
Contract redemptions (2,136,064) -- (1,371,568)
- ------------------------- ------------ ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 2,100,345 -- 1,385,726
- ------------------------- ------------ ----------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 6,101,524 -- 1,855,450
- ------------------------- ------------ ----------- ----------
NET ASSETS AT DECEMBER
31, 1997 19,860,397 -- 3,827,208
Changes from operations:
Net investment income 3,421,928 11,719 501,441
Net realized gain
(loss) on
investments 800,646 3,866 151,243
Net change in
unrealized
appreciation or
depreciation on
investments 2,572,876 1,818 (146,002)
- ------------------------- ------------ ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 6,795,450 17,403 506,682
Change from unit
transactions:
Accumulation units:
Contract purchases 7,905,155 156,661 3,437,421
Contract redemptions (7,500,912) (84,680) (2,176,911)
- ------------------------- ------------ ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 404,243 71,981 1,260,510
- ------------------------- ------------ ----------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 7,199,693 89,384 1,767,192
- ------------------------- ------------ ----------- ----------
NET ASSETS AT DECEMBER
31, 1998 27,060,090 89,384 5,594,400
Changes from operations:
Net investment income 5,091,717 323,315 460,568
Net realized gain
(loss) on
investments 1,074,666 17,122 39,583
Net change in
unrealized
appreciation or
depreciation on
investments 8,426,702 229,696 (189,942)
- ------------------------- ------------ ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 14,593,085 570,133 310,209
Change from unit
transactions:
Accumulation units:
Contract purchases 5,908,148 2,453,736 741,471
Contract redemptions (7,437,192) (464,514) (1,278,046)
- ------------------------- ------------ ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS (1,529,044) 1,989,222 (536,575)
- ------------------------- ------------ ----------- ----------
Total increase (decrease)
in net assets 13,064,041 2,559,355 (226,366)
- ------------------------- ------------ ----------- ----------
Net assets at December
31, 1999 $ 40,124,131 $ 2,648,739 $5,368,034
- ------------------------- ============ =========== ==========
<CAPTION>
AVIS U.S.
AVIS AVIS AVIS U.S. GOVERNMENT/
ASSET AVIS HIGH-YIELD GOVERNMENT/ AAA-RATED
ALLOCATION HIGH-YIELD BOND AAA-RATED SECURITIES
CLASS II BOND CLASS II SECURITIES CLASS II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
- -------------------------
NET ASSETS AT JANUARY 1,
1997 $ -- $3,939,495 $ -- $ 3,259,836 $ --
Changes from operations:
Net investment income -- 325,924 -- 187,704 --
Net realized gain
(loss) on
investments -- 66,410 -- (2,010) --
Net change in
unrealized
appreciation or
depreciation on
investments -- (2,082) -- 47,345 --
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS -- 390,252 -- 233,039 --
Change from unit
transactions:
Accumulation units:
Contract purchases -- 1,153,178 -- 1,169,963 --
Contract redemptions -- (1,424,421) -- (885,837) --
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS -- (271,243) -- 284,126 --
- ------------------------- ----------- ---------- ---------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS -- 119,009 -- 517,165 --
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET ASSETS AT DECEMBER
31, 1997 -- 4,058,504 -- 3,777,001 --
Changes from operations:
Net investment income 14,066 377,332 1,338 174,948 131
Net realized gain
(loss) on
investments 1,609 (22,680) 462 14,475 --
Net change in
unrealized
appreciation or
depreciation on
investments (8,448) (416,233) 313 53,797 (24)
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 7,227 (61,581) 2,113 243,220 107
Change from unit
transactions:
Accumulation units:
Contract purchases 299,056 2,011,701 73,460 1,742,826 5,924
Contract redemptions (120,280) (1,906,794) (39,662) (2,009,357) (7)
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 178,776 104,907 33,798 (266,531) 5,917
- ------------------------- ----------- ---------- ---------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 186,003 43,326 35,911 (23,311) 6,024
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET ASSETS AT DECEMBER
31, 1998 186,003 4,101,830 35,911 3,753,690 6,024
Changes from operations:
Net investment income 87,568 331,524 12,534 161,749 4,808
Net realized gain
(loss) on
investments (230) (65,391) (168) (2,997) (1,147)
Net change in
unrealized
appreciation or
depreciation on
investments (57,543) (94,732) (6,972) (213,790) (4,393)
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 29,795 171,401 5,394 (55,038) (732)
Change from unit
transactions:
Accumulation units:
Contract purchases 956,800 82,414 179,389 709,228 150,329
Contract redemptions (78,763) (784,834) (23,199) (1,298,532) (48,864)
- ------------------------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 878,037 (702,420) 156,190 (589,304) 101,465
- ------------------------- ----------- ---------- ---------- ----------- -----------
Total increase (decrease)
in net assets 907,832 (531,019) 161,584 (644,342) 100,733
- ------------------------- ----------- ---------- ---------- ----------- -----------
Net assets at December
31, 1999 $ 1,093,835 $3,570,811 $ 197,495 $ 3,109,348 $ 106,757
- ------------------------- =========== ========== ========== =========== ===========
</TABLE>
F-9
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
AVIS
AVIS CASH
CASH MANAGEMENT AVIS
MANAGEMENT CLASS II INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1, 1997 $ 4,064,548 $ -- $ 4,906,028
Changes from operations:
Net investment income 158,361 -- 780,434
Net realized gain (loss) on
investments 6,491 -- 158,689
Net change in unrealized appreciation
or depreciation on investments (7,991) -- (550,676)
- ---------------------------------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 156,861 -- 388,447
Change from unit transactions:
Accumulation units:
Contract purchases 21,069,330 -- 3,191,689
Contract redemptions (21,832,104) -- (1,563,605)
- ---------------------------------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM UNIT TRANSACTIONS (762,774) -- 1,628,084
- ---------------------------------------- ------------- ------------ -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (605,913) -- 2,016,531
- ---------------------------------------- ------------- ------------ -------------
NET ASSETS AT DECEMBER 31, 1997 3,458,635 -- 6,922,559
Changes from operations:
Net investment income 155,373 1,124 155,094
Net realized gain (loss) on
investments (12,222) 6 53,969
Net change in unrealized appreciation
or depreciation on investments 7,669 (1,028) 1,097,536
- ---------------------------------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 150,820 102 1,306,599
Change from unit transactions:
Accumulation units:
Contract purchases 17,799,948 94,497 2,533,215
Contract redemptions (17,927,557) (10,567) (2,378,790)
- ---------------------------------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM UNIT TRANSACTIONS (127,609) 83,930 154,425
- ---------------------------------------- ------------- ------------ -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 23,211 84,032 1,461,024
- ---------------------------------------- ------------- ------------ -------------
NET ASSETS AT DECEMBER 31, 1998 3,481,846 84,032 8,383,583
Changes from operations:
Net investment income 125,349 5,765 1,313,439
Net realized gain (loss) on
investments (1,366) 2,224 370,107
Net change in unrealized appreciation
or depreciation on investments 9,583 (1,084) 4,460,741
- ---------------------------------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 133,566 6,905 6,144,287
Change from unit transactions:
Accumulation units:
Contract purchases 3,149,440 2,865,431 714,298
Contract redemptions (2,818,458) (2,616,179) (1,366,542)
- ---------------------------------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM UNIT TRANSACTIONS 330,982 249,252 (652,244)
- ---------------------------------------- ------------- ------------ -------------
Total increase (decrease) in net assets 464,548 256,157 5,492,043
- ---------------------------------------- ------------- ------------ -------------
Net assets at December 31, 1999 $ 3,946,394 $ 340,189 $ 13,875,626
- ---------------------------------------- ============= ============ =============
</TABLE>
See accompanying notes.
F-10
<PAGE>
<TABLE>
<CAPTION>
AVIS
INTERNATIONAL AVIS
CLASS II BOND
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ----------------------------------------------------
NET ASSETS AT JANUARY 1,
1997 $ -- $ 58,735
Changes from operations:
Net investment income -- 7,732
Net realized gain
(loss) on
investments -- 222
Net change in
unrealized
appreciation or
depreciation on
investments -- 2,266
- ------------------------- ------------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS -- 10,220
Change from unit
transactions:
Accumulation units:
Contract purchases -- 99,436
Contract redemptions -- (13,537)
- ------------------------- ------------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS -- 85,899
- ------------------------- ------------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS -- 96,119
- ------------------------- ------------- ----------
NET ASSETS AT DECEMBER
31, 1997 -- 154,854
Changes from operations:
Net investment income 282 28,455
Net realized gain
(loss) on
investments 2 1,268
Net change in
unrealized
appreciation or
depreciation on
investments 1,072 (17,253)
- ------------------------- ------------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 1,356 12,470
Change from unit
transactions:
Accumulation units:
Contract purchases 12,527 745,609
Contract redemptions (37) (233,316)
- ------------------------- ------------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 12,490 512,293
- ------------------------- ------------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 13,846 524,763
- ------------------------- ------------- ----------
NET ASSETS AT DECEMBER
31, 1998 13,846 679,617
Changes from operations:
Net investment income 71,568 23,006
Net realized gain
(loss) on
investments 2,304 (6,186)
Net change in
unrealized
appreciation or
depreciation on
investments 162,031 (9,171)
- ------------------------- ------------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 235,903 7,649
Change from unit
transactions:
Accumulation units:
Contract purchases 769,502 51,818
Contract redemptions (84,730) (334,113)
- ------------------------- ------------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 684,772 (282,295)
- ------------------------- ------------- ----------
Total increase (decrease)
in net assets 920,675 (274,646)
- ------------------------- ------------- ----------
Net assets at December
31, 1999 $ 934,521 $ 404,971
- ------------------------- ============= ==========
<CAPTION>
AVIS
AVIS AVIS GLOBAL
AVIS AVIS GLOBAL GLOBAL SMALL
BOND GLOBAL GROWTH SMALL CAPITALIZATION
CLASS II GROWTH CLASS II CAPITALIZATION CLASS II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
- -------------------------
NET ASSETS AT JANUARY 1,
1997 $ -- $ -- $ -- $ -- $ --
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) -- -- --
Change from unit
transactions:
Accumulation units:
Contract purchases -- 326,275 -- -- --
Contract redemptions -- (29,265) -- -- --
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS -- 297,010 -- -- --
- ------------------------- ---------- ---------- ---------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS -- 296,225 -- -- --
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET ASSETS AT DECEMBER
31, 1997 -- 296,225 -- -- --
Changes from operations:
Net investment income 166 24,734 1,515 1,346 30
Net realized gain
(loss) on
investments -- 13,668 1,328 (83) (1)
Net change in
unrealized
appreciation or
depreciation on
investments (166) 83,169 3,493 14,832 12
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS -- 121,571 6,336 16,095 41
Change from unit
transactions:
Accumulation units:
Contract purchases 5,917 565,899 83,068 88,361 2,000
Contract redemptions (7) (196,994) (42,305) (4,937) --
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 5,910 368,905 40,763 83,424 2,000
- ------------------------- ---------- ---------- ---------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 5,910 490,476 47,099 99,519 2,041
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET ASSETS AT DECEMBER
31, 1998 5,910 786,701 47,099 99,519 2,041
Changes from operations:
Net investment income 7,098 67,300 55,887 55,167 28,581
Net realized gain
(loss) on
investments (510) 17,021 9,171 46,821 696
Net change in
unrealized
appreciation or
depreciation on
investments (5,252) 555,082 301,655 136,681 57,645
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS 1,336 639,403 366,713 238,669 86,922
Change from unit
transactions:
Accumulation units:
Contract purchases 217,861 326,411 1,077,246 522,611 250,196
Contract redemptions (61,653) (86,639) (163,766) (202,345) (5,105)
- ------------------------- ---------- ---------- ---------- -------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 156,208 239,772 913,480 320,266 245,091
- ------------------------- ---------- ---------- ---------- -------------- --------------
Total increase (decrease)
in net assets 157,544 879,175 1,280,193 558,935 332,013
- ------------------------- ---------- ---------- ---------- -------------- --------------
Net assets at December
31, 1999 $ 163,454 $1,665,876 $1,327,292 $ 658,454 $ 334,054
- ------------------------- ========== ========== ========== ============== ==============
</TABLE>
F-11
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND VARIABLE ACCOUNT INFORMATION
THE VARIABLE ACCOUNT:
Lincoln Life Flexible Premium Variable Life Account F (the
Variable Account) was established as a segregated investment
account of The Lincoln National Life Insurance Company
(Lincoln Life) on May 29, 1987. The Variable Account was
registered with the Securities and Exchange Commission on
November 24, 1987 under the Investment Company Act of 1940,
as amended, as a unit investment trust, and commenced
investment activity on January 4, 1988. The Variable Account
consists of two products which are listed below.
--Legacy Life
--Legacy Estate Builder
Effective May 1, 1998, the Legacy Estate Builder policies
became available to clients of Lincoln Life.
The assets of the Variable Account are owned by Lincoln
Life. The portion of the Variable Account's assets
supporting the variable life policies may not be used to
satisfy liabilities arising from any other business of
Lincoln Life.
BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in
the United States for unit investment trusts.
INVESTMENTS:
The Variable Account invests in the American Variable
Insurance Series (AVIS) which consists of the following
funds:
Growth-Income Fund
Growth-Income Class II Fund
Growth Fund
Growth Class II Fund
Asset Allocation Fund
Asset Allocation Class II Fund
High-Yield Bond Fund
High-Yield Bond Class II Fund
U.S. Government/AAA-Rated Securities Fund
U.S. Government/AAA-Rated Securities Class II Fund
Cash Management Fund
Cash Management Class II Fund
International Fund
International Class II Fund
Bond Fund
Bond Class II Fund
Global Growth Fund
Global Growth Class II Fund
Global Small Capitalization Fund
Global Small Capitalization Class II Fund
AVIS is registered as an open-end investment management
company. Legacy Life and Legacy Estate Builder invest in
different classes of shares of the funds and these
investments are stated at the closing net asset value per
share on December 31, 1999, which approximates fair value.
The difference between cost and fair value is reflected as
unrealized appreciation and depreciation on investments.
Investment transactions are accounted for on a trade date
basis. The cost of investments sold is determined by the
average cost method.
F-12
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES AND VARIABLE ACCOUNT INFORMATION (CONTINUED)
DIVIDENDS:
Dividends paid to the Variable Account are automatically
reinvested in shares of the funds on the payable date.
Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES:
Operations of the Variable 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.
The Variable Account will not be taxed as a regulated
investment company under Subchapter M of the Internal
Revenue Code. Under current federal income tax law, no
federal income taxes are payable with respect to the
Variable Account's net investment income and the net
realized gain on investments.
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATE
VARIABLE ACCOUNT CHARGES:
Amounts are paid to Lincoln Life for mortality and expense
risk charge at a percentage of the current value of the
Variable Account each day. The rates are as follows:
--Legacy Life at a daily rate of .00232876% (.85% on an
annual basis)
--Legacy Life (10 year) at a daily rate of .00205479% (.75%
on an annual basis)
--Legacy Estate Builder at a daily rate of .00164383 (.60%
on an annual basis)
For Legacy Life, policies amounts are charged daily to the
Variable Account by Lincoln Life for an administrative
charge at an annual rate of .30% of the average daily net
asset value of the Variable Account for the first ten policy
years and .10% for policy years thereafter. Also, for the
first ten policy years, amounts are charged daily to the
Variable Account by Lincoln Life for the guaranteed death
benefit at annual rate of .10% of the average daily net
asset value of the Variable Account.
For Legacy Estate Builder, Lincoln Life charges a monthly
policy value charge of .10% for the first ten policy years
and .01666666% thereafter. This charge recovers Lincoln Life
expenses incurred in the sales and issues of the policies.
In addition, Lincoln Life charges a monthly administrative
fee of $5.00 for policy values less than $50,000. Under
certain circumstance, Lincoln Life reserves the right to
charge a transfer fee of $10 for transfers between
subaccounts. Also, a withdrawal charge of $20 is deducted
from the amount of any withdrawal of policy value.
Other charges, which are paid to Lincoln Life by redeeming
the Variable Account units, are for the cost of insurance
and contingent surrender charges. These other charges for
1999, 1998, and 1997 amounted to $879,281, $711,577 and
$627,688, 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 Variable Account Prospectus.
Lincoln Life, upon full surrender of a policy, may charge a
surrender charge. Legacy Life 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.
Legacy Estate Builder surrender charges are deducted if the
policy is surrendered during the first twelve policy years.
The maximum rate for surrender charges, which decreases by
policy year, ranges from 6.5% of the total first year
premiums paid for surrenders during the first policy year to
2% for surrenders during the twelfth policy year.
F-13
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NET ASSETS
The following is a summary of net assets owned at December 31, 1999.
<TABLE>
<CAPTION>
AVIS AVIS
AVIS GROWTH- AVIS AVIS ASSET AVIS
GROWTH- INCOME AVIS GROWTH ASSET ALLOCATION HIGH-YIELD
INCOME CLASS II GROWTH CLASS II ALLOCATION CLASS II BOND
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
- ---------------------------
Accumulation units $42,645,600 $10,879,348 $2,617,060 $8,044,953 $2,061,203 $3,522,756 $1,056,813 $1,046,604
- ---------------------------
Accumulated net investment
income 40,465,010 16,134,982 436,315 13,130,658 335,034 1,566,652 101,634 2,675,981
- ---------------------------
Accumulated net realized
gain (loss) on
investments 8,533,855 2,959,761 (780) 4,014,094 20,988 408,736 1,379 207,079
- ---------------------------
Net unrealized appreciation
(depreciation) on
investments 22,594,111 1,655,523 (313,614) 14,934,426 231,514 (130,110) (65,991) (358,853)
- --------------------------- ----------- ---------- --------- ---------- --------- --------- --------- ---------
$114,238,576 $31,629,614 $2,738,981 $40,124,131 $2,648,739 $5,368,034 $1,093,835 $3,570,811
=========== ========== ========= ========== ========= ========= ========= =========
<CAPTION>
AVIS AVIS U.S.
HIGH-YIELD GOVERNMENT/
BOND AAA-RATED
CLASS II SECURITIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
UNIT TRANSACTIONS:
- ---------------------------
Accumulation units $ 189,988 $ 1,177,147
- ---------------------------
Accumulated net investment
income 13,872 1,953,112
- ---------------------------
Accumulated net realized
gain (loss) on
investments 294 114,241
- ---------------------------
Net unrealized appreciation
(depreciation) on
investments (6,659) (135,152)
- --------------------------- ---------- -----------
$ 197,495 $ 3,109,348
========== ===========
</TABLE>
<TABLE>
<CAPTION>
AVIS U.S.
GOVERNMENT/ AVIS
AAA-RATED AVIS CASH AVIS AVIS AVIS
SECURITIES CASH MANAGEMENT AVIS INTERNATIONAL AVIS BOND GLOBAL
CLASS II MANAGEMENT CLASS II INTERNATIONAL CLASS II BOND CLASS II GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
- ---------------------------
Accumulation units $ 107,382 $2,869,817 $333,182 $ 4,997,401 $ 697,262 $ 371,855 $ 162,118 $ 905,687
- ---------------------------
Accumulated net investment
income 4,939 1,052,884 6,889 2,676,944 71,850 60,553 7,264 92,921
- ---------------------------
Accumulated net realized
gain (loss) on
investments (1,147) 36,272 2,230 683,302 2,306 (3,277) (510) 30,955
- ---------------------------
Net unrealized appreciation
(depreciation) on
investments (4,417) (12,579) (2,112) 5,517,979 163,103 (24,160) (5,418) 636,313
- --------------------------- ----------- ----------- ---------- ----------- ------------- ---------- ---------- ----------
$ 106,757 $3,946,394 $340,189 $13,875,626 $ 934,521 $ 404,971 $ 163,454 $1,665,876
=========== =========== ========== =========== ============= ========== ========== ==========
<CAPTION>
AVIS
AVIS AVIS GLOBAL
GLOBAL GLOBAL SMALL
GROWTH SMALL CAPITALIZATION
CLASS II CAPITALIZATION CLASS II
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ---------------------------
UNIT TRANSACTIONS:
- ---------------------------
Accumulation units $ 954,243 $ 403,690 $ 247,091
- ---------------------------
Accumulated net investment
income 57,402 56,513 28,611
- ---------------------------
Accumulated net realized
gain (loss) on
investments 10,499 46,738 695
- ---------------------------
Net unrealized appreciation
(depreciation) on
investments 305,148 151,513 57,657
- --------------------------- ---------- -------------- --------------
$1,327,292 $ 658,454 $ 334,054
========== ============== ==============
</TABLE>
F-14
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1999.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
COST OF PROCEEDS
PURCHASES FROM SALES
<S> <C> <C>
- ------------------------------------------------------------------
AVIS Growth-Income Fund $ 6,305,387 $ 3,465,690
- ---------------------------------------
AVIS Growth-Income Class II Fund 3,278,855 411,085
- ---------------------------------------
AVIS Growth Fund 6,655,085 3,092,018
- ---------------------------------------
AVIS Growth Class II Fund 2,617,950 305,374
- ---------------------------------------
AVIS Asset Allocation Fund 1,081,911 1,157,925
- ---------------------------------------
AVIS Asset Allocation Class II Fund 1,017,092 51,472
- ---------------------------------------
AVIS High-Yield Bond Fund 402,132 773,043
- ---------------------------------------
AVIS High-Yield Bond Class II Fund 191,156 22,429
- ---------------------------------------
AVIS U.S. Government/AAA-Rated
Securities Fund 677,966 1,105,543
- ---------------------------------------
AVIS U.S. Government/AAA-Rated
Securities Class II Fund 155,240 48,965
- ---------------------------------------
AVIS Cash Management Fund 2,743,134 2,286,792
- ---------------------------------------
AVIS Cash Management Class II Fund 2,228,191 1,973,169
- ---------------------------------------
AVIS International Fund 1,865,864 1,204,487
- ---------------------------------------
AVIS International Class II Fund 815,288 58,934
- ---------------------------------------
AVIS Bond Fund 71,229 330,524
- ---------------------------------------
AVIS Bond Class II Fund 225,303 61,994
- ---------------------------------------
AVIS Global Growth Fund 392,293 85,192
- ---------------------------------------
AVIS Global Growth Class II Fund 1,094,086 124,698
- ---------------------------------------
AVIS Global Small Capitalization Fund 580,728 205,277
- ---------------------------------------
AVIS Global Small Capitalization
Class II Fund 277,652 3,975
- --------------------------------------- ------------ -----------
$ 32,676,542 $16,768,586
============ ===========
</TABLE>
F-15
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS
The following is a summary of investments owned at December 31, 1999.
<TABLE>
<CAPTION>
NET
SHARES ASSET VALUE COST
OUTSTANDING VALUE OF SHARES OF SHARES
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
AVIS Growth-Income Fund 956,185 $33.08 $ 31,630,606 $ 29,975,083
- ---------------------------------------
AVIS Growth-Income Class II Fund 82,825 33.07 2,739,023 3,052,637
- ---------------------------------------
AVIS Growth Fund 568,187 70.62 40,125,398 25,190,972
- ---------------------------------------
AVIS Growth Class II Fund 37,534 70.57 2,648,780 2,417,266
- ---------------------------------------
AVIS Asset Allocation Fund 356,220 15.07 5,368,215 5,498,325
- ---------------------------------------
AVIS Asset Allocation Class II Fund 72,632 15.06 1,093,853 1,159,844
- ---------------------------------------
AVIS High-Yield Bond Fund 280,071 12.75 3,570,925 3,929,778
- ---------------------------------------
AVIS High-Yield Bond Class II Fund 15,490 12.75 197,498 204,157
- ---------------------------------------
AVIS U.S. Government/AAA-Rated
Securities Fund 294,455 10.56 3,109,440 3,244,592
- ---------------------------------------
AVIS U.S. Government/AAA-Rated
Securities Class II Fund 10,110 10.56 106,759 111,176
- ---------------------------------------
AVIS Cash Management Fund 357,150 11.05 3,946,522 3,959,101
- ---------------------------------------
AVIS Cash Management Class II Fund 30,786 11.05 340,195 342,307
- ---------------------------------------
AVIS International Fund 518,926 26.74 13,876,084 8,358,105
- ---------------------------------------
AVIS International Class II Fund 34,962 26.73 934,536 771,433
- ---------------------------------------
AVIS Bond Fund 41,580 9.74 404,985 429,145
- ---------------------------------------
AVIS Bond Class II Fund 16,782 9.74 163,457 168,875
- ---------------------------------------
AVIS Global Growth Fund 77,774 21.42 1,665,931 1,029,618
- ---------------------------------------
AVIS Global Growth Class II Fund 61,995 21.41 1,327,313 1,022,165
- ---------------------------------------
AVIS Global Small Capitalization Fund 37,910 17.37 658,475 506,962
- ---------------------------------------
AVIS Global Small Capitalization
Class II Fund 19,243 17.36 334,059 276,402
- --------------------------------------- ------------ ------------
$114,242,054 $ 91,647,943
============ ============
</TABLE>
6. NEW INVESTMENT FUNDS
Effective April 25, 1997, the AVIS Global Growth Fund became available as an
investment option for Variable Account contract owners. Effective May 1, 1998,
the AVIS Global Small Capitalization Fund became available as an investment
option for Variable Account contract owners.
F-16
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of The Lincoln National Life Insurance Company
and
Contract Owners of Lincoln Life Flexible Premium Variable Life
Account F
We have audited the accompanying statement of assets and liability
of Lincoln Life Flexible Premium Variable Life Account F ("Variable
Account") (comprised of the AVIS Growth-Income, AVIS Growth-Income
Class II, AVIS Growth, AVIS Growth Class II, AVIS Asset Allocation,
AVIS Asset Allocation Class II, AVIS High-Yield Bond, AVIS
High-Yield Bond Class II, AVIS US Government/AAA-Rated Securities,
AVIS US Government/AAA-Rated Securities Class II, AVIS Cash
Management, AVIS Cash Management Class II, AVIS International, AVIS
International Class II, AVIS Bond, AVIS Bond Class II, AVIS Global
Growth, AVIS Global Growth Class II, AVIS Global Small
Capitalization and AVIS Global Small Capitalization Class II
subaccounts), as of December 31, 1999, 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 Variable 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 auditing standards
generally accepted in the United States. 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 investments
owned as of December 31, 1999, 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 each of
the respective subaccounts constituting the Lincoln Life Flexible
Premium Variable Life Account F at December 31, 1999, and the
results of their operations and changes in their net assets for
each of the three years in the period then ended in conformity with
accounting principles generally accepted in the United States.
[/S/ ERNST & YOUNG LLP]
Fort Wayne, Indiana
March 24, 2000
F-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------- ---------
(IN MILLIONS)
---------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $22,985.0 $23,830.9
- ------------------------------------------------------------
Preferred stocks 253.8 236.0
- ------------------------------------------------------------
Unaffiliated common stocks 166.9 259.3
- ------------------------------------------------------------
Affiliated common stocks 604.7 322.1
- ------------------------------------------------------------
Mortgage loans on real estate 4,211.5 3,932.9
- ------------------------------------------------------------
Real estate 254.0 473.8
- ------------------------------------------------------------
Policy loans 1,652.9 1,606.0
- ------------------------------------------------------------
Other investments 426.6 434.4
- ------------------------------------------------------------
Cash and short-term investments 1,409.2 1,725.4
- ------------------------------------------------------------ --------- ---------
Total cash and investments 31,964.6 32,820.8
- ------------------------------------------------------------
Premiums and fees in course of collection 115.8 33.3
- ------------------------------------------------------------
Accrued investment income 435.3 432.8
- ------------------------------------------------------------
Reinsurance recoverable 199.0 171.6
- ------------------------------------------------------------
Funds withheld by ceding companies 73.5 53.7
- ------------------------------------------------------------
Federal income taxes recoverable from parent company 61.6 64.7
- ------------------------------------------------------------
Goodwill 43.1 49.5
- ------------------------------------------------------------
Other admitted assets 66.7 89.3
- ------------------------------------------------------------
Separate account assets 46,105.1 36,907.0
- ------------------------------------------------------------ --------- ---------
Total admitted assets $79,064.7 $70,622.7
- ------------------------------------------------------------ ========= =========
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $12,184.0 $12,310.6
- ------------------------------------------------------------
Other policyholder funds 16,589.5 16,647.5
- ------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 364.0 897.6
- ------------------------------------------------------------
Funds held under reinsurance treaties 796.9 795.8
- ------------------------------------------------------------
Asset valuation reserve 490.9 484.5
- ------------------------------------------------------------
Interest maintenance reserve 72.3 159.7
- ------------------------------------------------------------
Other liabilities 627.0 504.5
- ------------------------------------------------------------
Short-term loan payable to parent company 205.0 140.0
- ------------------------------------------------------------
Net transfers due from separate accounts (896.5) (789.0)
- ------------------------------------------------------------
Separate account liabilities 46,105.1 36,907.0
- ------------------------------------------------------------ --------- ---------
Total liabilities 76,538.2 68,058.2
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Surplus notes due to Lincoln National Corporation 1,250.0 1,250.0
- ------------------------------------------------------------
Paid-in surplus 1,942.6 1,930.1
- ------------------------------------------------------------
Unassigned surplus -- deficit (691.1) (640.6)
- ------------------------------------------------------------ --------- ---------
Total capital and surplus 2,526.5 2,564.5
- ------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $79,064.7 $70,622.7
- ------------------------------------------------------------ ========= =========
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------- --------- --------
(IN MILLIONS)
--------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 7,273.6 $12,737.6 $5,589.0
- ------------------------------------------------------------
Net investment income 2,203.2 2,107.2 1,847.1
- ------------------------------------------------------------
Amortization of interest maintenance reserve 29.1 26.4 41.5
- ------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 472.3 179.9 99.7
- ------------------------------------------------------------
Expense charges on deposit funds 146.5 134.6 119.3
- ------------------------------------------------------------
Separate account investment management and administration
service fees 473.9 396.3 325.5
- ------------------------------------------------------------
Other income 88.8 31.3 21.3
- ------------------------------------------------------------ --------- --------- --------
Total revenues 10,687.4 15,613.3 8,043.4
- ------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 8,504.9 13,964.1 4,522.1
- ------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 1,618.3 2,919.4 3,053.9
- ------------------------------------------------------------ --------- --------- --------
Total benefits and expenses 10,123.2 16,883.5 7,576.0
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before dividends to
policyholders, income taxes and net realized gain on
investments 564.2 (1,270.2) 467.4
- ------------------------------------------------------------
Dividends to policyholders 80.3 67.9 27.5
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before federal income taxes and
net realized gain on investments 483.9 (1,338.1) 439.9
- ------------------------------------------------------------
Federal income taxes (credit) 85.4 (141.0) 78.3
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before net realized gain on
investments 398.5 (1,197.1) 361.6
- ------------------------------------------------------------
Net realized gain on investments, net of income tax expense
and excluding net transfers to the interest maintenance
reserve 114.4 46.8 31.3
- ------------------------------------------------------------ --------- --------- --------
Net income (loss) $ 512.9 $(1,150.3) $ 392.9
- ------------------------------------------------------------ ========= ========= ========
</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
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $2,564.5 $2,968.4 $1,868.0
- ------------------------------------------------------------
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income (loss) 512.9 (1,150.3) 392.9
- ------------------------------------------------------------
Difference in cost and admitted investment amounts (101.9) (304.8) (36.2)
- ------------------------------------------------------------
Nonadmitted assets (22.9) (17.1) (0.4)
- ------------------------------------------------------------
Regulatory liability for reinsurance 26.0 (35.2) (3.9)
- ------------------------------------------------------------
Gain on reinsurance of disability income business 71.8 -- --
- ------------------------------------------------------------
Life policy reserve valuation basis -- (0.4) (0.9)
- ------------------------------------------------------------
Asset valuation reserve (6.4) (34.5) (36.9)
- ------------------------------------------------------------
Proceeds from surplus notes from shareholder -- 1,250.0 --
- ------------------------------------------------------------
Paid-in surplus, including contribution of common stock of
affiliated company in 1997 12.5 108.4 938.4
- ------------------------------------------------------------
Separate account receivable due to change in valuation -- -- (2.6)
- ------------------------------------------------------------
Dividends to shareholder (530.0) (220.0) (150.0)
- ------------------------------------------------------------ -------- -------- --------
Capital and surplus at end of year $2,526.5 $2,564.5 $2,968.4
- ------------------------------------------------------------ ======== ======== ========
</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
1999 1998 1997
--------- ---------- ---------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 7,671.1 $ 13,495.2 $ 6,364.3
- ------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (19.9) (632.4) (649.2)
- ------------------------------------------------------------
Investment income received 2,168.6 2,003.9 1,798.8
- ------------------------------------------------------------
Separate account investment management and administration
service fees 470.6 396.3 325.5
- ------------------------------------------------------------
Benefits paid (8,699.4) (7,395.8) (5,345.2)
- ------------------------------------------------------------
Insurance expenses paid (1,734.5) (2,909.7) (3,193.0)
- ------------------------------------------------------------
Proceeds related to sale of disability income business 71.8 -- --
- ------------------------------------------------------------
Federal income taxes recovered (paid) (81.2) 84.2 (87.0)
- ------------------------------------------------------------
Dividends to policyholders (82.8) (12.9) (28.4)
- ------------------------------------------------------------
Other income received and expenses paid, net 252.1 207.0 (8.7)
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) operating activities 16.4 5,235.8 (822.9)
- ------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 6,557.7 10,926.5 12,142.6
- ------------------------------------------------------------
Purchase of investments (5,940.8) (16,950.0) (10,345.0)
- ------------------------------------------------------------
Other sources (uses) including reinsured policy loans (497.0) (778.3) 529.1
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) investing activities 119.9 (6,801.8) 2,326.7
- ------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in 12.5 108.4 --
- ------------------------------------------------------------
Proceeds from surplus notes from shareholder -- 1,250.0 --
- ------------------------------------------------------------
Proceeds from borrowings from shareholder 205.0 140.0 120.0
- ------------------------------------------------------------
Repayment of borrowings from shareholder (140.0) (120.0) (100.0)
- ------------------------------------------------------------
Dividends paid to shareholder (530.0) (220.0) (150.0)
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) financing activities (452.5) 1,158.4 (130.0)
- ------------------------------------------------------------ --------- ---------- ---------
Net increase (decrease) in cash and short-term investments (316.2) (407.6) 1,373.8
- ------------------------------------------------------------
Cash and short-term investments at beginning of year 1,725.4 2,133.0 759.2
- ------------------------------------------------------------ --------- ---------- ---------
Cash and short-term investments at end of year $ 1,409.2 $ 1,725.4 $ 2,133.0
- ------------------------------------------------------------ ========= ========== =========
</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 (the "Company") is a wholly
owned subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1999, the Company owned 100% of the outstanding
common stock of four insurance company subsidiaries and four non-insurance
subsidiaries. The Company also owned 85% of the common stock of an Internet
distributor of variable annuities.
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 ("Insurance Department"), which practices differ from accounting
principles generally accepted in the United States ("GAAP"). The more
significant variances from GAAP are as follows:
INVESTMENTS
Bonds and preferred stocks 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 and preferred stocks 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. Real estate owned and occupied by the Company is
classified as a real estate investment rather than reported as an operating
asset, and investment income and operating expenses include rent for the
Company's occupancy of those properties. 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 a 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 in which the asset giving rise to the gain or loss is sold and
writedowns 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
insurance subsidiaries are carried at their statutory-basis net equity and
the non-insurance subsidiaries are carried at their GAAP-basis net equity,
adjusted for certain items which would be non-admitted under statutory
accounting principles. Both insurance subsidiaries and non-insurance
subsidiaries are presented in the balance sheet as investments in affiliated
common stocks.
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
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 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
Revenues for universal life policies consist of the entire premium received.
Under GAAP, premiums received in excess of policy charges are not recognized
as premium revenue.
Premiums and deposits with respect to 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 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 Insurance 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. Business
assumed under 100% indemnity reinsurance agreements is accounted for as a
purchase for GAAP reporting purposes and the ceding commission represents
the purchase price. Under purchase accounting, assets acquired and
liabilities assumed are reported at fair value at the date of the
transaction and the excess of the purchase price over the sum of the amounts
assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory-basis, the ceding commission is expensed when paid
and reinsurance premiums and benefits are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting; whereas, such contracts are accounted
for using deposit accounting under GAAP.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
SURPLUS NOTES DUE TO LNC
Surplus notes due to LNC are reported as surplus rather than as liabilities.
On a statutory-basis, interest on surplus notes is not accrued until
approval is received from the Indiana Insurance Commissioner; whereas, under
GAAP, interest would be accrued periodically based on the outstanding
principal and the interest rate.
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.
A reconciliation of the Company's net income (loss) and capital and surplus
determined on a statutory-basis with amounts determined in accordance with
GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
----------------------------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998 1997
----------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory-basis $ 2,526.5 $ 2,564.5 $ 512.9 $(1,150.3) $392.9
-----------------------------------------
GAAP adjustments:
Deferred policy acquisition costs,
present value of future profits and
non-admitted goodwill 3,628.2 3,085.2 135.0 48.5 (98.9)
--------------------------------------
Policy and contract reserves (1,943.1) (2,299.9) (97.9) 1,743.4 (48.6)
--------------------------------------
Interest maintenance reserve 72.3 159.7 (86.6) 24.4 58.7
--------------------------------------
Deferred income taxes 244.5 181.6 (117.4) (218.6) 70.3
--------------------------------------
Policyholders' share of earnings and
surplus on participating business (122.7) (132.8) (1.8) 3.2 5.3
--------------------------------------
Asset valuation reserve 490.9 484.5 -- -- --
--------------------------------------
Net realized gain (loss) on investments (186.4) (174.1) (32.4) (116.7) (20.4)
--------------------------------------
Unrealized gain (loss) on investments (555.2) 1,335.1 -- -- --
--------------------------------------
Nonadmitted assets, including
nonadmitted investments 139.6 119.1 -- -- --
--------------------------------------
Investments in subsidiary companies 460.9 490.4 39.1 41.3 (80.5)
--------------------------------------
Surplus notes and related interest (1,250.0) (1,251.5) 1.5 (1.5) --
--------------------------------------
Other, net (61.0) (120.1) 129.8 103.6 (35.0)
-------------------------------------- --------- --------- --------- --------- ------
Net increase (decrease) 918.0 1,877.2 (30.7) 1,627.6 (149.1)
----------------------------------------- --------- --------- --------- --------- ------
Amounts on a GAAP basis $ 3,444.5 $ 4,441.7 $ 482.2 $ 477.3 $243.8
----------------------------------------- ========= ========= ========= ========= ======
</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
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
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 or deferred in IMR, where
applicable, and are amortized over the remaining lives of the hedged items
as adjustments to investment income. 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 amortized 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 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 are
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 cash collateral received which is
typically greater than the market value of the related securities loaned. In
other instances, the Company will hold as collateral securities with a
market value at least equal to the securities loaned. Securities held as
collateral are not recorded in the Company's balance sheet in accordance
with accounting guidance for secured borrowings and collateral. 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, subject to certain limitations, of
the ceding commission over statutory-basis net assets of business purchased
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
under an assumption reinsurance agreement, is amortized on a straight-line
basis over ten years.
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
Insurance 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 reserves released and 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, benefits 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
investments managed by the Company are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans are
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 and certain LNC subsidiaries.
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
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
LNC's common stock at the grant date, or other measurement date, over the
amount an employee or agent must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable life
and variable annuity contracts and for which the contractholder, rather than
the Company, bears the investment risk. Separate account assets are reported
at fair value. The operations of the separate accounts are not included in
the accompanying financial statements. Policy administration and investment
management fees charged on separate account policyholder deposits are
included in income from separate account investment management and
administration service fees. Mortality charges on variable universal life
contracts are included in income from expense charges on deposit funds. Fees
charged relative to variable annuity and variable universal life
administration agreements for separate account products sold by other
insurance companies and not recorded on the Company's financial statements
are included in income from separate account investment management and
administration service fees.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Insurance Department. "Prescribed" statutory accounting practices are
interspersed throughout state insurance laws and regulations, the NAIC's
ACCOUNTING PRACTICES AND PROCEDURES MANUAL and a variety of other NAIC
publications. "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.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. 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 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 Insurance Department. At this time, it is anticipated that
Indiana will adopt Codification, however, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
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
1999 1998 1997
--------------------------------------
(IN MILLIONS)
--------------------------------------
<S> <C> <C> <C>
Income:
Bonds $1,840.6 $1,714.3 $1,524.4
------------------------------------------------------------
Preferred stocks 20.3 19.7 23.5
------------------------------------------------------------
Unaffiliated common stocks 6.3 10.6 8.3
------------------------------------------------------------
Affiliated common stocks 7.8 5.2 15.0
------------------------------------------------------------
Mortgage loans on real estate 321.0 323.6 257.2
------------------------------------------------------------
Real estate 57.8 81.4 92.2
------------------------------------------------------------
Policy loans 101.7 86.5 37.5
------------------------------------------------------------
Other investments 50.6 26.5 28.2
------------------------------------------------------------
Cash and short-term investments 95.9 104.7 70.3
------------------------------------------------------------ -------- -------- --------
Total investment income 2,502.0 2,372.5 2,056.6
------------------------------------------------------------
Expenses:
Depreciation 14.4 19.3 21.0
------------------------------------------------------------
Other 284.4 246.0 188.5
------------------------------------------------------------ -------- -------- --------
Total investment expenses 298.8 265.3 209.5
------------------------------------------------------------ -------- -------- --------
Net investment income $2,203.2 $2,107.2 $1,847.1
------------------------------------------------------------ ======== ======== ========
</TABLE>
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, 1999:
Corporate $17,758.4 $ 229.6 $763.0 $17,225.0
------------------------------------------------
U.S. government 316.8 29.6 21.5 324.9
------------------------------------------------
Foreign government 984.5 49.8 39.9 994.4
------------------------------------------------
Mortgage-backed 3,913.7 46.2 139.0 3,820.9
------------------------------------------------
State and municipal 11.6 -- .5 11.1
------------------------------------------------ --------- -------- ------ ---------
$22,985.0 $ 355.2 $963.9 $22,376.3
========= ======== ====== =========
At December 31, 1998:
Corporate $17,658.4 $1,159.8 $148.2 $18,670.0
------------------------------------------------
U.S. government 900.7 88.8 3.4 986.1
------------------------------------------------
Foreign government 947.8 59.9 61.2 946.5
------------------------------------------------
Mortgage-backed 4,312.1 171.6 33.4 4,450.3
------------------------------------------------
State and municipal 11.9 .7 -- 12.6
------------------------------------------------ --------- -------- ------ ---------
$23,830.9 $1,480.8 $246.2 $25,065.5
========= ======== ====== =========
</TABLE>
The carrying amounts of bonds in the balance sheets at
December 31, 1999 and 1998 reflect adjustments of
$38,900,000 and $11,800,000, respectively, to decrease
amortized cost as a result of the Securities Valuation
Office of the NAIC ("SVO") designating certain investments
as in or near default.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1999, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
-------------------------
(IN MILLIONS)
-------------------------
<S> <C> <C>
Maturity:
In 2000 $ 598.0 $ 599.2
------------------------------------------------------------
In 2001-2004 4,359.8 4,313.4
------------------------------------------------------------
In 2005-2009 6,636.0 6,392.9
------------------------------------------------------------
After 2009 7,477.5 7,249.9
------------------------------------------------------------
Mortgage-backed securities 3,913.7 3,820.9
------------------------------------------------------------ --------- ---------
Total $22,985.0 $22,376.3
------------------------------------------------------------ ========= =========
</TABLE>
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
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.
Proceeds from sales of investments in bonds during 1999,
1998 and 1997 were $5,351,400,000, $9,395,000,000 and
$9,715,000,000, respectively. Gross gains during 1999, 1998
and 1997 of $95,400,000, $186,300,000 and $218,100,000,
respectively, and gross losses of $195,500,000, $138,000,000
and $78,000,000, respectively, were realized on those sales.
At December 31, 1999 and 1998, investments in bonds, with an
admitted asset value of $116,500,000 and $97,800,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
Unrealized gains and losses on investments in unaffiliated
common stocks are reported directly in unassigned surplus
and are not reported in the statutory-basis Statements of
Operations. 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, 1999:
Preferred stocks $253.8 $ 1.3 $31.5 $223.6
----------------------------------------
Unaffiliated common stocks 150.4 34.2 17.7 166.9
----------------------------------------
At December 31, 1998:
Preferred stocks $236.0 $ 8.9 $ 2.4 $242.5
----------------------------------------
Unaffiliated common stocks 223.3 62.0 26.0 259.3
----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1999 and 1998 reflects adjustments of
$4,100,000 and $5,800,000, respectively, to decrease
amortized cost as a result of the SVO designating certain
investments as low or lower quality.
During 1999, the minimum and maximum lending rates for
mortgage loans were 6.5% and 11.5%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. 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.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Components of the Company's investments in real estate are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------
(IN MILLIONS)
-------------------
<S> <C> <C>
Occupied by the Company:
Land $ 2.5 $ 2.5
------------------------------------------------------------
Buildings 11.1 9.0
------------------------------------------------------------
Less accumulated depreciation (2.2) (1.7)
------------------------------------------------------------ ------ ------
Net real estate occupied by the Company 11.4 9.8
------------------------------------------------------------
Other:
Land 46.2 93.2
------------------------------------------------------------
Buildings 226.8 413.0
------------------------------------------------------------
Other 4.7 7.9
------------------------------------------------------------
Less accumulated depreciation (35.1) (50.1)
------------------------------------------------------------ ------ ------
Net other real estate 242.6 464.0
------------------------------------------------------------ ------ ------
Net real estate $254.0 $473.8
------------------------------------------------------------ ====== ======
</TABLE>
Net realized capital gains are reported net of federal
income taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------
(IN MILLIONS)
--------------------------------
<S> <C> <C> <C>
Net realized capital gains $ 20.8 $179.7 $209.3
------------------------------------------------------------
Less amount transferred to IMR (net of related taxes
(credits) of ($31.4), $27.3 and $54.0 in 1999, 1998 and
1997, respectively) (58.3) 50.8 100.2
------------------------------------------------------------ ------ ------ ------
79.1 128.9 109.1
Less federal income taxes (credits) on realized gains (35.3) 82.1 77.8
------------------------------------------------------------ ------ ------ ------
Net realized capital gains after transfer to IMR and taxes
(credits) $114.4 $ 46.8 $ 31.3
------------------------------------------------------------ ====== ====== ======
</TABLE>
4. SUBSIDIARIES
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 ("LNY"). The Company also owns 100% of
the outstanding common stock of four non-insurance company
subsidiaries: Lincoln National Insurance Associates
("LNIA"), Sagemark Consulting, Inc. ("Sagemark"), Wakefield
Tower Alpha Limited ("Wakefield"), and Lincoln Realty
Capital
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
Corporation ("LRCC"). The Company also owns 85% of one
non-insurance company subsidiary, AnnuityNet, Inc.
(AnnuityNet). Statutory-basis financial information related
to the insurance subsidiaries is summarized as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
FIRST
PENN LNH&C LNRAC LNY
----------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $1,318.7 $434.6 $443.6 $1,888.6
---------------------------------------------------------
Other assets 40.6 55.5 492.6 403.1
--------------------------------------------------------- -------- ------ ------ --------
Total admitted assets $1,359.3 $490.1 $936.2 $2,291.7
--------------------------------------------------------- ======== ====== ====== ========
Insurance reserves $1,242.2 $394.4 $261.4 $1,802.4
---------------------------------------------------------
Other liabilities 44.3 27.9 614.4 25.6
---------------------------------------------------------
Liabilities related to separate accounts -- -- -- 328.8
---------------------------------------------------------
Capital and surplus 72.8 67.8 60.4 134.9
--------------------------------------------------------- -------- ------ ------ --------
Total liabilities and capital and surplus $1,359.3 $490.1 $936.2 $2,291.7
--------------------------------------------------------- ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------
FIRST
PENN LNH&C LNRAC LNY
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $332.7 $263.3 $ 88.4 $ 313.3
-----------------------------------------------------------
Expenses 329.0 346.9 75.4 291.4
-----------------------------------------------------------
Net realized gains (losses) -- -- .2 (2.0)
----------------------------------------------------------- ------ ------ ------ --------
Net income (loss) $ 3.7 $(83.6) $ 13.2 $ 19.9
----------------------------------------------------------- ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
FIRST
PENN LNH&C LNRAC LNY
----------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $1,221.1 $333.9 $403.6 $1,938.0
----------------------------------------------------------
Other assets 40.3 31.3 490.0 270.2
---------------------------------------------------------- -------- ------ ------ --------
Total admitted assets $1,261.4 $365.2 $893.6 $2,208.2
---------------------------------------------------------- ======== ====== ====== ========
Insurance reserves $1,149.8 $266.3 $281.8 $1,814.5
----------------------------------------------------------
Other liabilities 42.0 24.0 553.7 45.1
----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 236.9
----------------------------------------------------------
Capital and surplus 69.6 74.9 58.1 111.7
---------------------------------------------------------- -------- ------ ------ --------
Total liabilities and capital and surplus $1,261.4 $365.2 $893.6 $2,208.2
---------------------------------------------------------- ======== ====== ====== ========
</TABLE>
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
FIRST
PENN LNH&C LNRAC LNY
---------------------------------
<S> <C> <C> <C> <C>
Revenues $310.4 $ 165.0 $150.3 $1,402.6
-----------------------------------------------------------
Expenses 310.6 164.4 139.5 1,656.1
-----------------------------------------------------------
Net realized gains (losses) (0.3) 0.9 (0.1) (0.7)
----------------------------------------------------------- ------ ------- ------ --------
Net income (loss) $ (0.5) $ 1.5 $10.7 $ (254.2)
----------------------------------------------------------- ====== ======= ====== ========
</TABLE>
AnnuityNet was formed in 1998 for the distribution of
variable annuities over the Internet and is valued on the
equity method (at 85% of GAAP equity) with an admitted asset
value of $2,400,000 at December 31, 1999. LNIA was purchased
in 1998 for $600,000 and is valued on the equity method with
an admitted asset value of $800,000 at December 31, 1999.
Sagemark is a broker dealer and was acquired in connection
with a reinsurance transaction completed in 1998. Sagemark
is valued on the equity method with an admitted asset value
of $6,400,000 at December 31, 1999. Wakefield was formed in
1999 to engage in the ownership and management of
investments and is valued on the equity method with an
admitted asset value of $248,300,000. Wakefield's assets as
of December 31, 1999 consist entirely of investments in
bonds. LRCC was formed in 1999 to engage in the management
of certain real estate investments. It was capitalized with
cash and three real estate investments of $12,700,000 and is
valued on the equity method with an admitted asset value of
$10,900,000.
The carrying value of all affiliated common stocks, was
$604,700,000 and $322,100,000 at December 31, 1999 and 1998,
respectively. The insurance affiliates are carried at
statutory-basis net equity while other affiliates are
recorded at GAAP-basis net equity, adjusted for certain
items which would be non-admitted under statutory accounting
principles. The cost basis of investments in subsidiaries as
of December 31, 1999 and 1998 was $970,700,000 and
$631,100,000, respectively.
During 1999, 1998 and 1997 the Company's insurance
subsidiaries paid dividends of $5,200,000, $5,200,000 and
$15,000,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate in the accompanying
Statements of Operations differs from the prevailing
statutory tax rate principally due to tax-exempt investment
income, dividends received tax deductions and differences
between statutory accounting and tax return recognition
relative to policy acquisition costs, policy and contract
liabilities and reinsurance ceding commissions.
In 1999, 1998 and 1997, federal income tax expense (benefit)
incurred totaled $85,400,000, ($141,000,000) and
$78,300,000, respectively. In 1999, capital losses of
$151,700,000 were incurred, and carried back to recover
taxes paid in prior years.
The Company paid $45,300,000, $2,300,000 and $164,500,000 to
LNC in 1999, 1998 and 1997, respectively, in federal income
taxes.
Under prior income tax law, one-half of the excess of a life
insurance company's income from operations over its taxable
investment income was not taxed, but was set aside in a
special tax account designated as "Policyholders' Surplus."
The Company has approximately $187,000,000 of untaxed
"Policyholders' Surplus" on which no payment of federal
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
income taxes will be required unless it is distributed as a
dividend, or under other specified conditions. Barring the
passage of unfavorable legislation, the Company does not
believe that any significant portion of the account will be
taxed in the foreseeable future and no related tax liability
has been recognized. If the entire balance of the account
became taxable under the current federal income tax rate,
the tax would be approximately $65,500,000.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption "Reinsurance recoverable" includes
amounts recoverable from other insurers for claims paid by
the Company. The balance sheet caption, "Future policy
benefits and claims," and the balance sheet caption "Other
policyholder funds" have been reduced for insurance ceded as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Insurance ceded $5,340.0 $4,081.8
------------------------------------------------------------
Amounts recoverable from other insurers 81.2 79.9
------------------------------------------------------------
</TABLE>
Reinsurance transactions, excluding assumption reinsurance,
included in the income statement caption, "Premiums and
deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------
(IN MILLIONS)
------------------------------------
<S> <C> <C> <C>
Insurance assumed $2,606.5 $9,018.9 $727.2
------------------------------------------------------------
Insurance ceded 1,675.1 877.1 302.9
------------------------------------------------------------ -------- -------- ------
Net amount included in premiums $ 931.4 $8,141.8 $424.3
------------------------------------------------------------ ======== ======== ======
</TABLE>
The income statement caption, "Benefits and settlement
expenses," is net of reinsurance recoveries of
$2,609,000,000, $2,098,800,000 and $1,240,500,000 for 1999,
1998 and 1997, respectively.
Details underlying the balance sheet caption "Other
policyholder funds" are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------
(IN MILLIONS)
-------------------------
<S> <C> <C>
Premium deposit funds $16,208.3 $16,285.2
------------------------------------------------------------
Undistributed earnings on participating business 346.9 348.4
------------------------------------------------------------
Other 34.3 13.9
------------------------------------------------------------ --------- ---------
$16,589.5 $16,647.5
========= =========
</TABLE>
S-17
<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, 1999
---------------------------------
NET OF
GROSS LOADING LOADING
---------------------------------
(IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
Ordinary new business $10.8 $ 7.3 $ 3.5
------------------------------------------------------------
Ordinary renewal 54.2 6.8 47.4
------------------------------------------------------------
Group life 13.7 .1 13.6
------------------------------------------------------------ ----- ----- -----
$78.7 $14.2 $64.5
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
NET OF
GROSS LOADING LOADING
---------------------------------
(IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
Ordinary new business $ 9.5 $ 3.4 $ 6.1
------------------------------------------------------------
Ordinary renewal (13.7) 11.3 (25.0)
------------------------------------------------------------
Group life 14.2 .2 14.0
------------------------------------------------------------ ----- ----- -----
$10.0 $14.9 $(4.9)
===== ===== =====
</TABLE>
7. ANNUITY RESERVES
At December 31, 1999, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
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 $ 2,427.7 4%
------------------------------------------------------------
At book value, less surrender charge 2,237.3 3
------------------------------------------------------------
At market value 44,076.2 68
------------------------------------------------------------ --------- ---
48,741.2 75
Subject to discretionary withdrawal without adjustment at
book value with minimal or no charge or adjustment 13,486.5 21
------------------------------------------------------------
Not subject to discretionary withdrawal 2,622.4 4
------------------------------------------------------------ --------- ---
Total annuity reserves and deposit fund 64,850.1 100%
------------------------------------------------------------ ===
Less reinsurance 1,548.0
------------------------------------------------------------ ---------
Net annuity reserves and deposit fund liabilities, including
separate accounts $63,302.1
------------------------------------------------------------ =========
</TABLE>
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL AND SURPLUS
In 1998, the Company issued two surplus notes to LNC in return for cash of
$1,250,000,000. The first note for $500,000,000 was issued to LNC in
connection with the CIGNA Corporation ("CIGNA")indemnity reinsurance
transaction on January 5, 1998. This note calls for the Company to pay the
principal amount of the notes on or before March 31, 2028 and interest to be
paid quarterly at an annual rate of 6.56%. Subject to approval by the
Indiana Insurance Commissioner, LNC also has a right to redeem the note for
immediate repayment in total or in part once per year on the anniversary
date of the note, but not before January 5, 2003. Any payment of interest or
repayment of principal may be paid only out of the Company's earnings, only
if the Company's surplus exceeds specified levels ($2,315,700,000 at
December 31, 1999), and subject to approval by the Indiana Insurance
Commissioner.
The second note for $750,000,000 was issued on December 18, 1998 to LNC in
connection with the Aetna, Inc. ("Aetna") indemnity reinsurance transaction.
This note calls for the Company to pay the principal amount of the notes on
or before December 31, 2028 and interest to be paid quarterly at an annual
rate of 6.03%. Subject to approval by the Indiana Insurance Commissioner,
LNC also has a right to redeem the note for immediate repayment in total or
in part once per year on the anniversary date of the note, but not before
December 18, 2003. Any payment of interest or repayment of principal may be
paid only out of the Company's earnings, only if the Company's surplus
exceeds specified levels ($2,379,600,000 at December 31, 1999), and subject
to approval by the Indiana Insurance Commissioner.
A summary of the terms of these surplus notes follows (in millions):
<TABLE>
<CAPTION>
PRINCIPAL INCEPTION ACCRUED
OUTSTANDING AT TO DATE INTEREST AT
PRINCIPAL DECEMBER 31, CURRENT YEAR INTEREST DECEMBER 31,
DATE ISSUED AMOUNT OF NOTE 1999 INTEREST PAID PAID 1999
----------- -------------- -------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
January 5, 1998 $ 500.0 $ 500.0 $ 32.8 $ 65.1 $ --
-------------------------------
December 18, 1998 750.0 750.0 46.7 46.7 --
-------------------------------
</TABLE>
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,
1999, 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 January 1998, the Company assumed a block of
individual life insurance and annuity business from CIGNA and in
October 1998, the Company assumed a block of individual life insurance
business from Aetna (SEE NOTE 10). The statutory accounting regulations do
not allow goodwill to be recognized on indemnity reinsurance transactions
and therefore, the related ceding commission was expensed in the
accompanying Statement of Operations and resulted in the reduction of
unassigned surplus. As a result of these transactions, the Company's
statutory-basis unassigned surplus is negative as of December 31, 1999 and
it will be necessary for the Company to obtain prior approval of the Indiana
Insurance Commissioner before paying any dividends to LNC until such time as
statutory-basis unassigned surplus is positive. The time frame for
unassigned surplus to return to a positive position is dependent upon future
statutory earnings and dividends paid to LNC. Although no assurance can be
given, management believes that the approvals for the payment of such
dividends in amounts consistent with those paid in the past can be obtained.
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
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). Effective July 1, 1999, the
agents' postretirement plan was changed to require agents retiring on or
after that date to pay the full premium costs. This change to the plan
resulted in a one-time curtailment gain of $1,400,000 in 1999. 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 Operations 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. Options issued subsequent to 1991
are exercisable in 25% increments on the option issuance anniversary in the
four years following issuance.
As of December 31, 1999, there were 2,072,087 and 1,397,005 shares of LNC
common stock subject to options granted to Company employees and agents,
respectively, under the stock option incentive plans of which 919,749 and
241,097, respectively, were exercisable on that date. The exercise prices of
the outstanding options range from $12.50 to $56.75. During 1999, 1998 and
1997, there were 318,421, 136,469 and 170,789 options exercised,
respectively, and 82,024, 18,288 and 1,846 options 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, 1999 and 1998 is
$221,600,000 and $670,100,000, respectively. This liability is based on the
assumption that the recent experience will continue in the future. If
incidence levels and/or claim termination rates fluctuate significantly from
the assumptions underlying reserves, adjustments to reserves could be
required in the future. Accordingly, this liability may prove to be
deficient or excessive. The Company reviews reserve levels on an ongoing
basis. However, it is management's opinion that such future development will
not materially affect the financial position of the Company.
During 1997, the Company conducted an in-depth review of loss experience on
its disability income business. 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 reserves by $80,000,000 in
1997.
PERSONAL ACCIDENT PROGRAMS
In the past, the Company and its wholly owned subsidiary, LNH&C, accepted
personal accident reinsurance programs from other insurance companies. Most
of these programs were presented by independent brokers who represented the
ceding companies. Certain excess-of-loss personal accident reinsurance
programs created in the London market during 1993 through 1996 have produced
and have potential to produce significant losses. The liabilities for these
programs, net of related assets recoverable from reinsurers, were
$174,700,000 and $177,400,000 at December 31, 1999 and 1998, respectively.
Settlement activities relating to the Company's participation in workers'
compensation carve-out (i.e., life and health risks associated with workers'
compensation coverage) programs managed by Unicover Managers, Inc. have
allowed the Company to evaluate the possibility of settlements and to
estimate its potential costs to settle Unicover-related exposures. As of
December 31, 1999, a liability of $62,200,000 has been established for the
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
settlement of the Company's exposure to the Unicover programs.
These amounts are based on various estimates that are subject to
considerable uncertainty. Accordingly, the liabilities may prove to be
deficient or excessive. However, it is management's opinion that future
developments in these programs will not materially affect the financial
position of the Company.
HMO EXCESS-OF-LOSS REINSURANCE PROGRAMS
In light of the continued volatility in the HMO excess-of-loss line of
business, LNH&C discontinued writing new HMO excess-of-loss reinsurance
programs in the third quarter of 1999. The liability for HMO claims, net of
the related assets for amounts recoverable from reinsurers, was $101,900,000
and $55,900,000 at December 31, 1999 and 1998, respectively. LNH&C reviews
reserve levels on an ongoing basis. The liability is based on the assumption
that recent experience will continue in the future. If claims and loss
ratios fluctuate significantly from the assumptions underlying the reserves,
adjustments to reserves could be required in the future. Accordingly, the
liability may prove to be deficient or excessive. However, it is
management's opinion that such future developments will not materially
affect the financial position of the Company.
MARKETING AND COMPLIANCE MATTERS
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 1999, 1998 and 1997 was
$38,900,000, $34,000,000 and $29,300,000, respectively. Future minimum
rental commitments are as follows (in millions):
<TABLE>
<S> <C>
2000 $ 28.7
--------------------------------
2001 28.8
--------------------------------
2002 27.5
--------------------------------
2003 26.2
--------------------------------
2004 26.5
--------------------------------
Thereafter 123.5
-------------------------------- ------
$261.2
======
</TABLE>
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for information technology services for the Fort Wayne
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
operations. Total costs incurred in 1999 and 1998 were $67,400,000 and
$54,800,000, respectively. Future minimum annual costs range from
$33,600,000 to $56,800,000, however future costs are dependent on usage and
could exceed these amounts.
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. The Company limits its maximum coverage that
it retains on an individual to $10,000,000. Portions of the Company's
deferred annuity business have also been coinsured with other companies to
limit its exposure to interest rate risks. At December 31, 1999, the
reserves associated with these reinsurance arrangements totaled
$1,422,800,000. 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.
Proceeds from the sale of common stock of American States Financial
Corporation ("American States") and proceeds from the January 5, 1998
surplus note, were used to finance an indemnity reinsurance transaction
whereby the Company and LNY reinsured 100% of a block of individual life
insurance and annuity business from CIGNA. The Company paid $1,264,400,000
to CIGNA on January 2, 1998 under the terms of the reinsurance agreement and
recognized a ceding commission expense of $1,127,700,000 in 1998, which is
included in the Statement of Operations line item "Underwriting,
acquisition, insurance and other expenses." At the time of closing, this
block of business had statutory liabilities of $4,780,300,000 that became
the Company's obligation. The Company also received assets, measured on a
historical statutory-basis, equal to the liabilities.
In connection with the completion of the CIGNA reinsurance transaction, the
Company recorded a charge of $31,000,000 to cover certain costs of
integrating the existing operations with the new block of business.
In 1999, the Company and CIGNA reached an agreement through arbitration on
the final statutory-basis values of the assets and liabilities reinsured. As
a result, the Company's ceding commission for this transaction was reduced
by $58.6 million.
Subsequent to this transaction, the Company and LNY announced that they had
reached an agreement to sell the administration rights to a variable annuity
portfolio that had been acquired as part of the block of business assumed on
January 2, 1998. This sale closed on October 12, 1998 with an effective date
of September 1, 1998.
On October 1, 1998, the Company and LNY entered into an indemnity
reinsurance transaction whereby the Company and LNY reinsured 100% of a
block of individual life insurance business from Aetna. The Company paid
$856,300,000 to Aetna on October 1, 1998 under the terms of the reinsurance
agreement and recognized a ceding commission expense of $815,300,000 in
1998, which is included in the Statement of Operations line item
"Underwriting, acquisition, insurance and other expenses." At the time of
closing, this block of business had statutory liabilities of $2,813,800,000
that became the Company's obligation. The Company also received assets,
measured on a historical statutory-basis, equal to the liabilities. The
Company financed this reinsurance transaction with proceeds from short-term
debt borrowings from LNC until the December 18, 1998 surplus note was
approved by the Insurance Department. Subsequent to the Aetna transaction,
the Company and LNY announced that they had reached an agreement to
retrocede the sponsored life business assumed for $87,600,000. The
retrocession agreement closed on October 14, 1998 with an effective date of
October 1, 1998.
On November 1, 1999, the Company closed its previously announced agreement
to transfer a block of disability income business to MetLife. Under this
indemnity reinsurance agreement, the Company transferred $490,800,000 of
cash to MetLife representing the statutory reserves transferred on this
business less $17,800,000 of purchase price consideration. A gain on the
reinsurance transaction of $71,800,000 was recorded directly in unassigned
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
surplus and will be recognized in statutory earnings over the life of the
business.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1999, the Company provided $270,000,000 of
statutory-basis surplus relief to other insurance companies under
reinsurance transactions. The Company retroceded 100% of this accepted
surplus relief to its off-shore reinsurance affiliates. 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 $17,300,000 and $43,400,000 at December 31, 1999
and 1998, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1999, the Company did not have a material concentration of
financial instruments in a single investee or industry. The Company's
investments in mortgage loans principally involve commercial real estate. At
December 31, 1999, 29% of such mortgages ($1,212,700,000) involved
properties located in Texas and California. Such investments consist of
first mortgage liens on completed income-producing properties and the
mortgage outstanding on any individual property does not exceed $70,000,000.
At December 31, 1999, 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 certain claims in excess of $5,000,000. The
degree of applicability of this coverage will depend 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
proceedings will not have a material adverse affect on the financial
position of the Company.
With the recent filing of a lawsuit alleging fraud in the sale of interest
sensitive universal and whole life insurance policies, the Company now has
several such actions pending. While each of these lawsuits seeks class
action status, the court has not certified a class in any of them. In each
of these lawsuits, plaintiffs seek unspecified damages and penalties for
themselves and on behalf of the putative class. While relief sought in these
lawsuits is substantial, they are in the discovery stages of litigation, and
it is premature to make assessments about potential loss, if any. Management
intends to defend these lawsuits vigorously. The amount of liability, if
any, which may arise as a result of these lawsuits cannot be reasonably
estimated at this time. In another lawsuit, a settlement has been
preliminarily approved by the court, and a class has been conditionally
certified for settlement purposes. Two other similar lawsuits previously
have been resolved and dismissed.
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
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
credit exposure. Outstanding guarantees with off-balance-sheet risks at
December 31, 1999 relate to mortgage loan pass-through certificates. The
Company has sold commercial mortgage loans through grantor trusts that
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. The outstanding guarantees as of
December 31, 1999 and 1998 were $25,900,000 and $30,900,000, respectively.
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, 1999 and 1998.
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, commodity risk, credit risk 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:
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
---------------------------------
NOTIONAL OR CARRYING FAIR CARRYING FAIR
CONTRACT AMOUNTS VALUE VALUE VALUE VALUE
-----------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1999 1999 1998 1998
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $2,508.8 $4,108.8 $ 5.2 $ 3.2 $ 9.3 $ .9
---------------------------------
Swaptions 1,837.5 1,899.5 12.2 10.8 16.2 2.5
---------------------------------
Interest rate swaps 630.9 258.3 -- (19.5) -- 9.9
---------------------------------
Put options 21.3 21.3 -- 1.9 -- 2.2
--------------------------------- -------- -------- ----- ------ ----- -----
4,998.5 6,287.9 17.4 (3.6) 25.5 15.5
Foreign currency derivatives:
Forward contracts -- 1.5 -- -- -- --
---------------------------------
Foreign currency swaps 44.2 47.2 -- (.4) -- .3
--------------------------------- -------- -------- ----- ------ ----- -----
44.2 48.7 -- (.4) -- .3
Commodity derivatives:
Commodity swaps -- 8.1 -- -- -- 2.4
--------------------------------- -------- -------- ----- ------ ----- -----
$5,042.7 $6,344.7 $17.4 $ (4.0) $25.5 $18.2
======== ======== ===== ====== ===== =====
</TABLE>
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
A reconciliation of the notional or contract amounts for the significant
programs using derivative agreements and contracts at December 31 is as
follows:
<TABLE>
<CAPTION>
INTEREST RATE CAPS SWAPTIONS
-----------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $4,108.8 $4,900.0 $1,899.5 $1,752.0
-------------------------------------------------------
New contracts -- 708.8 -- 218.3
-------------------------------------------------------
Terminations and maturities (1,600.0) (1,500.0) (62.0) (70.8)
------------------------------------------------------- -------- -------- -------- --------
Balance at end of year $2,508.8 $4,108.8 $1,837.5 $1,899.5
------------------------------------------------------- ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE SWAPS
-----------------------
1999 1998
-----------------------
<S> <C> <C>
Balance at beginning of year $ 258.3 $ 10.0
------------------------------------------------------------
New contracts 482.4 2,226.6
------------------------------------------------------------
Terminations and maturities (109.8) (1,978.3)
------------------------------------------------------------ ------- ---------
Balance at end of year $ 630.9 $ 258.3
------------------------------------------------------------ ======= =========
</TABLE>
<TABLE>
<CAPTION>
COMMODITY
PUT OPTIONS SWAPS
----------------------------------------
1999 1998 1999 1998
----------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $21.3 $ -- $ 8.1 $ --
------------------------------------------------------------
New contracts -- 21.3 -- 8.1
------------------------------------------------------------
Terminations and maturities -- -- (8.1) --
------------------------------------------------------------ ----- ----- ----- ----
Balance at end of year $21.3 $21.3 $ -- $8.1
------------------------------------------------------------ ===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
(FOREIGN INVESTMENTS)
-------------------------------------------
FOREIGN CURRENCY
SWAPS
FOREIGN EXCHANGE
-------------------------------------------
FORWARD CONTRACTS
1999 1998 1999 1998
-------------------------------------------
(IN MILLIONS)
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 1.5 $ 163.1 $47.2 $15.0
------------------------------------------------------------
New contracts 2.7 419.8 -- 39.2
------------------------------------------------------------
Terminations and maturities (4.2) (581.4) (3.0) (7.0)
------------------------------------------------------------ ----- ------- ----- -----
Balance at end of year $ -- $ 1.5 $44.2 $47.2
------------------------------------------------------------ ===== ======= ===== =====
</TABLE>
INTEREST RATE CAP AGREEMENTS
The interest rate cap agreements, which expire in 2000 through 2006, 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
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
premium paid for the interest rate caps is included in other investments
(amortized costs of $5.2 million as of December 31, 1999) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2000 through 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 rising
interest rates. The premium paid for the swaptions is included in other
investments (amortized cost of $12.2 million as of December 31, 1999) and is
being amortized over the terms of the agreements. This amortization is
included in net investment income.
SPREAD LOCK AGREEMENTS
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 security 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. While spreadlocks are
used periodically, there are no spreadlock agreements outstanding at
December 31, 1999.
INTEREST RATE SWAP AGREEMENTS
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 agreement the stream of variable interest
payments based on the coupon payments hedged 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. The Company also uses interest rate swap agreements to
hedge its exposure to interest rate fluctuations related to the anticipated
purchase of assets to support newly acquired blocks of business or to extend
the duration of certain portfolios of assets. Once the assets are purchased
the gains (losses) resulting from the termination of the swap agreements
will be applied to the basis of the assets. The gains (losses) will be
recognized in earnings over the life of the assets. The anticipated purchase
of assets related to extending the duration of certain portfolios of assets
is expected to be completed in 2000.
PUT OPTIONS
The Company uses put options, combined with various perpetual fixed income
securities, and interest rate swaps to replicate fixed income, fixed
maturity investments. The risk being hedged is a drop in bond prices due to
credit concerns with international bond issuers. The put options allow the
Company to put the bonds back to the counterparties at original par.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts and
foreign currency swaps, 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. A foreign currency swap is a contractual
agreement to exchange the currencies of two different countries at a fixed
rate of exchange in the future.
COMMODITY SWAPS
The Company used a commodity swap to hedge its exposure to fluctuations in
the price of gold. A commodity swap is a contractual agreement to exchange a
certain amount of a particular commodity for a fixed amount of cash. The
Company owned a fixed income security that met its coupon
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
payment obligations in gold bullion. The Company is obligated to pay to the
counterparty the gold bullion, and in return, receives from the counterparty
a stream of fixed income payments. The fixed income payments were the
product of the swap notional multiplied by the fixed rate stated in the swap
agreement. The net receipts or payments from commodity swaps were recorded
in net investment income. The fixed income security was called in the third
quarter of 1999 and the commodity swap expired.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$6,200,000, $10,000,000 and $7,000,000 in 1999, 1998 and 1997, respectively.
Deferred gains of $100,000 as of December 31, 1999, were the result of
terminated interest rate swaps. These gains are included with the related
fixed maturity securities to which the hedge applied or as deferred
liabilities 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 various derivative contracts. 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 less collateral held for such agreements with each
counterparty if the net market value is in the Company's favor. At
December 31, 1999, the exposure was $8,500,000.
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.
PREFERRED STOCK
Fair values of preferred stock are based on quoted market
prices, where available. For preferred stock not actively
traded, fair values are based on values of issues of
comparable yield and quality.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair value of mortgage loans on real estate
was established using a discounted cash flow method based on
credit rating, maturity and future income. The ratings 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.
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.,
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
SHORT-TERM DEBT
For short-term debt, the carrying value approximates fair
value.
SURPLUS NOTES DUE TO LNC
Fair values for surplus notes are estimated using discounted
cash flow analysis based on the Company's current
incremental borrowing rate for similar types of borrowing
arrangements.
GUARANTEES
The Company's guarantees include guarantees related to
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
zero.
DERIVATIVES
The Company employs several different methods for
determining the fair value of its derivative instruments.
Fair values for these contracts are based on current
settlement values. These values are based on quoted market
prices for the foreign currency exchange contracts and
industry standard models that are commercially available for
interest rate cap agreements, swaptions, spread lock
agreements, interest rate swaps, commodity swaps and put
options.
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.
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the
accompanying statutory-basis balance sheets at fair value.
The related liabilities are also reported at fair value in
amounts equal to the separate account assets.
S-28
<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
-------------------------------------------------------------
1999 1998
-------------------------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
--------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 22,985.0 $ 22,376.3 $ 23,830.9 $ 25,065.5
-----------------------------------------------
Preferred stocks 253.8 223.6 236.0 242.5
-----------------------------------------------
Unaffiliated common stocks 166.9 166.9 259.3 259.3
-----------------------------------------------
Mortgage loans on real estate 4,211.5 4,104.0 3,932.9 4,100.1
-----------------------------------------------
Policy loans 1,652.9 1,770.5 1,606.0 1,685.9
-----------------------------------------------
Other investments 426.6 426.6 434.4 434.4
-----------------------------------------------
Cash and short-term investments 1,409.2 1,409.2 1,725.4 1,725.4
-----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,730.4) (17,364.3) (17,845.8) (17,486.4)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (454.7) (465.1) (714.4) (738.2)
--------------------------------------------
Short-term debt (205.0) (205.0) (140.0) (140.0)
-----------------------------------------------
Surplus notes due to LNC (1,250.0) (1,022.1) (1,250.0) (1,335.1)
-----------------------------------------------
Derivatives 17.4 (4.0) 25.5 18.2
-----------------------------------------------
Investment commitments -- (0.8) -- (.6)
-----------------------------------------------
Separate account assets 46,105.1 46,105.1 36,907.0 36,907.0
-----------------------------------------------
Separate account liabilities (46,105.1) (46,105.1) (36,907.0) (36,907.0)
-----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In 1997, LNC contributed 25,000,000 shares of common stock of 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 the stock at fair value. The proceeds from this sale
of stock were used to partially finance the CIGNA indemnity reinsurance
transaction.
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Life and Annuity
Distributors, Inc. ("LLAD"), has a nearly exclusive general agent's 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 LLAD override commissions of $60,400,000 and
$76,700,000 in 1999 and 1998, respectively, and override commissions and
operating expense allowances of $61,600,000 in 1997. LLAD incurred expenses
of $113,400,000, $102,400,000 and
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
$5,500,000 in 1999, 1998 and 1997, 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 LLAD agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1999 and 1998 include the
Company's participation in a short-term investment pool with LNC of
$390,300,000 and $383,600,000, respectively. Related investment income
amounted to $16,700,000, $16,800,000 and $15,500,000 in 1999, 1998 and 1997,
respectively. Short-term loan payable to parent company at December 31, 1999
and 1998 represent notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $49,400,000, $92,100,000 and
$48,500,000 in 1999, 1998 and 1997, 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
1999 1998 1997
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C> <C>
Insurance assumed $ 19.7 $ 13.7 $ 11.9
----------------------
Insurance ceded 777.6 290.1 100.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Future policy benefits
and claims assumed
$ 413.7 $ 197.3
------------------------
Future policy benefits
and claims ceded 1,680.4 1,125.0
------------------------
Amounts recoverable on
paid and unpaid losses 146.4 84.2
------------------------
Reinsurance payable on
paid losses 8.8 6.0
------------------------
Funds held under
reinsurance treaties --
net liability 2,106.4 1,375.4
------------------------
</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 $917,300,000 and $318,300,000 at December 31, 1999 and 1998,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1999 and 1998, LNC had guaranteed $818,900,000 and $237,000,000,
respectively, of these letters of credit. At December 31, 1999 and 1998, the
Company has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $118,800,000 and $122,400,000,
respectively, for statutory surplus relief received under financial
reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets held by the Company consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds and are
carried at market value. Substantially none of the separate accounts have
any minimum guarantees and the investment risks associated with market
S-30
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
value changes are borne entirely by the policyholder.
Separate account premiums, deposits and other considerations amounted to
$4,572,600,000, $3,953,300,000 and $4,821,800,000 in 1999, 1998 and 1997,
respectively. Reserves for separate accounts with assets at fair value were
$45,198,900,000 and $36,145,900,000 at December 31, 1999 and 1998,
respectively. All reserves are subject to discretionary withdrawal at market
value.
A reconciliation of transfers to (from) separate accounts is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Transfers as reported in the Summary of Operations of the
various separate accounts:
Transfers to separate accounts $ 4,573.2 $ 3,954.9 $ 4,824.0
------------------------------------------------------------
Transfers from separate accounts (4,933.8) (4,069.8) (2,943.8)
------------------------------------------------------------ --------- --------- ---------
Net transfers to (from) separate accounts as reported in the
Summary of Operations $ (360.6) $ (114.9) $ 1,880.2
------------------------------------------------------------ ========= ========= =========
</TABLE>
15. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue was complex and affected many aspects of the Company's
business. The Company was particularly concerned with Year 2000 issues that
related to the Company's computer systems and interfaces with the computer
systems of vendors, suppliers, customers and business partners. From 1996
through 1999 the Company and its operating subsidiaries redirected a large
portion of internal Information Technology ("IT") efforts and contracted
with outside consultants to update systems to address Year 2000 issues.
Experts were engaged to assist in developing work plans and cost estimates
and to complete remediation activities.
For the year ended December 31, 1999, the Company identified expenditures of
$39,500,000 to address this issue. This brings the expenditures for 1996
through 1999 to $75,300,000. Because updating systems and procedures is an
integral part of the Company's on-going operations, most of the expenditures
shown above are expected to continue after all Year 2000 issues have been
resolved. All Year 2000 expenditures have been funded from operating cash
flows.
The scope of the overall Year 2000 program included the following four major
project areas: 1) addressing the readiness of business applications,
operating systems and hardware on mainframe, personal computer and local
area network platforms (IT); 2) addressing the readiness of non-IT embedded
software and equipment (non-IT); 3) addressing the readiness of key business
partners and 4) establishing Year 2000 contingency plans. The Company
completed these projects prior to year-end.
The Company's businesses have not identified any major problems in their
business processing. Minor problems have been resolved quickly. The
Company's businesses have not experienced any significant interruption in
service to clients or business partners or in reporting to regulators.
S-31
<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 (the "Company"),
a wholly owned subsidiary of Lincoln National Corporation, as of
December 31, 1999 and 1998, and the related statutory-basis
statements of operations, changes in capital and surplus and
cash flows for each of the three years in the period ended
December 31, 1999. 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 auditing standards
generally accepted in the United States. 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 accounting principles
generally accepted in the United States. The variances between
such practices and accounting principles generally accepted in
the United States 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 accounting
principles generally accepted in the United States, the
financial position of The Lincoln National Life Insurance
Company at December 31, 1999 and 1998, or the results of its
operations or its cash flows for each of the three years in the
period ended December 31, 1999.
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, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
/s/ Ernst & Young LLP
January 31, 2000
S-32
<PAGE>
PART II
CONTENTS OF THIS REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
Facing Page
Cross Reference Sheet
A Prospectus consisting of 103 Pages relating to the Flexible Premium
Variable Life Insurance Policies
Undertaking to File Reports
Indemnification Undertaking
Representations Relating to Rule 6e-3(T)
Representations Relating to Section 26(e)(2)(A) of the Investment Company
Act of 1940
Signature Page
Written Consents of the following persons:
Robert A. Picarello
Vaughn W. Robbins, FSA
Ernst & Young LLP (Independent Auditors)
Exhibits
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.
INDEMNIFICATION UNDERTAKING
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of The Lincoln National Life Insurance
Company (LNL) provides that LNL will indemnify certain persons against expenses,
judgments and certain other specified costs incurred by any such person if
he/she is made a party or is threatened to be made a party to a suit or
proceeding because he/she was a director, officer or employee of LNL, as long as
he/she acted in good faith and in a manner he/she reasonably believed to be in
the best interests of, or not opposed to the best interests of, LNL. Certain
additional conditions apply to indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of LNL in connection with suits by, or in the right of,
LNL.
Please refer to Article VII of the By-Laws of LNL (Exhibit No. 6(b) hereto) for
the full text of the indemnification provisions. Indemnification is permitted
by, and is subject to the requirements of, Indiana law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF
1940
The 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 The
Lincoln National Life Insurance Company. This representation applies to all
policies sold pursuant to this registration statement, including those sold on
the terms specifically described in the prospectus contained herein, or any
variations therein, based on supplements, endorsements, or riders to any
policies or prospectus, or otherwise.
EXHIBITS
<TABLE>
<C> <C> <C> <S>
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 Board of Directors of Lincoln Life authorizing
establishment of Registrant (1)
(2) Custodian Agreement: Not Applicable
(3) (a) Form of Underwriting Agreement (3)
(b) Dealer Agreement. (2)
(c) Schedule of Sales Commissions (3)
(d) Amendment to the Principal Underwriting Agreement: (4)
(4) Other Agreements: Not Applicable
(5) Flexible Premium Policy (1)
(6) (a) Articles of Incorporation of Lincoln Life (1)
(b) By-Laws of Lincoln Life (1)
(7) Contracts of Insurance (1)
(8) Form of Fund Participation Agreement (3)
(9) Other Material Contracts
(a) Form of Service Agreement between Delaware Management
Company, Inc., Delaware Service Company, Inc. and Lincoln
National Life Insurance Company (1)
(b) Indemnification Agreement related to compliance with IRS
Section 817(h) (3)
(10) Application Form (1)
2. Not applicable
3. Opinion and Consent of Counsel
4. Not applicable
5. Not applicable
6. Actuarial Opinion and Consent
7. Consent of Ernst & Young LLP, Independent Auditors
8. Actuarial basis of payment and cash value adjustment pursuant to Rule
6e-3(T)(b)(13)(v)(B) and Procedures Memorandum pursuant to Rule
6e-3(T)(b)(12)(iii) (1)
</TABLE>
(1) Incorporated by reference to the Registrant's initial registration statement
on Form S-6 filed on November 21, 1997.
(2) Incorporated by reference to the registration statement on Form N-4 (File
No. 33-27783) filed March 27, 1998.
(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 on
Form S-6 filed on April 17, 1998.
(4) Incorporated by reference to Post-Effective Amendment No. 1 on Form S-6
(File No. 333-40745) filed on April 23, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Lincoln Life Flexible Premium Variable Life Account F (File No. 333-40745), has
caused this Post-Effective Amendment No. 2 to be signed on its behalf by the
undersigned duly authorized, in the City of Hartford and State of Connecticut on
the 11th day of April, 2000. Registrant certifies that this amendment meets all
of the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933.
<TABLE>
<S> <C> <C>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE
ACCOUNT F (REGISTRANT)
By /s/ GARY W. PARKER
------------------------------------------
Gary W. Parker
SENIOR VICE PRESIDENT, THE LINCOLN
NATIONAL LIFE INSURANCE COMPANY
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(DEPOSITOR)
By /s/ GARY W. PARKER
------------------------------------------
Gary W. Parker
SENIOR VICE PRESIDENT
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to this Registration Statement (File No.
333-40745) has been signed below on April 11, 2000 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JON A. BOSCIA* President and Director
- ------------------------------ (Principal Executive
Jon A. Boscia Officer)
Chief Executive Officer of
/s/ JOHN H. GOTTA* Life Insurance, Senior
- ------------------------------ Vice President,
John H. Gotta Assistant Secretary, and
Director
Interim Chief Executive
/s/ STEPHEN H. LEWIS* Officer of Annuities,
- ------------------------------ Senior Vice President
Stephen H. Lewis and Director
/s/ LAWRENCE T. ROWLAND*
- ------------------------------ Executive Vice President
Lawrence T. Rowland and Director
Senior Vice President,
/s/ TODD R. STEPHENSON* Chief Financial Officer
- ------------------------------ and Assistant Treasurer
Todd R. Stephenson (Principal Financial
Officer)
Vice President, Controller
/s/ KEITH J. RYAN* and Chief Accounting
- ------------------------------ Officer (Principal
Keith J. Ryan Accounting Officer)
/s/ H. THOMAS MCMEEKIN*
- ------------------------------ Director
H. Thomas McMeekin
/s/ RICHARD C. VAUGHAN*
- ------------------------------ Director
Richard C. Vaughan
*By /s/ GARY W. PARKER
- ----------------------------------------------------------
Gary W. Parker, pursuant to a Power of Attorney filed
with this Post-Effective Amendment No. 2 to the
Registration Statement
</TABLE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby severally constitute and appoint John H. Gotta, Robert
A. Picarello and Gary W. Parker, individually, our true and lawful
attorneys-in-fact, with full power to each of them to sign for us, in our names
and in the capacities indicated below, any and all Registration Statements on
Form S-6, Form N-8B-2 and/or Form N-6, or any successors to these Forms, and
amendments thereto, filed with the Securities and Exchange Commission under the
Securities Act of 1933, on behalf of the Company in its own name or in the name
of one of its Separate Accounts, hereby ratifying and confirming our signatures
as they may be signed by any of our attorneys-in-fact to any such Registration
Statement or amendment to said Registration Statement. The execution of this
document by each of the undersigned hereby revokes any and all Powers of
Attorney previously executed by said individual for this specific purpose.
WITNESS our hands and common seal on this 31st day of January, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ LAWRENCE T. ROWLAND*
- -------------------------------------- Executive Vice President and Director
Lawrence T. Rowland
/s/ KEITH J. RYAN* Vice President, Controller and Chief Accounting
- -------------------------------------- Officer
Keith J. Ryan
*For: Lawrence T. Rowland and Keith J. Ryan
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
STATE OF INDIANA SS:
COUNTY OF ALLEN
</TABLE>
Subscribed and sworn to before me this
31st day of January, 2000
/s/ JANET L. LINDENBERG
--------------------------------------
Notary Public
Commission Expires: 7-10-2001
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby severally constitute and appoint John H. Gotta, Robert
A. Picarello and Gary W. Parker, individually, our true and lawful
attorneys-in-fact, with full power to each of them to sign for us, in our names
and in the capacities indicated below, any and all Registration Statements on
Form S-6, Form N-8B-2 and/or Form N-6, or any successors to these Forms, and
amendments thereto, filed with the Securities and Exchange Commission under the
Securities Act of 1933, on behalf of the Company in its own name or in the name
of one of its Separate Accounts, hereby ratifying and confirming our signatures
as they may be signed by any of our attorneys-in-fact to any such Registration
Statement or amendment to said Registration Statement. The execution of this
document by each of the undersigned hereby revokes any and all Powers of
Attorney previously executed by said individual for this specific purpose.
WITNESS our hands and common seal on this 28th day of January, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JON A. BOSCIA
- -------------------------------------- President and Director
Jon A. Boscia
/s/ JOHN H. GOTTA Chief Executive Officer of Life Insurance, Senior
- -------------------------------------- Vice President, Assistant Secretary, and Director
John H. Gotta
/s/ STEPHEN H. LEWIS* Interim Chief Executive Officer of Annuities,
- -------------------------------------- Senior Vice President and Director
Stephen H. Lewis
/s/ TODD R. STEPHENSON* Senior Vice President, Chief Financial Officer and
- -------------------------------------- Assistant Treasurer
Todd R. Stephenson
/s/ H. THOMAS MCMEEKIN
- -------------------------------------- Director
H. Thomas McMeekin
/s/ RICHARD C. VAUGHAN
- -------------------------------------- Director
Richard C. Vaughan
*For: Stephen H. Lewis and Todd R. Stephenson
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
STATE OF INDIANA SS:
COUNTY OF ALLEN
</TABLE>
Subscribed and sworn to before me this
28th day of January, 2000
/s/ JANET L. LINDENBERG
--------------------------------------
Notary Public
Commission Expires: 7-10-2001
<PAGE>
[LOGO] LINCOLN
FINANCIAL GROUP
LINCOLN LIFE
Robert A. Picarello
Vice President & Chief Counsel
350 Church Street
Hartford, CT 06103-1106
Telephone: (860) 466-1603
Facsimile: (860) 466-1778
April 11, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
Re: Lincoln Life Flexible Premium Variable Life Account F ("Account")
The Lincoln National Life Insurance Company
Post-Effective Amendment Number 2, File No. 333-40745
Dear Sirs:
As Vice President & Chief Counsel of The Lincoln National Life Insurance
Company ("Company"), I am familiar with the actions of the Board of Directors
of the Company establishing the Account and its method of operation and
authorizing the filing of a Registration Statement under the Securities Act
of 1933 (and amendments thereto) for the securities to be issued by the
Account and the Investment Company Act of 1940 for the Account itself.
In the course of preparing this opinion, I have reviewed the Certificate of
Incorporation and the By-Laws of the Company, the Board actions with respect
to the Account, and such other matters as I deemed necessary or appropriate.
Based on such review, I am of the opinion that the variable life insurance
policies (and interests therein) which are the subject of the Registration
Statement under the Securities Act of 1933, as amended, for the Account will,
when issued, be legally issued and will represent binding obligations of the
Company, the depositor for the Account.
I further consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 2 to said Registration Statement and to the reference to me
under the heading "Experts" in said Registration Statement, as amended.
Very truly yours,
/s/ Robert A. Picarello
Robert A. Picarello
Vice President & Chief Counsel
<PAGE>
[LOGO] LINCOLN
FINANCIAL GROUP
LINCOLN LIFE
The Lincoln National Life Insurance Company
350 Church Street
Hartford, CT 06103-1106
April 11, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
Re: Lincoln Life Flexible Premium Variable Life Account F ("Account")
The Lincoln National Life Insurance Company
Post-Effective Amendment Number 2, File No. 333-40745
Dear Sirs:
This opinion is furnished in connection with the filing of the Registration
Statement on Form S-6 by The Lincoln National Life Insurance Company under
the Securities Act of 1933. The Prospectus included in said Registration
Statement describes flexible premium variable universal life insurance
policies (the "Policies"). The forms of Policies were prepared under my
direction.
In my opinion, the illustrations of benefits under the Policies included in
the section entitled "Illustrations" in the Prospectus, based on assumptions
stated in illustrations, are consistent with the provisions of the forms of
the Policies. The ages selected in the illustrations are representative of
the manner in which the Policies operate.
I hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and the reference to me under the heading "Experts" in the
Prospectus.
Very truly yours,
/s/ Vaughn W. Robbins
Vaughn W. Robbins, FSA, MAAA
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Post-Effective Amendment No. 2 to the Registration Statement (Form S-6 No.
333-40745) pertaining to the Lincoln Life Flexible Premium Variable Life
Account F, and to the use therein of our reports dated (a) January 31, 2000,
with respect to the statutory-basis financial statements of The Lincoln
National Life Insurance Company, and (b) March 24, 2000, with respect to the
financial statements of Lincoln Life Flexible Premium Variable Life Account F.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 10, 2000
