<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 1996
Registration No. 33-76432
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
-----------------
LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT K
(Exact name of Trust)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of depositor)
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
(Complete address of depositor's principal executive offices)
-----------------
Name and complete address
of agent for service: Copy to:
Carl L. Baker, Esquire Roy V. Washington, Esquire
Vice President & Associate Counsel
Deputy General Counsel The Lincoln National
The Lincoln National Life Insurance Company
Life Insurance Company 1300 South Clinton Street
1300 South Clinton Street P.O. Box 1110
P.O. Box 1110 Fort Wayne, Indiana 46801
Fort Wayne, IN 46801
-----------------
Flexible Premium Variable Life Insurance Policies--Registration of
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The 24f-2 Notice for the trusts most recent fiscal year,
1995, was filed with the Securities and Exchange Commission on February 27,
1996.
This filing is made pursuant to Rule 6c-3 and Rule 6c-3(T), as amended
under the Investment Company Act of 1940.
It is proposed this post-effective amendment become effective pursuant to
Rule 485(b) on April 30, 1996.
================================================================================
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover Page
2 Cover Page
3 Not applicable
4 Distribution of the Policy
5 Lincoln Life, The General Account and The Separate Account
6 The Account
7 Not applicable
8 Not applicable
9 Legal Proceedings
10 Summary; The Policy; The Separate Account; The American Variable
Insurance Series; Charges and Deductions; Policy Benefits; Voting
Rights; General Provisions
11 Summary; The American Variable Insurance Series
12 Summary; The American Variable Insurance Series
13 Summary; Charges and Deductions; The American Variable Insurance
Series
14 Summary; Requirements for Issuance of Policy
15 Premium Payment and Allocation of Premiums
16 Premium Payment and Allocation of Premiums; The American Variable
Insurance Series
17 Summary; Charges and Deductions; Policy Benefits; The American
Variable Insurance Series
18 Premium Payment and Allocation of Premiums; The American Variable
Insurance Series
19 General Provisions; Voting Rights
20 Not Applicable
21 Policy Benefits; General Provisions
22 Not applicable
23 Safekeeping of the Account Assets
24 General Provisions
25 The American Variable Insurance Series
26 Not Applicable
27 The American Variable Insurance Series
28 Executive Officers and Directors of Lincoln National Life
Insurance Co.
29 Lincoln Life, The General Account, and The Separate Account
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 The Policy
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
36 Not applicable
37 Not applicable
38 Summary; Distribution of the Policy
39 Summary; Distribution of the Policy
40 Not applicable
41 Distribution of the Policy
42 Not applicable
43 Not applicable
44 Charges and Deductions
45 Not applicable
46 Policy Benefits
47 The American Variable Insurance Series
48 Not applicable
49 Not applicable
50 Not applicable
51 Cover Page; Summary; Charges and Deductions; Policy Benefits; The
Policy
52 The American Variable Insurance Series
53 Federal Tax Matters
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Not applicable
</TABLE>
<PAGE>
MULTI FUND(R) VARIABLE LIFE
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE
ACCOUNT K INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
issued by:
Lincoln National Life Insurance Co.
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Ind. 46801
(800) 348-0851
The flexible premium variable life insurance policy (policy) offered by Lincoln
National Life Insurance Co. (Lincoln Life) and described in this prospectus is
designed to provide life insurance protection. A policy may be issued only to
persons age 80 or younger and only for an initial specified amount of $50,000
or more. Subject to the payment of a minimum premium for the first policy year,
an owner may, subject to certain restrictions, vary the frequency and amount of
premium payments. The level of life insurance benefits payable under the policy
may also be increased or decreased subject to certain restrictions.
An owner may choose to allocate amounts either to the General Account of
Lincoln Life (General Account) or to the Lincoln Life Flexible Premium Variable
Life Account K (Separate Account). Amounts allocated to the Separate Account
may be invested in any of the following funds or series:
- - Lincoln National Aggressive Growth Fund, Inc.
- - Lincoln National Bond Fund, Inc.
- - Lincoln National Capital Appreciation Fund, Inc.
- - Lincoln National Equity-Income Fund, Inc.
- - Lincoln National Global Asset Allocation Fund, Inc.
- - Lincoln National Growth and Income Fund, Inc.
- - Lincoln National International Fund, Inc.
- - Lincoln National Managed Fund, Inc.
- - Lincoln National Money Market Fund, Inc.
- - Lincoln National Social Awareness Fund, Inc.
- - Lincoln National Special Opportunities Fund, Inc.
- - Delaware Group Premium Fund, Inc.
- Delaware Equity/Income Series
- Delaware Emerging Growth Series
- Delaware Global Bond Series
The amount of the death benefit may, and the policy value will, reflect the
investment experience of the chosen subaccounts of the Separate Account and
interest credited to the policy by the General Account, as well as the
frequency and amount of premiums, and the charges assessed in connection with
the policy. As long as the policy remains in force, the death benefit will not
be less than the current specified amount of the policy. The policy will remain
in force so long as net cash surrender value is sufficient to pay the monthly
deductions imposed in connection with the policy. The owner bears the entire
investment risk for all amounts allocated to the Separate Account; no minimum
policy value or net cash surrender value is guaranteed.
The purchase and ownership of the policy involves various charges which are
explained under the heading "Charges and deductions" on page 9.
It may not be advantageous to purchase a policy as:
(1) a replacement for another type of life insurance; or,
(2) to obtain additional insurance protection if the purchaser already owns
another flexible premium variable life insurance policy.
This prospectus is valid only if accompanied or preceded by a current
prospectus for the Lincoln funds. and the Delaware Group Premium Fund, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE REGULATORY AGENCY, NOR HAS THE COMMISSION,
OR ANY STATE REGULATORY AGENCY, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and retain it for future reference.
The date of this prospectus is May 1, 1996.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
- ----------------------------------------------------
SUMMARY OF THE POLICY 3
- ----------------------------------------------------
LINCOLN LIFE, THE GENERAL ACCOUNT,
AND THE SEPARATE ACCOUNT
Lincoln Life 6
The General Account 6
The Separate Account 6
The investment advisors 6
Addition, deletion or substitution of investments 7
- ----------------------------------------------------
THE POLICY
Requirements for issuance of a policy 7
Premium payment and allocation of premiums 7
Dollar cost averaging program 8
Effective date 9
Right to examine policy 9
Policy termination 9
- ----------------------------------------------------
CHARGES AND DEDUCTIONS
Percent of premium charge 9
Contingent Deferred Sales Charge 9
Contingent Deferred Administrative Charge 10
Surrender charge 10
Monthly deductions 10
Cost of insurance charges 10
Monthly charge 11
Asset management charge 11
Mortality and expense risk charge 11
Other charges 12
Reduction of charges 12
Exchange of Lincoln Life Universal Life Policies 12
Term conversion credits 12
- ----------------------------------------------------
POLICY BENEFITS
Death benefit and death benefit types 12
Death benefit guarantee 14
Policy changes 14
Policy value 14
Transfer between subaccounts 15
Transfer to and from the General Account 15
Loans 15
Withdrawals 16
Policy lapse and reinstatement 16
Surrender of the policy 17
Proceeds and payment options 17
- ----------------------------------------------------
GENERAL PROVISIONS
The contract 17
Suicide 17
Representations and contestability 18
Incorrect age or sex 18
Change of owner or beneficiary 18
Assignment 18
Reports and records 18
Projection of benefits and values 18
Postponement of payments 18
Riders 18
- ----------------------------------------------------
DISTRIBUTION OF THE POLICY 20
- ----------------------------------------------------
FEDERAL TAX MATTERS
Tax status of the policy 20
Tax treatment of policy benefits 21
Taxation of the Separate Account 22
- ----------------------------------------------------
VOTING RIGHTS 22
- ----------------------------------------------------
STATE REGULATION OF LINCOLN LIFE
AND THE SEPARATE ACCOUNT 23
- ----------------------------------------------------
SAFEKEEPING OF THE ACCOUNT'S ASSETS 23
- ----------------------------------------------------
LEGAL PROCEEDINGS 23
- ----------------------------------------------------
EXPERTS 23
- ----------------------------------------------------
ADDITIONAL INFORMATION 23
- ----------------------------------------------------
APPENDIX A: Table of base minimum premiums 24
- ----------------------------------------------------
APPENDIX B: Table of surrender charges 26
- ----------------------------------------------------
APPENDIX C: Executive Officers & Directors
of Lincoln National Life
Insurance Co. 28
- ----------------------------------------------------
APPENDIX D: Illustrations of policy values 33
- ----------------------------------------------------
APPENDIX E: Definitions 42
- ----------------------------------------------------
FINANCIAL STATEMENTS 44
</TABLE>
2
<PAGE>
SUMMARY OF THE POLICY
The following summary is intended to give you a brief explanation of the most
important features of your policy. The summary is not comprehensive and is
entirely qualified by more specific information contained elsewhere in this
prospectus. For the definition of terms used in this prospectus, see Appendix
E. Throughout this prospectus, in order to make the following documents more
understandable, we have italicized the special terms.
WHAT TYPE OF POLICY AM I PURCHASING?
Your policy is a flexible premium variable life insurance policy whose primary
purpose is to provide life insurance protection on the insured. As long as your
policy remains in force, the policy will provide for: (1) the payment of a
death benefit to a beneficiary upon the insured's death; (2) policy loan
privileges, withdrawal rights, and surrender privileges; and (3) the payment of
the net cash surrender value to the owner, if living, on the maturity date.
HOW DOES THE LIFE INSURANCE PROTECTION WORK?
The policy provides for the payment of benefits upon the death of the insured.
The policy contains two types of death benefit coverage. If you choose Type 1,
the death benefit is the greater of the specified amount of the policy or a
specified percentage of policy value. If you choose Type 2, the death benefit
is the greater of the specified amount of the policy plus the policy value or a
specified percentage of policy value. So long as your policy remains in force,
the minimum death benefit payable under either option will be the current
specified amount, reduced by any outstanding loan and any due and unpaid
charges, and increased by any unearned loan interest. (See Death benefit and
death benefit types, p. 14.)
You also have significant flexibility to adjust the death benefit prior to the
maturity date by increasing or decreasing the specified amount of the policy.
Any increase in the specified amount will require additional evidence of
insurability satisfactory to us and will result in additional charges. Any
voluntary decrease during the first 16 years of the policy or during the 16
years following an increase in the specified amount will result in partial
surrender charges.
HOW ARE THE PREMIUMS FLEXIBLE?
You have considerable flexibility concerning the amount and frequency of
premium payments. During the first three policy years, your policy will lapse
unless either the total of all premiums paid (minus any partial withdrawals and
minus any outstanding loans) is at all times at least equal to the death
benefit guarantee monthly premium times the number of months since the initial
policy date (including the current month) or the net cash surrender value of
the policy is greater than zero. In order to place your policy in force, you
must pay at least the first two death benefit guarantee monthly premiums. In
addition, you will be asked to determine a planned periodic premium schedule,
although you will not be required to adhere to that premium schedule. Instead,
after the first policy year, you may, subject to certain restrictions, make
premium payments in any amount and at any frequency. (See Premium payments and
allocation of premiums, p. 7.)
WHAT MAKES MY POLICY VARIABLE?
Your policy is described as variable because the death benefit and the policy
value can vary with the investment performance of amounts you have allocated to
the subaccounts you have selected. While you bear the entire investment risk on
such amounts, you also enjoy the opportunity to obtain market rates of return
on those amounts.
WHAT INVESTMENT CHOICES DO I HAVE?
You have the option to allocate amounts to our General Account and to one or
more subaccounts of the Separate Account. Amounts allocated to the General
Account earn a current declared interest rate, subject to the minimum
guaranteed rate shown on the policy schedule. The subaccounts of the Separate
Account each invest in one of the available funds or series listed below.
FUNDS
All of the funds with the exception of the Special Opportunities Fund are
diversified, open-end management investment companies. The Special
Opportunities Fund is open-end, but is non-diversified.
Aggressive Growth Fund (1994) - The investment objective is maximum capital
appreciation. The fund invests in stocks of smaller, lesser-known companies
which have a chance to grow significantly in a short time.
Bond Fund (1981) - The investment objective is maximum current income
consistent with prudent investment strategy. The fund invests primarily in
medium- and long-term corporate and government bonds.
Capital Appreciation Fund (1994) - The investment objective is long-term growth
of capital consistent with preservation of capital. The fund primarily buys
stocks in a large number of companies of all sizes if the companies are
competing well and if their products or services are in high demand. It may
also buy some money market securities and bonds, including junk (high-risk)
bonds.
Equity-Income Fund (1994) - The investment objective is to achieve reasonable
income by investing primarily in income-producing equity securities. The fund
invests mostly in high-income stocks and some high-yielding bonds (including
junk bonds).
Global Asset Allocation Fund (former name Putnam Master Fund) (1987) - The
investment objective is long-term total return consistent with preservation of
capital. The fund allocates its assets among several categories of equity and
fixed-income securities, both of U.S. and foreign issuers.
Growth and Income Fund (former name Growth Fund) (1981) - The investment
objective is long-term capital appreciation. The fund buys stocks of
established companies.
3
<PAGE>
International Fund (1991) - The investment objective is maximum long-term
capital appreciation. The fund trades in securities issued outside the United
States -- mostly stocks, with an occasional bond or money market security.
Managed Fund (1983) - The investment objective is maximum long-term total
return (capital gains plus income) consistent with prudent investment strategy.
The fund invests in a mix of stocks, bonds and money market securities, as
determined by an investment committee.
Money Market Fund (1981) - The investment objective is maximum current income
consistent with the preservation of capital. The fund invests in short term
obligations issued by U.S. corporations; the U.S. Government; and
federally-chartered banks and U.S. branches of foreign banks.
Social Awareness Fund (1988) - The investment objective is long-term capital
appreciation. The fund buys stocks of established companies which adhere to
certain specific social criteria.
Special Opportunities Fund (1981) - The investment objective is maximum capital
appreciation. The fund primarily invests in mid-size companies whose stocks
have significant growth potential. Current income is a secondary consideration.
Series
Three series are being offered by Delaware Group Premium Fund, Inc. [PLEASE
NOTE: AS OF THE DATE OF THIS PROSPECTUS, THE SERIES WERE NOT YET AVAILABLE IN
ALL STATES. PLEASE CONSULT YOUR INVESTMENT DEALER FOR CURRENT INFORMATION ABOUT
THE SERIES AVAILABILITY.]
Equity/Income - Seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. It invests generally, but not exclusively,
in common stocks and income-producing securities convertible into common
stocks, consistent with the series' objective.
Emerging Growth - Seeks long-term capital appreciation by investing primarily
in small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
Global Bond - Seeks current income consistent with preservation of principal by
investing primarily in fixed income securities that may also provide the
potential for capital appreciation. This series is a global fund, as such, at
least 65% of the series' assets will be invested in fixed income securities of
issuers organized or having a majority of their assets in or deriving a
majority of their operating income in at least three different countries, one
of which may be the United States.
HOW ARE PREMIUMS PROCESSED?
You determine in the application what portions of net premiums are to be
allocated to the General Account or the various subaccounts of the Separate
Account. Prior to the record date, net premiums are automatically allocated to
the General Account. After the record date, the policy value and all subsequent
net premiums will automatically be invested in the General Account and the
subaccounts of the Separate Account in accord with your instructions in the
application. You may change future allocations of net premiums at any time
without charge by notifying us in writing. Subject to certain restrictions,
you may transfer amounts among the General Account and the subaccounts of the
Separate Account.
WHEN DOES MY POLICY TERMINATE?
Your policy may terminate due to any one of the following: voluntary return or
surrender of the policy, lapse due to failure to pay required premiums or due
to insufficient net cash surrender value, payment of the death benefit, or
maturity. During the free look period, you may return the policy for a refund
of all premiums paid. Anytime after the free look period and before the second
policy anniversary, you may surrender the policy and receive its net cash
surrender value plus any excess sales load. (See Charges and deductions, p. 9.)
After the second policy anniversary, you may surrender the policy and receive
its net cash surrender value.
DO I HAVE ACCESS TO THE POLICY VALUES?
You may access the net cash surrender value through loans or withdrawals. You
may borrow the net cash surrender value at any time. In addition, subject to
some restrictions and charges, you may withdraw portions of the net cash
surrender value after the first policy year. Loans and withdrawals decrease
both the death benefit and future policy values and may have federal income tax
consequences.
WHAT CHARGES AND DEDUCTIONS ARE MADE FROM MY POLICY?
Sales charges will be deducted from your policy in two forms (a percent of
premium charge and a Contingent Deferred Sales Charge) as compensation for
distribution expenses we incur in the sales process. These distribution
expenses include sales commissions, the cost of printing the prospectus and
sales literature, and any advertising costs. To the extent that such
distribution expenses are not recovered through explicit sales charges, we will
recover them from our other assets or surplus, including income from mortality
and expense risk charges and cost of insurance charges.
Percent of premium charge. A percent of premium charge is currently deducted
from each premium you pay. The total charge currently consists of the sum of
the following:
a. 1.95% for charges deemed to be sales loads as defined by the Investment
Company Act of 1940. This item is guaranteed not to exceed 1.95%.
4
<PAGE>
b. 2.00% for premium taxes and other taxes not deemed to be sales loads as
defined by the Investment Company Act of 1940. Any increase in this item
must first be approved by the Securities and Exchange Commission and, in any
event, this item is guaranteed not to exceed 4.00%.
CONTINGENT DEFERRED SALES CHARGE (CDSC). During the first 16 policy years, the
policy value is subject to a Contingent Deferred Sales Charge which is deducted
if the policy is surrendered or if the specified amount is voluntarily reduced.
During the first two policy years, the CDSC is no greater than 44% of the
required base minimum premium for the policy. Upon actual surrender or
voluntary reduction of specified amount in the first two years of the policy,
the actual CDSC is subject to maximum allowable federal sales load limitations.
(See Charges and deductions, p. 9.) During the third and subsequent policy
years, the CDSC will equal the CDSC during the first policy year times the
percent indicated in the table below.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE (CDAC). During the first 16 policy
years, the policy value is subject to a Contingent Deferred Administrative
Charge which is deducted if the policy is surrendered or if the specified
amount is voluntarily reduced. The CDAC is no greater than 88% of the required
base minimum premium for the policy. During the second and subsequent policy
years, the CDAC will equal the first year CDAC times the percent indicated in
the following table.
An additional CDAC will be imposed under the policy in the event of each
requested increase in specified amount and applies during the 16 years
following such increase. If a requested increase in specified amount occurs,
additional premium will be required if the current net cash surrender value is
not sufficient to cover the CDAC associated with the increase.
<TABLE>
<CAPTION>
During policy year Percent of CDSC and CDAC
(or after an increase) to be deducted
<S> <C>
- -------------------------------------------------
2 100%
3 100%
4 100%
5 100%
6 95%
7 90%
8 85%
9 80%
10 70%
11 60%
12 50%
13 40%
14 30%
15 20%
16 10%
</TABLE>
SURRENDER CHARGE. The total of all Contingent Deferred Sales Charges and all
Contingent Deferred Administrative Charges is collectively referred to as the
surrender charge.
OTHER CHARGES AND DEDUCTIONS. The policy value will be reduced by certain
monthly deductions equal to the sum of a monthly cost of insurance charge
(including the cost of any optional insurance benefits) and a monthly charge
equal to $7.50 per month. Currently, no charge is made for transfers of amounts
among the General Account and the subaccounts, although a maximum of $10 per
transfer may be charged. A withdrawal charge consisting of a processing fee and
a possible early withdrawal penalty is deducted from each withdrawal. The early
withdrawal penalty portion is applicable only at times when the surrender
charge is greater than zero. As a current practice, the withdrawal charge is
equal to 3% of the withdrawn amount during the first 10 policy years, and is
equal to $10 at all other times. This charge is guaranteed not to exceed the
greater of $25 or 5% of the withdrawn amount at times when the surrender charge
is greater than zero and is guaranteed not to exceed $25 at all other times.
A daily charge equivalent to an annual rate of .68% of the average daily net
assets of the Separate Account is currently imposed for Lincoln Life's
assumption of certain mortality and expense risks, although this charge is
reduced to .0017534% (which is equivalent to an annual rate of .64%) until at
least May 1, 1997 in order to offset some of the miscellaneous expenses
incurred by the underlying funds. This charge is guaranteed not to exceed .90%.
No charges are currently made from the Separate Account for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
company reserves the right to make deductions from the policy to pay those
taxes.
In addition, because the Separate Account purchases shares of the funds or
series involved, the value of the net assets of these subaccounts of the
Separate Account will reflect the fees of the investment advisor and other
miscellaneous expenses incurred by those funds or series.
HOW ARE MY POLICY BENEFITS TAXED?
The taxation of life insurance death benefits and distributions is complex and
is discussed in detail under "Federal tax matters" on pages 20-22. You should
note in particular that the taxation of loans, withdrawals and surrenders of a
life insurance policy that becomes a Modified Endowment Contract is generally
less favorable than distributions from a life insurance policy that is not a
Modified Endowment Contract. Your policy will be a Modified Endowment Contract
if the premiums you pay exceed certain limits referred to as the 7-pay
Limitation.
5
<PAGE>
LINCOLN LIFE,
THE GENERAL ACCOUNT AND
THE SEPARATE ACCOUNT
LINCOLN LIFE
Lincoln 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
policies, and ranks among the largest United States stock life insurance
companies in terms of assets and life insurance in force. Lincoln Life is also
one of the leading life reinsurers in the United States. Lincoln Life is
licensed in all states (except New York) and the District of Columbia, Guam,
and the Virgin Islands.
Lincoln Life is wholly owned by Lincoln National Corp., a publicly held
insurance holding company incorporated under Indiana law on January 5, 1968.
The principal office of Lincoln Life is located at 1300 South Clinton Street,
Fort Wayne, Ind. 46802. The principal office of Lincoln National Corp. is
located at 200 East Berry Street, Fort Wayne, Ind. 46802. Through subsidiaries,
Lincoln National Corp. engages primarily in the issuance of health-life
insurance and annuities, property-casualty insurance, and other financial
services.
THE GENERAL ACCOUNT
The General Account refers to the General Account of Lincoln Life. The General
Account consists of all assets owned by Lincoln Life other than those allocated
to any of its separate accounts, including the Separate Account. The General
Account supports Lincoln Life's insurance and annuity obligations. Because of
applicable exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933, and the
General Account has not been registered as an investment company under the
Investment Company Act of 1940.
THE SEPARATE ACCOUNT
Lincoln Life Flexible Premium Variable Life Account K (Separate Account) was
established by Lincoln Life as a Separate Account on March 9, 1994. Although
the assets of the Separate Account are the property of Lincoln Life, the laws
of Indiana under which the Separate Account was established provide that the
assets in the Separate Account attributable to the policies are not chargeable
with liabilities arising out of any other business which Lincoln Life may
conduct. The assets of the the Separate Account shall, however, be available to
cover the liabilities of the General Account of Lincoln Life to the extent that
the Separate Account's assets exceed its liabilities arising under the policies
supported by it. The assets of the Separate Account will be valued once daily
at the close of trading (currently 4:00 p.m. New York time) on each day the New
York Stock Exchange is open. The New York Stock Exchange is currently closed on
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Separate Account has been registered as an investment company under the
Investment Company Act of 1940 and meets the definition of Separate Account
under federal securities laws. Registration with the Securities and Exchange
Commission does not involve supervision of the management or investment
practices or policies of the Separate Account or Lincoln Life by the
Commission.
The Separate Account is divided into subaccounts. Each subaccount invests
exclusively in shares of one of the following funds or series:
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Delaware Equity/Income Series
Delaware Emerging Growth Series
Delaware Global Bond Series
Income and both realized and unrealized gains or losses from the assets of the
Separate Account are credited to or charged against the Separate Account
without regard to the income, gains or losses arising out of any other business
Lincoln Life may conduct. The funds or series are also invested in by variable
annuity contract holders. For an explanation of the risk involved with mixed
and/or shared funding, see the prospectus of the underlying funds or series.
There is no assurance that any fund or series will achieve its stated
objective. For a complete description of the funds or series, please refer to
the prospectuses for the funds or series which must accompany or precede this
prospectus and which should be read carefully.
THE INVESTMENT ADVISORS
Lincoln Investment Management Inc. (Lincoln Investment) is the investment
advisor for the funds. Lincoln Investment is a wholly owned subsidiary of
Lincoln National Corp.
Delaware Management is the investment advisor for the Delaware Equity/Income
Series and the Delaware Emerging Growth Series. Delaware International, an
affiliate of Delaware Management, is the investment advisor for the Delaware
Global Bond Series. Delaware Management is a wholly-owned, indirect subsidiary
of Delaware Management Holdings, Inc. On April 3, 1995, Delaware Management
Holdings, Inc. merged with Lincoln National Corp., the holding company for
Lincoln
6
<PAGE>
National Life Insurance Co. (Lincoln Life). As a result of the merger,
Delaware Management Holdings and Delaware Management became indirect,
wholly-owned subsidiaries of and are thus subject to the ultimate control of
Lincoln National Corp. Additional information about Delaware Management may be
found in the Delaware Group Premium Fund, Inc. prospectus.
ADDITION, DELETION, OR
SUBSTITUTION OF INVESTMENTS
Lincoln Life cannot guarantee that any particular funds will be available for
investment by the subaccounts. Lincoln Life reserves the right, subject to
compliance with applicable law, to make additions to, deletions from, or
substitutions for the shares that are held by the Separate Account or that the
Separate Account may purchase. Lincoln Life reserves the right to eliminate the
shares of any fund or series 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 or series should become inappropriate in view of the purposes of the
Separate Account. Lincoln Life will not substitute any shares attributable to
an owner's interest in a subaccount of the Separate Account without notice and
prior approval of the Securities and Exchange Commission, to the extent
required by the Investment Company Act of 1940 or other applicable law. Nothing
contained herein shall prevent the Separate Account from purchasing other
securities for other series or classes of policies, or from permitting a
conversion between series or classes of policies on the basis of requests made
by policyowners.
Lincoln Life also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new fund or series of a fund,
or in shares of another investment company, with a specified investment
objective. New subaccounts may be established when, at the sole discretion of
Lincoln Life, marketing needs or investment conditions warrant, and any new
subaccounts may be made available to existing policyowners on a basis to be
determined by Lincoln Life. Lincoln Life may also eliminate one or more
subaccounts if, in its sole discretion, marketing, tax, or investment
conditions warrant.
In the event of any such substitution or change, Lincoln Life may by
appropriate endorsement make such changes in the policy as may be necessary or
appropriate to reflect such substitution or change. If deemed by Lincoln Life
to be in the best interests of persons having voting rights under the Policies,
the Separate Account may be operated as a management company under the
Investment Company Act of 1940, it may be deregistered under that Act in the
event such registration is no longer required, or it may be combined with other
Lincoln Life separate accounts.
THE POLICY
REQUIREMENTS FOR ISSUANCE OF A POLICY
Individuals wishing to purchase a policy must send a completed application to
Lincoln Life, 1300 South Clinton Street, Fort Wayne, Ind. 46802. The minimum
specified amount of a policy is $50,000. A policy will generally be issued only
to insureds 80 years of age or under who supply satisfactory evidence of
insurability sufficient to Lincoln Life. Acceptance is subject to Lincoln
Life's underwriting rules and, except in California, Lincoln Life reserves the
right to reject an application for any reason.
Additional insurance on the life of other persons may be applied for by
supplemental application. Approval of the additional insurance will be subject
to evidence of insurability satisfactory to Lincoln Life.
PREMIUM PAYMENT AND
ALLOCATION OF PREMIUMS
Subject to certain limitations, an owner has considerable flexibility in
determining the frequency and amount of premiums. During the first three policy
years, the policy will lapse unless either the total of all premiums paid
(minus any partial withdrawals and minus any outstanding loans) is at all times
at least equal to the death benefit guarantee monthly premium times the number
of months since the initial policy date (including the current month) or the
net cash surrender value of the policy is greater than zero. Payment of the
death benefit guarantee monthly premium during the first three policy years
will guarantee that the policy will remain in force for the first three policy
years despite negative net cash surrender value (see Death benefit guarantee,
p. 14), but continued payment of such premiums will not guarantee that the
policy will remain in force thereafter. The amount of the death benefit
guarantee monthly premium is based on the base minimum premium per $1,000 of
specified amount (determined by the insured's age, sex, and underwriting class)
and includes additional amounts to cover charges for additional benefits,
monthly charges, and substandard extra charges. A table of base minimum
premiums per $1,000 of specified amount is in Appendix A, pp. 24-25.
The owner may designate in the application one of several ways to pay the death
benefit guarantee monthly premium. The owner may elect to pay the first twelve
months of premiums in full prior to commencement of insurance coverage.
Alternatively, the owner may elect to pay a level planned periodic premium on a
quarterly or semi-annual basis sufficient to meet the premium requirements.
Premiums may also be paid monthly if paid by a pre-authorized check. Premiums,
other than the initial premium, are payable only at the Home Office of Lincoln
Life.
Each owner will also define a planned periodic premium schedule that provides
for payment of a level premium at fixed intervals for a specified period of
time. The owner is not required to pay premiums in accord with this schedule.
Furthermore, the owner has flexibility to alter the amount,
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frequency, and the time period over which planned periodic premiums are paid.
Failure to pay planned periodic premiums will not of itself cause the policy to
lapse, nor will the payment of planned periodic premiums equal to or in excess
of the required death benefit guarantee monthly premiums guarantee that the
policy will remain in force beyond the first three policy years. Unless the
policy is being continued under the death benefit guarantee, (see Death benefit
guarantee, p. 14), the policy will lapse any time outstanding loans with
interest exceed policy value less surrender charge or policy value less
outstanding loans and less surrender charge is insufficient to pay certain
monthly deductions, and a grace period expires without a sufficient payment.
(See Policy lapse and reinstatement, p. 16.) Subject to the minimum premiums
required to keep the policy in force and the maximum premium limitations
established under section 7702 of the Internal Revenue Code 1986, as amended
("the Code"), an owner may make unscheduled premium payments at any time in any
amount during the lifetime of the insured until the maturity date. Monies
received that are not designated as premium payments will be assumed to be loan
repayments if there is an outstanding loan on the policy; otherwise, such
monies will be assumed to be an unscheduled premium payment.
PREMIUM LIMITATIONS. In no event can the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations
established for life insurance policies to meet the definition of life
insurance, as set forth under Section 7702 of the Code. Those limitations will
vary by issue age, sex, classification, benefits provided, and even policy
duration. If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium limitation, Lincoln Life will only accept
that portion of the premium which will make total premiums equal that amount.
Any part of the premium in excess of that amount will first be applied to
reduce any outstanding loan on the policy, and any further excess will be
refunded to the owner within 7 days of receipt and no further premiums will be
accepted until allowed by subsequent maximum premium limitations.
The tax status of a policy and the tax treatment of distributions from a policy
are dependent in part on whether or not the policy becomes a Modified Endowment
Contract. A policy will become a Modified Endowment Contract if premiums paid
into the policy cause the policy to fail the 7-pay test set forth under Section
7702A of the Code. Lincoln Life will monitor premiums paid into each policy
after the date of this prospectus to determine when a premium payment will
exceed the 7-pay test and cause the policy to become a Modified Endowment
Contract. If the owner has given Lincoln Life instructions that the policy
should not be allowed to become a Modified Endowment Contract, any premiums in
excess of the 7-pay Limitation will first be applied to reduce any outstanding
loan on the policy, and any further excess will be refunded to the owner within
7 days of receipt. If the owner has not given Lincoln Life instructions to the
contrary, however, the premium will be paid into the policy and a letter of
notification of Modified Endowment Contract status will be sent to the owner.
The letter of notification will include the available options, if any, for
remedying the Modified Endowment Contract status of the policy.
NET PREMIUMS. The net premium equals the premium paid less the percent of
premium charge (see Percent of premium charge, p. 9).
ALLOCATION OF NET PREMIUMS. In the application for a policy, the owner can
allocate net premiums or portions thereof to the General Account and the
various subaccounts of the Separate Account. Notwithstanding the allocation in
the application, all net premiums received prior to the record date will
initially be allocated to the General Account. Net premiums received prior to
the record date will be credited to the policy on the later of the policy date
or the date the premium is received. The record date is the date the policy is
recorded on the books of Lincoln Life as an in-force policy, and may coincide
with the policy date. Ordinarily, the policy will be recorded as in-force
within three business days after the later of the date we receive the last
outstanding requirement or the date of underwriting approval. Net premiums will
continue to be allocated to the General Account until the record date. When the
assets of the Separate Account are next valued following the record date, the
value of the policy's assets in the General Account will automatically be
transferred to the General Account and the subaccounts of the Separate Account
in accord with the owner's percentage allocation in the application. No charge
will be imposed for this initial transfer. Net premiums paid after the record
date will be credited to the policy on the date they are received and will be
allocated in accord with the owner's instructions in the application. The
minimum percentage of each premium that may be allocated to 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
Lincoln Life, unless the owner has made previous arrangements with Lincoln Life
to allow the allocation of future net premiums to be changed upon telephone
request.
The value of the amount allocated to subaccounts of the Separate Account will
vary with the investment experience of these subaccounts and the owner bears
the entire investment risk. The value of the amount allocated to the General
Account will earn a current interest rate guaranteed to be at least equal to
the General Account guaranteed interest rate shown on the Policy Schedule.
Owners should periodically review their allocations of premiums and values in
light of market conditions, interest rates, and overall estate planning
requirements.
DOLLAR COST AVERAGING PROGRAM
The owner may wish to make uniform monthly transfers from the General Account
to one or more of the subaccounts over a 12, 24, or 36-month period through the
Dollar Cost Averaging (DCA) program. Under the program, the owner designates
the total amount of policy value to be
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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 in the General Account has been exhausted,
whichever occurs sooner. DCA may also be terminated upon written request by the
owner.
The theory of DCA is that transfers of uniform dollar amounts purchase a
greater number of subaccount units when unit values are relatively low than are
purchased when unit values are higher. This has the effect, when purchases are
made at fluctuating prices, of reducing the aggregate average cost per unit to
less than the average of the unit values on the same purchase dates. However,
participation in the DCA program does not assure the owner of a greater return
on purchases under the program, nor will it prevent or necessarily alleviate
losses in a declining market.
There are no charges associated with the DCA program. In order to participate
in (or terminate participation in) the DCA program, the owner must complete a
written request on a form suitable to Lincoln Life.
EFFECTIVE DATE
For all coverage provided in the original application, the effective date will
be the policy date, provided the policy has been delivered and the initial
premium has been paid prior to death and prior to any change in health or any
other factor affecting insurability of the insured as shown in the application.
The policy date is ordinarily the earlier of the date the full initial premium
is received or the date on which the policy is approved for issue by Lincoln
Life.
For any increase, the effective date will be the first monthly anniversary day
on or next following the day the application for the increase is approved.
For any insurance that has been reinstated, the effective date will be the
first monthly anniversary day on or next following the day the application for
reinstatement is approved.
RIGHT TO EXAMINE POLICY
The owner may, until a specified period of time has expired, examine the policy
and return it for refund of all premiums paid. The applicable period of time
will depend on the state in which the policy is issued, but will not expire
sooner than the latest of ten days after receipt of the policy, 45 days after
Part 1 of the application is completed, or ten days after the notice of
withdrawal right is mailed or delivered to the owner. Upon cancellation the
policy will be void from the beginning. An owner wanting a refund should return
the policy to either Lincoln Life at its Home Office or to the registered agent
who sold it.
POLICY TERMINATION
All coverage under the policy will terminate when any one of the following
occurs: 1) the grace period ends without payment of required premium, and the
policy is not being continued under the death benefit guarantee provision, 2)
the policy is surrendered, 3) the insured dies, or 4) the policy matures.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the policy to compensate Lincoln
Life for:
1. Providing the insurance benefit set forth in the policy and any optional
insurance benefits added by rider;
2. Administering the policy;
3. Assuming certain risks in connection with the policy;
4. Incurring expenses in distributing the policy.
The nature and amount of these charges are described more fully below.
PERCENT OF PREMIUM CHARGE. A percent of premium charge is currently deducted
from each premium you pay. The total charge currently consists of the sum of
the following:
a. 1.95% for charges deemed to be sales loads as defined by the Investment
Company Act of 1940. This item is guaranteed not to exceed 1.95%.
b. 2.00% for premium taxes and other taxes not deemed to be sales loads as
defined by the Investment Company Act of 1940. Any increase in this item
must first be approved by the Securities and Exchange Commission and, in any
event, this item is guaranteed not to exceed 4.00%.
CONTINGENT DEFERRED SALES CHARGE (CDSC). During the first 16 policy years, the
policy value is subject to a Contingent Deferred Sales Charge (CDSC) which is
deducted if the policy is surrendered or upon a voluntary reduction in
specified amount. During the first policy year, the CDSC is approximately equal
to 44% (less at older ages) of the required base minimum premium for the
designated specified amount. The base minimum premium required varies with the
age, sex, and rating class of the insured. To determine the first year CDSC per
$1,000 of specified amount, multiply the surrender charge found in the table of
Surrender Charges (see Appendix B, pp. 26-27) times one-third. (For example,
the surrender charge for a male preferred smoker age 35 is $9.99 per $1000 of
specified amount, or $999 for a policy with $100,000 specified amount.
One-third of the surrender charge, or $333, is the CDSC for the policy.)
Furthermore, upon surrender of the policy or voluntary reduction in specified
amount at any time during the first two policy years, the total sales charges
actually deducted (the sales charge component of the percent of premium charge
plus the CDSC) will never exceed the following maximum: 30% of premiums paid up
to the first 12 death benefit guarantee monthly premiums, plus 10% of premiums
paid up to the next 12 death benefit guarantee monthly premiums, plus the sales
charge component of the percent of premium charge on premiums paid in excess of
those amounts.
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During the third and subsequent policy years, the CDSC will equal the CDSC
during the first policy year times the percent indicated in the table below.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE (CDAC). During the first 16 policy
years, the policy value is subject to a Contingent Deferred Administrative
Charge (CDAC) which is deducted if the policy is surrendered or upon a
voluntary reduction in specified amount. During the first policy year, the CDAC
is approximately equal to 88% (less at older ages) of the required base minimum
premium for the designated specified amount. To determine the first year CDAC
per $1,000 of specified amount, multiply the surrender charge found in the
table of surrender charges (see Appendix B, pp. 26-27) times two-thirds. (For
example, the surrender charge for a male preferred smoker age 35 is $9.99 per
$1000 of specified amount, or $999 for a policy with $100,000 specified amount.
Two-thirds of the SC, or $666, is the CDAC for the policy).
During the second and subsequent policy years the CDAC will equal the CDAC
during the first policy year times the percent indicated in the table below.
An additional CDAC will be imposed under the policy in the event of each
requested increase in specified amount. The additional CDAC is an amount per
$1,000 of increased specified amount and will be deducted upon the surrender of
the policy or upon a voluntary reduction of the increased specified amount at
any time during the 16 years following such increase. The amount of the CDAC
will be equal to the CDAC that would apply to a newly issued policy at the age
of the insured at the time of the increase. The percentage of the CDAC
applicable in any year after the increase is shown in the table below, where
policy year is calculated from the date of the increase.
<TABLE>
<CAPTION>
During policy year Percent of CDSD and CDAC
(or after an increase) to be deducted
- ------------------------------------------------
<S> <C>
2 100%
3 100%
4 100%
5 100%
6 95%
7 90%
8 85%
9 80%
10 70%
11 60%
12 50%
13 40%
14 30%
15 20%
16 10%
</TABLE>
When the owner requests an increase in the specified amount, no additional
premium is required provided that the current net cash surrender value is
sufficient to cover the CDAC associated with the increase, as well as the
increase in the cost of insurance charges which result from the increase in
specified amount. However, if the net cash surrender value is insufficient to
cover such costs, additional premium will be required for the increase to be
granted, and the percent of premium charge will be deducted from that
additional premium.
SURRENDER CHARGE. The total of all Contingent Deferred Sales Charges and all
Contingent Deferred Administrative Charges is collectively referred to as the
surrender charge.
MONTHLY DEDUCTIONS. On the policy date and on each monthly anniversary day
following, deductions will be made from the policy value. These deductions are
of two types: A monthly charge and a monthly cost of insurance deduction.
Ordinarily, the monthly deductions are deducted from the policy value in
proportion to the values in the General Account and the subaccounts. The
monthly deductions may be made by some other method if requested by the owner,
and if such method is acceptable to Lincoln Life.
COST OF INSURANCE CHARGES. On the policy date and on each monthly anniversary
day following, cost of insurance charges will be deducted from the policy
value. Ordinarily, the cost of insurance charges are deducted in proportion to
the values in the General Account and the subaccounts. The cost of insurance
charges may be made by some other method if requested by the owner, and if such
method is acceptable to Lincoln Life.
The cost of insurance charges depend upon a number of variables, and the cost
for each policy month can vary from month to month. On each monthly anniversary
day, Lincoln Life will determine the monthly cost of insurance for the
following month as equal to:
a. The death benefit on the monthly anniversary day; divided by
b. 1.0032737 (the monthly interest factor equivalent to an annual interest rate
of 4%); minus,
c. The policy value on the monthly anniversary day without regard to the cost
of insurance; divided by
d. 1,000; the result multiplied by
e. The applicable cost of insurance rate per $1,000 as described below.
The cost of insurance rates are based on the sex, attained age, rate class of
the person insured, and specified amount of the policy. In states requiring
unisex rates, in federally qualified pension plan sales, in employer sponsored
situations and in any other situation where unisex rates are required by law,
the cost of insurance rates are not based on sex. The monthly cost of insurance
rates may be changed by Lincoln Life from time to time. A change in the cost of
insurance rates will apply to all persons of the same attained age, sex, rate
class, and specified amount and whose policies have been in effect for the same
length of time. The cost of insurance rates will not exceed those described in
the Table of guaranteed maximum insurance rates shown in the policy. These
rates are based on the l980 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
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Smoker Mortality Table age last birthday, for attained ages sixteen and over,
depending on the smoking status of the insured. Standard rate classes have
guaranteed rates which do not exceed 100% of the applicable table.
The rate class of an insured will affect the cost of insurance rate. Lincoln
Life currently places insureds into a standard rate class or rate classes
involving a higher mortality risk. In an otherwise identical policy, insureds
in the standard rate class will have a lower cost of insurance than those in
the rate class with the higher mortality risk. The standard rate class is also
divided into four categories: standard smoker, preferred smoker, standard
nonsmoker, and preferred nonsmoker. Insureds who are standard nonsmoker or
preferred nonsmoker will generally incur a lower cost of insurance than those
insureds who are in the smoker rate classes. Likewise, insureds who are
preferred smoker or preferred nonsmoker will generally incur a lower cost of
insurance than similarly situated insureds who are standard smoker or standard
nonsmoker respectively.
The specified amount of the policy will affect the cost of insurance rates
applied to a specific policy. In general, policies with a specified amount of
$200,000 or more will have lower current cost of insurance rates than policies
with smaller specified amounts.
MONTHLY CHARGE. A monthly charge of $7.50 is deducted from the policy value
each month the policy is in force to compensate Lincoln Life for continuing
administration of the policy, premium billings, overhead expenses, and other
miscellaneous expenses. Lincoln Life does not anticipate any profits from this
charge. This charge is guaranteed not to increase during the life of the
policy.
ASSET MANAGEMENT CHARGE. The investment advisor for each of the funds or series
deducts a daily charge as a percent of the net assets in each fund or series as
an asset management charge. The charge has the effect of reducing the
investment results credited to the subaccounts.
The investment advisor for the Lincoln funds is Lincoln Investment Management
Inc. (Lincoln Investment). As compensation for its services, Lincoln Investment
deducts a daily charge as a percent of the net assets in each particular fund
which is equivalent to the following annual rates:
Lincoln National Bond Fund, Inc., Lincoln National Growth and Income Fund,
Inc., Lincoln National Managed Fund, Inc., Lincoln National Money Market Fund,
Inc., Lincoln National Social Awareness Fund, Inc., and Lincoln National
Special Opportunities Fund, Inc.: .48 of 1% on the first $200 million of the
net assets of each fund, .40 of 1% of the next $200 million, and .30 of 1% of
the remaining net assets.
Lincoln National International Fund, Inc.: .90 of 1% of the first $200 million
of the net assets of the fund, .75 of 1% of the next $200 million, and .60 of
1% of the remaining net assets.
Lincoln National Global Asset Allocation Fund, Inc.: .75 of 1% of the first
$200 million of the net assets of the fund, .70 of 1% of the next $200 million,
and .68 of 1% of the remaining net assets.
Lincoln National Aggressive Growth Fund, Inc.: .75 of 1% of the first $200
million of the net assets of the fund, .70 of 1% of the next $200 million,
and .65 of 1% of the remaining net assets.
Lincoln National Equity-Income Fund, Inc.: .95 of 1% of the net assets of the
fund.
Lincoln National Capital Appreciation Fund, Inc.: .80 of 1% of the net assets
of the fund.
The investment advisors for the Delaware Group Premium Fund, Inc., are Delaware
Management and Delaware International, an affiliate of Delaware Management. As
compensation for their services, they deduct a daily charge as a percent of the
net assets in each particular series which is equivalent to the following
annual rates:
Delaware Equity/Income Series: .60 of 1% of the net assets of the series.
However, Delaware Management has temporarily waived portions of these fees. See
the Delaware Group Premium Fund, Inc. prospectus for details.
Delaware Emerging Growth Series: .75 of 1% of the net assets of the series.
However, Delaware Management has temporarily waived portions of these fees. See
the Delaware Group Premium Fund, Inc. prospectus for details.
Delaware Global Bond Series: .75 of 1% of the net assets of the series.
However, Delaware Management has temporarily waived portions of these fees. See
the Delaware Group Premium Fund, Inc. prospectus for details.
Because the Separate Account purchases shares of the funds or series involved,
the value of the net assets of the subaccounts of the Separate Account will
reflect not only the fees of the Investment Advisor, but also other
miscellaneous expenses incurred by those funds or series.
MORTALITY AND EXPENSE RISK CHARGE. Lincoln Life deducts a daily charge as a
percent of the assets of the Separate Account as a mortality and expense risk
charge. This charge has the effect of reducing gross investment results
credited to the subaccounts. The daily rate currently charged is equal to an
annual rate of .68 of 1% of the value of the net assets of the Separate
Account, although this charge is reduced to a daily rate of .0017534% (which is
equivalent to an annual rate of .64 of 1%) until at least May 1, 1997 in order
to offset some of the miscellaneous expenses incurred by the underlying funds.
This deduction may increase or decrease, but is guaranteed not to exceed .90 of
1% in any policy year.
Lincoln Life will reduce the current mortality and expense risk charge whenever
the previous year's average ratio of fund miscellaneous expenses to average net
assets exceeds .10 of 1%. The reduction for the following 12 months will take
effect each May 1 and will equal the excess, if any, of the average ratio of
fund miscellaneous expenses to average net assets over .10%; however, the
reduction will never exceed .10 of 1%.
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<PAGE>
The mortality risk assumed is that insureds may live for a shorter period of
time than estimated and, therefore, a greater amount of death benefits will be
payable. The expense risk assumed is that expenses incurred in issuing and
administering the policies will be greater than estimated.
OTHER CHARGES. Two other miscellaneous charges are occasionally incurred: a
withdrawal charge and a transfer charge. The withdrawal charge is incurred when
the owner of the policy requests a withdrawal from the policy value; the charge
is deducted from the withdrawn amount and the balance is paid to the owner.
Withdrawals may be made any time after the first policy year, but only one
withdrawal may be made per year. The withdrawal charge consists of a processing
fee and a possible early withdrawal penalty. The early withdrawal penalty
portion is applicable only at times when the surrender charge is greater than
zero. As a current practice, the withdrawal charge is equal to 3% of the
withdrawn amount during the first 10 policy years, and is equal to $10 at all
other times. The first $10 of the withdrawal charge is currently applied as a
processing fee and the remainder, if any, constitutes an early withdrawal
penalty. The early withdrawal penalty portion first reduces any remaining CDSC
and any excess reduces any remaining CDAC; any excess of the early withdrawal
penalty over the surrender charge will be waived. The withdrawal charge is
guaranteed not to exceed the greater of $25 or 5% of the withdrawn amount at
times when the surrender charge is greater than zero and is guaranteed not to
exceed $25 at all other times.
The transfer charge is incurred when the owner requests that funds be
transferred from one subaccount or the General Account to another subaccount or
the General Account. The transfer charge is $10, and is deducted from the
amount transferred; however, the transfer charge is currently being waived for
all transfers. The maximum number of transfers allowed between subaccounts in a
policy year is twelve.
No charges are currently made from the Separate Account for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
company may make deductions from the policy to pay those taxes. (See Federal
tax matters, p. 20-22).
REDUCTION OF CHARGES
The percent of premium charge, surrender charge, and the monthly charge set
forth in this prospectus may be reduced because of special circumstances that
result in lower sales, administrative, or mortality expenses. For example,
special circumstances may exist in connection with sales to Lincoln Life
policyholders, or sales to employees of Lincoln Life. The amounts of any
reductions will reflect the reduced sales effort and administrative costs
resulting from, or the different mortality experience expected as a result of,
the special circumstances. Reductions will not be unfairly discriminatory
against any person, including the affected policyowners and owners of all other
policies funded by the Separate Account.
EXCHANGE OF LINCOLN LIFE
UNIVERSAL LIFE POLICIES
Existing Lincoln Life Universal Life policies may currently be exchanged for a
policy described in this prospectus. Because Lincoln Life's expenses are
reduced in such exchanges, as a current practice the percent of premium charge
will be waived on the amount of policy value exchanged. In addition, as a
current practice the Contingent Deferred Sales Charge and the Contingent
Deferred Administrative Charge will be reduced to 25% of the normal charges for
the specified amount transferred and further reduced by the amount of any
surrender charge collected on the surrendered policy. All additional premiums
will be subject to the percent of premium charge and any increase in specified
amount will be subject to additional surrender charges. Existing Lincoln Life
Variable Life policies may not be exchanged unless or until Lincoln Life
receives special exemptive relief from the Securities and Exchange Commission
to honor such exchange requests.
TERM CONVERSION CREDITS
Lincoln Life currently has a term conversion program which gives premium
credits to the policy if the owner is converting from a term insurance policy.
Term insurance policies issued by Lincoln Life or by most other life insurance
company may be converted to the policy under this program and receive term
conversion credits. Except for guaranteed term conversion privileges provided
under some Lincoln Life term insurance policies or otherwise provided by
special agreement, all term insurance policy conversions are subject to
evidence of insurability satisfactory to Lincoln Life. All conversion credits
are deposited in the policy without the percent of premium charge. The amount
of the term conversion credits and the requirements for qualification for those
credits is subject to change by Lincoln Life, but such changes will not be
unfairly discriminatory against any person, including the affected policyowners
and owners of all other policies funded by the Separate Account.
POLICY BENEFITS
DEATH BENEFIT AND DEATH BENEFIT TYPES
As long as the policy remains in force (see Policy lapse and reinstatement, p.
16), Lincoln Life will, upon proof of the insured's death, pay the death
benefit proceeds of the policy to the named beneficiary in accordance with the
designated death benefit type. The proceeds may be paid in cash or under one or
more of the payment options set forth in the policy. (See Proceeds and payment
options, p. 17.) The death benefit proceeds payable under the designated death
benefit type will be increased by any unearned loan interest, and will be
reduced by any outstanding loan and any due and unpaid charges. (See Policy
lapse and reinstatement, p. 16.) These proceeds will be further increased by
any additional insurance on the insured provided by rider.
12
<PAGE>
The policy provides two death benefit types: Type 1, basic coverage, and Type
2, basic plus policy value coverage. Generally, the owner designates the death
benefit type in the application. The owner may change the death benefit type at
any time. (See Policy changes, p. 14.)
TYPE 1. The death benefit is the greater of the specified amount of the policy
or a specified percentage of the policy value on or prior to the date of death.
The specified percentage at anytime is based on the attained age of the insured
as of the beginning of the policy year.
TYPE 2. The death benefit is equal to the greater of the specified amount plus
the policy value of the policy or a specified percentage of the policy value on
or prior to the date of death. The specified percentage at any time is based on
the attained age of the insured as of the beginning of the policy year.
Under a Type 1 basic coverage, the net amount at risk decreases as the policy
value increases. (The net amount at risk is equal to the death benefit less the
policy value.) Under a Type 2 basic plus policy value coverage, the net amount
at risk remains constant, so the cost of insurance deduction will be relatively
higher on a Type 2 basic plus policy value coverage than on a Type 1 basic
coverage. As a result, policy values under a Type 1 basic coverage tend to
increase faster than under a Type 2 basic plus policy value coverage, assuming
favorable investment performance. Because of this, policyowners that are more
interested in achieving higher policy values more quickly (assuming favorable
investment experience) would be more likely to select a Type 1 basic coverage.
In contrast, the death benefit under Type 2 will increase or decrease as the
policy value increases or decreases. Consequently, policyowners who are more
interested in increasing total death benefits (assuming favorable investment
experience) would be more likely to select a Type 2 basic plus policy value
coverage.
* The specified percentages are shown in the table below:
<TABLE>
<CAPTION>
Attained Specified Attained Specified Attained Specified
age percentage age percentage age percentage
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40 or
younger 250% 59 134% 91 104%
41 243 60 130 92 103
42 236 61 128 93 102
43 229 62 126 94 101
44 222 63 124 95 or 100
45 215 64 122 older
46 209 65 120
47 203 66 119
48 197 67 118
49 191 68 117
50 185 69 116
51 178 70 115
52 171 71 113
53 164 72 111
54 157 73 109
55 150 74 107
56 146 75 105
57 142 through
58 138 90
</TABLE>
EXAMPLES. For both examples, assume that the insured is under the age of 40 and
that there is no outstanding policy loan.
Under Type 1, a policy with a specified amount of $250,000 will generally pay
$250,000 in life insurance proceeds. However, because life insurance proceeds
cannot be less than 250% (the applicable specified percentage) of policy value,
any time the policy value of this policy exceeds $100,000, life insurance
proceeds will exceed the $250,000 specified amount. If the policy value equals
or exceeds $100,000, each additional dollar added to the policy value will
increase the life insurance proceeds by $2.50. Thus, for a policy with a
specified amount of $250,000 and a policy value of $200,000, the beneficiary
will be entitled to life insurance proceeds of $500,000 (250% x $200,000); a
policy value of $300,000 will yield life insurance proceeds of $750,000 (250% x
$300,000); a policy value of $500,000 will yield life insurance proceeds of
$1,250,000 (250% x $500,000). Similarly, so long as policy value exceeds
$100,000, each dollar taken out of policy value will reduce the life insurance
proceeds by $2.50. If at any time the policy value multiplied by the specified
percentage is less than the specified amount, the life insurance proceeds will
equal the specified amount of the policy.
Under Type 2, a policy with a specified amount of $250,000 will generally pay
life insurance proceeds of $250,000 plus policy value. Thus, for example, a
policy with a specified amount of $250,000 and policy value of $50,000 will
yield life insurance proceeds equal to $300,000 ($250,000 + $50,000); a policy
value of $100,000 will yield life insurance proceeds of $350,000 ($250,000 +
$100,000). The life insurance proceeds cannot, however, be less than 250% (the
applicable specified percentage) of policy value. As a result, if the policy
value of the policy exceeds $166,667, the life insurance proceeds will be
greater than the specified amount plus policy value. Each additional dollar
added to policy value above $166,667 will increase the life insurance proceeds
by $2.50. A policy with a policy value of $200,000 will therefore have life
insurance proceeds of $500,000 (250% x $200,000); a policy value of $500,000
will yield life insurance proceeds of $1,250,000 (250% x $500,000); a policy
value of $1,000,000 will yield life insurance proceeds of $2,500,000 (250% x
$1,000,000).
Similarly, any time policy value exceeds $166,667, each dollar withdrawn from
policy value will reduce the life insurance proceeds by $2.50. If at any time,
however, policy value multiplied by the specified percentage is less than the
specified amount plus policy value, then the life insurance proceeds will be
the specified amount plus policy value.
The above examples describe scenarios which include favorable investment
performance. In addition, the applicable percentage of 250% that is used is for
ages 40 or younger. Because the applicable percentage decreases as the attained
age increases, the impact of the applicable percentage on the death benefit
payment levels will be lessened as the attained age progresses beyond age 40.
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<PAGE>
DEATH BENEFIT GUARANTEE
Lincoln Life expects payment of the required death benefit guarantee monthly
premiums will be sufficient, when combined with net investment results, to pay
for all charges to the policy during the first three policy years, and thereby
provide life insurance protection on the insured for that period. In some
situations, however, the combination of poor net investment results and monthly
deductions could result in the net cash surrender value being reduced to zero.
In such situations, Lincoln Life will continue the policy in force for the
first three policy years, provided the death benefit guarantee monthly premium
requirement continues to be met. Lincoln Life makes no charge for this
additional benefit.
POLICY CHANGES
CHANGE IN TYPE OF DEATH BENEFIT. The owner may also change the type of death
benefit coverage from Type 1 to Type 2 or from Type 2 to Type 1. The request
for such a change must be made in writing on a form suitable to Lincoln Life.
The change will be effective on the first monthly anniversary day on or next
following the day Lincoln Life receives the request. No change in the type of
death benefit will be allowed if the resulting specified amount would be less
than the minimum specified amount of $50,000.
If the change is from Type 1 to Type 2, the insured's specified amount after
such change will be equal to the insured's specified amount prior to such
change minus the policy value on the date of change.
If the change is from Type 2 to Type 1, the insured's specified amount after
such change will be equal to the insured's specified amount prior to such
change plus the policy value on the date of change.
CHANGES IN AMOUNT OF INSURANCE COVERAGE. In addition to the above changes, the
owner may request to increase or decrease the specified amount at any time. The
request for such a change must be from the owner and in writing on a form
suitable to Lincoln Life. Any decrease will become effective on the first
monthly anniversary day on or next following the day the request is received by
Lincoln Life. Any such decrease will reduce insurance first against insurance
provided by the most recent increase, next against the next most recent
increases successively, and finally against insurance provided under the
original application. The specified amount after any requested decrease may not
be less than $50,000. Any request for an increase must be applied for on a
supplemental application. Such increase will be subject to evidence of
insurability satisfactory to Lincoln Life and to its issue rules and limits at
the time of increase. Furthermore, such increase will not be allowed unless the
net cash surrender value is sufficient to cover the next monthly deductions and
the surrender charge for the increase. Any increase will become effective on
the first monthly anniversary day on or next following the day the application
for increase is approved.
POLICY VALUE
The policy provides for the accumulation of policy value, which is calculated
as often as the assets of the Separate Account are valued. The policy value
will vary with the investment performance of the General Account and of the
Separate Account, as well as other factors. In particular, policy value also
depends on any premiums received, any policy loans, and any charges and
deductions assessed the policy. The policy has no guaranteed minimum policy
value or net cash surrender value.
On the policy date, the policy value will be the initial net premium, minus the
sum of the following:
a. The monthly charge;
b. The cost of insurance for the first month;
c. Any charges for extra benefits.
On each monthly anniversary day, the policy value is equal to the sum of the
following:
a. The policy value on the preceding day;
b. Any increase due to net investment results in the value of the
subaccounts to which the investment amount is allocated;
c. Interest at not less than the General Account guaranteed interest rate
shown on the policy schedule on amounts allocated to the General
Account;
d. Interest at not less than the rate shown on the policy schedule on any
outstanding loan amount;
e. Any net premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to net investment results in the value of the
subaccounts to which the investment amount is allocated;
g. Any withdrawals;
h. Any amount charged against the investment amount for federal or other
governmental income taxes;
i. All partial surrender charges deducted since the preceding day;
j. The monthly charge;
k. The cost of insurance for the following month;
l. Any charges for extra benefits.
On any day other than a monthly anniversary day, the policy value is equal to
the sum of the following:
a. The policy value on the preceding day;
b. Any increase due to net investment results in the value of the
subaccounts to which the investment amount is allocated;
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<PAGE>
c. Interest at not less than the General Account guaranteed interest rate
shown on the policy schedule on amounts allocated to the General
Account;
d. Interest at not less than the rate shown on the policy schedule on any
outstanding loan amount;
e. Any net premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to net investment results in the value of the
subaccounts to which the investment amount is allocated;
g. Any withdrawals;
h. Any amount charged against the investment amount for federal or other
governmental income taxes;
i. All partial surrender charges deducted since the preceding day;
The charges and deductions described above are further discussed in Charges and
deductions, p. 9.
GROSS INVESTMENT RESULTS. The gross investment results are equal to the change
in the market value of the assets of a fund or series from the previous
valuation day to the current day, plus the investment income on those assets
during the same period.
NET INVESTMENT RESULTS. The net investment results are the gross investment
results of a fund or series minus the asset management charges and any
miscellaneous fund expenses, and minus the mortality and expense risk charge.
The value of the assets in the funds or series will be taken at their fair
market value in accordance with accepted accounting practices and applicable
laws and regulations.
TRANSFER BETWEEN SUBACCOUNTS
Any time after the record date, the owner may request to transfer an amount
from one subaccount to another. The request to transfer funds must be in
writing on a form suitable to Lincoln Life; transfers may be made by telephone
request only if the owner has previously authorized telephone transfers in
writing on a form suitable to Lincoln Life. Lincoln Life will follow reasonable
procedures to determine that the telephone requester is authorized to request
such transfers, including requiring certain identifying information contained
in the written authorization. If such procedures are followed, Lincoln Life
will not be liable for any loss arising from any telephone transfer. Transfers
will take effect on the date that the request is received at the Home Office at
Lincoln Life. A transfer charge of $10 is made for each transfer and is
deducted from the amount transferred; however, the transfer charge is currently
being waived for all transfers. The minimum amount which may be transferred
between subaccounts is $100. The maximum number of transfers allowed in a
policy year is twelve.
TRANSFER TO AND FROM THE GENERAL ACCOUNT
Any time after the record date, the owner may also request to transfer amounts
from the Separate Account to the General Account. However, transfers from the
General Account to the Separate Account are subject to some restrictions. A
maximum of 20% of the unloaned policy value in the General Account may be
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 6 policy months. There is no minimum transfer amount;
however, if the unloaned amount in the General Account is $500 or less, the
owner may transfer the entire unloaned 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.
LOANS
At any time while the policy is in force the owner may make written request for
a loan against the policy. A written loan agreement will be executed between
the owner and Lincoln Life. The policy will be the sole security for the loan,
and the policy must be assigned to Lincoln Life as part of the loan agreement.
Ordinarily, the loan will be processed within seven days from the date the
request for a loan is received at the Home Office of Lincoln Life. Payments may
be postponed under certain circumstances. (See Postponement of payments, p.
18.)
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, p. 20-22.)
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, p 16.)
LOAN INTEREST. Interest on any loan will be payable annually in advance at an
annual rate of 6.0%, which is 6.38% effective annual rate of interest. Any
interest not paid when due will be added to the loan amount and will bear
interest at the same policy loan rate.
DEDUCTION OF LOAN AND LOAN INTEREST. Ordinarily the amount of any loan or
unpaid loan interest will be deducted from the General Account and the
subaccounts in proportion to the value in each. The deduction may be made by
some other method if the owner requests, and if such method is acceptable to
Lincoln Life. Amounts deducted from the Separate Account will be transferred to
the Lincoln Life General Account, where they will earn interest at an annual
rate of not less than 4.0%; currently,
15
<PAGE>
loaned amounts earn interest at an annual rate of 5.05%. The amount will remain
a part of the policy value, but will not be increased or decreased by
investment results in the Separate Account. Therefore, the policy value could
be more or less than what it would have been if the policy loan had not been
made, depending on the investment results in the Separate Account compared to
the interest credited to the assets transferred to the General Account to
secure the loan. In this way, a loan may have a permanent effect upon both the
policy value and the death benefit and may increase or decrease the potential
for policy lapse. In addition, outstanding policy loans reduce the death
benefit.
LOAN REPAYMENTS. Loan repayments will ordinarily be allocated to the General
Account and the subaccounts in accord with the most recent premium allocation.
They may be allocated by some other method if the owner requests it, and if
such method is acceptable to Lincoln Life. Any loan not repaid at the time of
surrender of the policy, maturity, or death of the insured will be deducted
from the amount otherwise payable.
WITHDRAWALS
Any time after the first policy year, and during the lifetime of the insured, a
cash withdrawal may be made from the policy value. The amount and timing of the
withdrawal is subject to certain limitations. The minimum withdrawal is $500
and only one withdrawal may be made during a policy year. During any year in
which the surrender charge is greater than zero, the amount of the withdrawal
may not be more than 20% of the net cash surrender value (except that Lincoln
Life has the current practice of waiving the 20% limitation after the tenth
policy year). During any year in which the surrender charge is equal to zero,
the amount of the withdrawal may not be more than the net cash surrender value.
As a current practice, the withdrawal charge is equal to 3% of the withdrawn
amount during the first 10 policy years, and is equal to $10 at all other
times. This charge is guaranteed not to exceed the greater of $25 or 5% of the
withdrawn amount at times when the surrender charge is greater than zero and is
guaranteed not to exceed $25 at all other times. The owner should be aware that
withdrawals may result in the owner incurring a tax liability. (See Federal
tax matters, p. 20-22.)
DEDUCTION OF WITHDRAWAL. When a withdrawal is made, the policy value will be
reduced by the amount of the withdrawal. The amount will be deducted from the
General Account and the subaccounts in proportion to the values in the General
Account and the subaccounts. The deduction may be made by some other method if
the owner requests it, and if such method is acceptable to Lincoln Life.
EFFECT OF WITHDRAWALS ON DEATH BENEFIT AND COST OF INSURANCE. A withdrawal may
affect the death benefit amount in one of several ways. First, if the death
benefit type is Type 1, the specified amount will automatically be reduced by
the amount of the withdrawal, and thus will lower the death benefit by the same
amount. If the death benefit is Type 2, this reduction in the specified amount
does not occur, but the death benefit is lowered by the amount the policy value
is decreased by the withdrawal. In addition, since the death benefit is
required to be at least equal to the specified percentage multiplied times the
policy value, a reduction in the policy value will sometimes result in a
reduction in the death benefit equal to the specified percentage times the
reduction in policy value. (See Death benefit and death benefit types, p. 12.)
In such cases, where the death benefit is reduced by an amount greater than the
withdrawal, the subsequent cost of insurance will be reduced (under either type
of death benefit) to reflect the excess reduction in death benefit.
No withdrawal will be allowed if the resulting insured's specified amount would
be less than $50,000. The request for withdrawal must be in writing on a form
suitable to Lincoln Life.
Ordinarily, withdrawals will be processed within seven days from the date the
request for a withdrawal is received at the Home Office of Lincoln Life.
Payment of the withdrawal amount may be postponed under certain circumstances.
(See Postponement of payments, p. 18.)
POLICY LAPSE AND REINSTATEMENT
During the first three policy years, insurance coverage under the policy will
be continued in force as long as the total premiums paid (minus any partial
withdrawals and minus any outstanding loans) equals or exceeds the death
benefit guarantee monthly premium times the number of months since the policy
date, including the current month. Unless coverage is being continued under the
death benefit guarantee (see Death benefit guarantee, p. 14) lapse will occur
when the policy value less surrender charges and less outstanding loans is
insufficient to cover the monthly deductions and the grace period expires
without a sufficient payment. Insurance coverage will continue during the grace
period, but the policy will be deemed to have no policy value for purposes of
policy loans and surrenders. Regardless of premium payments or current net cash
surrender value, coverage will never be continued beyond the maturity date of
the policy.
A grace period of 61 days will begin on the date Lincoln Life sends a notice of
any shortfall to the last known address of the owner or any assignee. The owner
must, during the grace period, make a payment sufficient to cover the monthly
deductions and any other charges due under the policy until the end of the
grace period. Failure to make a sufficient payment during the grace period will
cause the policy to lapse. Any net cash surrender value will be returned to the
owner, plus, if lapse occurs during the first two policy years, any required
refund of excess sales charge. If the insured dies during the grace period,
regardless of the cause of the grace period, any due and unpaid monthly
deductions will be deducted from the death benefit.
A lapsed policy may be reinstated at any time within five years after the date
of lapse and before the maturity date by submitting evidence of insurability
satisfactory to
16
<PAGE>
Lincoln Life and a premium sufficient to keep the policy in force for two
months. The effective date of a reinstatement will be the first monthly
anniversary day on or next following the day the application for
reinstatement is approved.
SURRENDER OF THE POLICY
The owner may surrender the policy at any time during the lifetime of the
insured and receive the net cash surrender value. The net cash surrender value
is equal to the policy value minus any surrender charge, minus any outstanding
loan and plus any unearned loan interest. The request must be made in writing
on a form suitable to Lincoln Life. The request will be effective the date the
request is received in the Home Office of Lincoln Life, or at a later date if
so requested by the owner. Ordinarily, the surrender will be processed within
seven days from the date the request for surrender is received at the Home
Office of Lincoln Life. The surrender of the policy may have tax consequences.
PROCEEDS AND PAYMENT OPTIONS
PROCEEDS. The amount payable under the policy on the maturity date, on the
surrender of the policy, or upon the death of any insured person is called the
proceeds of the policy.
The proceeds to be paid on the death of the insured will be the death benefit
minus any outstanding policy loan, and plus any unearned loan interest. The
proceeds to be paid on the surrender of the policy or on the maturity date will
be the net cash surrender value.
Any amount to be paid at the death of the insured or any other termination of
this policy will be paid in one sum unless otherwise provided. Interest will be
paid on this amount from date of death or maturity to date of payment at a
specified rate, not less than that required by law. All or part of the sum of
this amount and such interest credited to date of payment will be applied to
any payment option.
To the extent allowed by law, proceeds are not to be subject to any claims of a
beneficiary's creditors.
PAYMENT OPTIONS. Upon written request, all or part of the proceeds and interest
credited thereon may be applied to any payment option available from Lincoln
Life at the time payment is to be made. Under certain conditions, payment
options will only be available with the consent of Lincoln Life. Such
conditions will exist if the proceeds to be settled under any option are $2,500
or less, or if any installment or interest payment is $25 or less. In addition,
if any payee is a corporation, partnership, association, trustee, or assignee,
approval by Lincoln Life is needed before any proceeds can be applied to a
payment option.
The owner may elect any payment option while the insured is alive and may
change that election if that right has been reserved. When the proceeds become
payable to a beneficiary, the beneficiary may elect any payment option if the
proceeds are available to the beneficiary in one sum.
The option date is any date the policy terminates under the termination
provision.
Any proceeds payable under the policy may also be settled under any other
method of settlement offered by Lincoln Life on the option date. Additional
interest as determined by Lincoln Life may be paid or credited from time to
time in addition to the payments guaranteed under a payment option.
When proceeds become payable under a payment option, a payment contract will be
issued to the payee in exchange for the policy. Such payment contract may not
be assigned. Any change in payment option may be made only if it is provided
for in the payment contract. Under some of the payment options, proceeds may be
withdrawn under such payment option if provided for in the payment contract.
The amount to be withdrawn varies by the payment option.
GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of the policy plus the application and any
supplemental application, plus any riders, plus any amendments. The policy is
issued in consideration of the application and payment of the initial premium.
Only statements in the application and any supplemental applications can be
used to contest the validity of the policy or defend a claim. These statements
are considered representations and not warranties. A change in the policy will
be binding on Lincoln Life only if the change is in writing and the change is
made by the President, Vice President, Secretary, or Assistant Secretary of
Lincoln Life.
The policy is nonparticipating; it will not share in the profit or surplus
earnings of Lincoln Life.
SUICIDE
If the insured commits suicide, while sane or insane, within two years from the
policy date, the total liability of Lincoln Life under the policy will be the
premiums paid, minus any policy loan, plus any unearned loan interest, minus
any prior withdrawals, and minus the cost of any riders.
If the insured commits suicide, while sane or insane, within two years from the
effective date of any increase in insurance, our total liability with respect
to such increase will be its cost of insurance and monthly charges.
If the insured commits suicide, while sane or insane, within two years from the
effective date of any reinstatement, our total liability with respect to such
reinstatement will be the premiums paid since the effective date of the
reinstatement, minus any policy loan, plus any loan interest, minus any prior
withdrawals, and minus the cost of any riders.
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<PAGE>
REPRESENTATIONS AND CONTESTABILITY
All statements made in an application by, or on behalf of, the insured will, in
the absence of fraud, be deemed representations and not warranties. Statements
may be used to contest a claim or validity of the policy only if these
statements are contained in the application for issue, reissue, or
reinstatement, or in any supplemental application, and a copy of that
application or supplemental application is attached to the policy. The policy
will not be contestable after it has been in force for two years during the
lifetime of the insured. Also, any increase in coverage or any reinstatement
will not be contestable after that increase or reinstatement has been in force
two years from its effective date during the lifetime of the insured. Any
contest will then be based only on the application for the increase or
reinstatement and will be subject to the same conditions as for contest of the
policy.
INCORRECT AGE OR SEX
If there is an error in the age or sex of the insured, the excess of the death
benefit over the policy value will be adjusted to that which would be purchased
by the most recent cost of insurance at the correct age and sex. The resulting
death benefit will not be less than the percentage of the policy value required
by the death benefit provision at the insured's correct age.
CHANGE OF OWNER OR BENEFICIARY
The owner of the policy is the owner identified in the application, or a
successor. All rights of the owner belong to the owner while the insured is
alive. The rights pass to the estate of the owner if the owner dies before the
insured. The owner may transfer all ownership rights and privileges to a new
owner. The request must be in writing on a form suitable to Lincoln Life. The
change will be effective the day that the request is received in the Home
Office of Lincoln Life. Lincoln Life will not be responsible for any payment or
other action taken before having recorded the transfer. A change of ownership
will not, in and of itself, affect the interest of any beneficiary. A change of
ownership may have tax consequences.
The beneficiary is identified in the application for the policy, and will
receive the proceeds when the insured dies. The beneficiary may be changed by
the owner while the insured is alive, and provided that any prior designation
does not prohibit such a change. A change will revoke any prior designation of
the beneficiary. The request to change beneficiary must be in writing on a form
suitable to Lincoln Life. Lincoln Life reserves the right to require the policy
for endorsement of the change of beneficiary designation.
If not otherwise provided, the interest of any beneficiary who dies before the
insured will pass to any other Beneficiaries according to their interest.
Furthermore, if no beneficiary survives the insured, the proceeds will be paid
in one sum to the owner, if living. If the owner is not living, the proceeds
will be paid to the owner's estate.
ASSIGNMENT
Any assignment of the policy will not be binding on Lincoln Life unless it is
in writing on a form suitable to Lincoln Life and is received at the Home
Office. Lincoln Life will not be responsible for the validity of any
assignment, and reserves the right to require the policy for endorsement of any
assignment. An assignment of the policy may have tax consequences.
REPORTS AND RECORDS
Lincoln Life will maintain all records relating to the Separate Account.
Lincoln Life will mail to the owner at least once each year a report, without
charge, which will show the current policy value, the current net cash
surrender value, the current death benefit, any current policy loans, any
premiums paid, any cost of insurance charges deducted, and any withdrawals
made. The report will also include any other data that may be required where
the contract is delivered.
PROJECTION OF BENEFITS AND VALUES
At the owner's request, Lincoln Life will provide a report to the owner which
shows projected future results. The request must be in writing on a form
suitable to Lincoln Life. The report will be comparable in format to those
shown in Appendix D and will be based on assumptions in regard to the death
benefit as may be specified by the owner, planned premium payments as may be
specified by the owner, and such other assumptions as are necessary and
specified either by the owner or Lincoln Life. A reasonable fee may be charged
for this projection.
POSTPONEMENT OF PAYMENTS
Payments of any amount payable on surrender, loan, or benefits payable at death
or maturity may be postponed whenever: (i) the New York Stock Exchange is
closed other than customary week-end and holiday closings, or trading on the
New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission; (ii) the Commission by order permits postponement for the
protection of owners; or (iii) an emergency exists, as determined by the
Commission, as a result of which disposal of securities is not reasonably
practical or it is not reasonably practical to determine the value of the
Separate Account's net assets. Transfers may also be postponed under such
circumstances.
Requests for surrenders or policy loans of policy values representing premiums
paid by check may be delayed until such time as the check has cleared the
owner's bank.
RIDERS
The availability of the riders listed below is subject to approval by the State
Insurance Department of the State in which the policy is issued, and is also
subject to the current underwriting and issue procedures in place at the time
of the application. The underwriting and issue procedures are subject to change
without notice.
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<PAGE>
TERM RIDER FOR COVERED INSURED. The spouse and/or children of the Primary
Insured may be added as an other insured on the base plan. Likewise, other
individuals can be added as an Other Insured. The Term Rider for Covered
Insured is a term rider available for issue ages 0 to 80 and the cost of
insurance is deducted monthly for this benefit. Up to three such riders may be
added to a base policy. The maximum amount which may be issued on any rider
equals the amount of coverage on the policy multiplied times 19. The minimum
amount is $25,000 for each Other Insured.
CHILDREN'S TERM RIDER. The Children's Term Rider is a term rider available for
children (natural, adopted, or stepchild) of the Primary Insured. Children 15
days to age 24 inclusive are covered. The rider is available in units of $1,000
with a minimum of $2,000 and a maximum of $20,000 per any one family. The cost
of insurance for this rider is deducted monthly.
GUARANTEED INSURABILITY RIDER. This rider is available for issue ages 0 to 40
and it is available for the Primary Insured, and/or those covered under the
Term Rider for Covered Insured. This rider allows the Covered Insured to
purchase, without evidence of insurability, additional insurance on the option
dates, or alternate option dates. It can be purchased in units of $1,000, with
a minimum amount of $10,000 and a maximum amount of $100,000 or the specified
amount, if less. Total amount of options exercised may not exceed five times
the option amount. There are eight regular option dates, beginning at age 25,
every three years thereafter, and the last option is at age 46. An alternate
option date will occur three months after marriage, birth of a child, or
adoption of a child. Exercising an alternate option date reduces the next
regular option date. This rider is not available for substandard risks. The
cost of insurance for this rider is deducted monthly from the policy value.
ACCIDENTAL DEATH BENEFIT RIDER. This rider is available for the Primary
Insured, and/or those covered under the Term Rider for Covered Insured. The
Accidental Death Benefit Rider provides an additional life insurance benefit in
the case of accidental death. It is available for ages 5 through 69. The
minimum amount which can be purchased is $10,000 and the maximum amount is two
times the specified amount on the Covered Insured, not to exceed a total of
$350,000 in all policies, in all companies, for that insured. The cost of
insurance for this rider is deducted monthly from the policy value.
WAIVER OF COST OF INSURANCE RIDER. This rider is available for ages 5 through
64. It waives the total cost of insurance for the policy, the monthly charge,
and the cost of any additional benefit riders, after the Primary Insured has
been totally disabled for six consecutive months and the claim for total
disability has been approved. The cost of insurance for this rider is deducted
monthly from the policy value.
DISABILITY BENEFIT PAYMENT RIDER. This rider is available for ages 5 through
64. If the Covered Insured (Primary Insured or Other Insureds) under this rider
has been totally disabled for six consecutive months, and the claim for total
disability has been approved, a disability benefit amount will be paid as a
premium to the policy. The minimum benefit which can be selected is $50 per
month. The maximum is two times the death benefit guarantee monthly premium.
The cost of insurance for this rider is deducted monthly from the policy value.
CONVALESCENT CARE BENEFIT RIDER. This rider may be available in several forms
which differ by the amount and duration of benefit payments and also by the
conditions required to receive benefit payments. The rider is available for the
Primary Insured only and its availability may stipulate certain minimum or
maximum policy specified amounts. The rider provides benefit payments when the
health of the insured is such that covered convalescent care services are
necessary. The cost of insurance for this rider is deducted monthly from the
policy value.
CONTINGENT OPTION RIDER. The Contingent Option Rider is a guaranteed
insurability rider that gives the owner the right to purchase an additional
policy without evidence of insurability upon the death of the designated person
(the Option Life). Available to issue ages 0 through 80. The cost of insurance
for this rider is based on the Contingent Option Amount and is deducted monthly
from the policy value.
RETIREMENT OPTION RIDER. The Retirement Option Rider is a guaranteed
insurability rider that gives the owner the right to purchase an additional
policy without evidence of insurability within 60 days after a specific date
(the option date). The option date, determined at the issue of the rider, may
be the owner's anticipated retirement date or some other date after which
additional insurance may be needed. Available to issue ages 0 through 70. The
cost of insurance for this rider is based on the retirement option amount and
is deducted monthly from the policy value.
ACCELERATED BENEFIT ELECTION RIDER. This rider is available to issue ages 0
through 80 and gives the owner the right to receive a portion of the death
benefit prior to death if the insured is diagnosed as having an illness which
with reasonable medical certainty will cause death within 12 months. Upon
receipt of proof of loss, up to one-half of the eligible death benefit (as
defined in the rider) may be advanced to the owner in cash as an initial
accelerated benefit. A limited amount of subsequent accelerated benefit is also
available to pay premiums and interest charges required on the policy. The
amount of all advanced accelerated benefits creates an interest-bearing lien
against the death benefit otherwise payable at death. There is no cost of
insurance for this rider, but an administrative expense charge is payable upon
application for benefits.
JOINT LIFE TERM RIDER FOR COVERED INSUREDS. This rider is available for issue
ages 20 to 80. This rider provides term insurance for two, three, or four
individuals and pays the Joint Life Term Death Benefit upon the death of the
first to die of the Covered Insureds. The cost
19
<PAGE>
of insurance and monthly charges for this rider are deducted monthly from the
policy value.
LAST SURVIVOR TERM RIDER FOR COVERED INSUREDS. This rider is available for
issue ages 20 to 85 if the average of the ages does not exceed 80. This rider
provides term insurance for two, three, or four individuals and pays the last
survivor term death benefit upon the death of the last to die of the Covered
Insureds. The cost of insurance and monthly charges for this rider are deducted
monthly from the policy value. The minimum issue amount is $25,000; the maximum
issue amount is equal to 19 times the specified amount of the policy.
LAST SURVIVOR CONTINGENT OPTION INSURABILITY RIDER AND LAST SURVIVOR RETIREMENT
OPTION INSURABILITY RIDER. These riders are only available if a Last Survivor
Term Rider for Covered Insureds is on the policy. The Last Survivor Contingent
Option Rider is a guaranteed insurability rider that gives the owner the right
to purchase an additional last survivor policy without evidence of insurability
upon the death of the designated person (the option life). The Last Survivor
Retirement Option Insurability Rider grants a similar benefit to be exercised
with 60 days of the option date. The option date is chosen at issue and cannot
be later than age 80 of the oldest insured. Available to issue ages 20 through
70 of the oldest insured. The cost of insurance for this rider is based on the
contingent option amount and is deducted monthly from the policy value. The
minimum issue amount is $100,000; the maximum issue amount is 5 times the
specified amount of the last survivor term rider to which it is attached.
DISTRIBUTION OF THE POLICY
The policy will be sold by individuals who, in addition to being licensed as
life insurance agents for Lincoln Life, are also its registered
representatives. Lincoln Life is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is
a member of the National Association of Securities Dealers.
FEDERAL TAX MATTERS
The following discussion is intended to provide a general description of the
federal income tax considerations associated with the policy. It does not
purport either to be complete or to cover all situations; this discussion is
not intended to be taken as tax advice. Consult a qualified tax advisor for
more complete information. This discussion is based upon Lincoln Life's
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to
the likelihood of continuation of the present federal income tax laws or of the
current interpretation by the Internal Revenue Service. Federal tax laws may
change without notice and as a result the taxable consequences to the insured,
policyowner, or beneficiary may be altered.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the Code)
includes a definition of a life insurance contract for federal tax purposes.
This definition can be satisfied by complying with either of two tests set
forth in section 7702. With respect to a policy which has an "accelerated death
benefit rider", there is some uncertainty as to qualification of the policy as
life insurance due to the limited guidance provided. Although the Secretary of
the Treasury (the Treasury) is authorized to prescribe regulations interpreting
the manner in which the tests under section 7702 are to be applied, such
regulations have not been issued. In addition, section 7702 of the Code was
amended by imposing certain modified requirements with respect to the mortality
(i.e., cost of insurance) and other expense charges that are to be used in
determining compliance of the policies with section 7702. Guidance as to how
these modified requirements are to be applied is extremely limited. If a policy
was determined not to be a life insurance contract for purposes of section
7702, such policy would not provide most of the tax advantages normally
provided by a life insurance policy.
With respect to a policy (other than a policy in respect of a smoker) issued on
the basis of a standard rate class or a rate class involving a lower mortality
risk (i.e., preferred basis), while there is some uncertainty due to the lack
of regulations and the limited guidance on the modified section 7702
requirements, Lincoln Life nonetheless believes that such a policy should meet
the section 7702 definition of a life insurance contract. With respect to a
policy issued on a substandard basis (i.e., a rate class involving higher than
standard mortality risk), a policy in respect of a smoker issued on a standard
rate class or a rate class with a lower mortality risk, or a policy which has a
last survivor of multiple insureds or first to die of multiple insureds
feature, there is even less guidance in particular as to how the modified
requirements are to be applied in determining whether such a policy meets the
section 7702 definition of a life insurance contract. Thus, it is not clear
whether or not such a policy would satisfy section 7702, particularly if the
owner pays the full amount of premiums permitted under the policy. If it is
subsequently determined that a policy does not satisfy section 7702, Lincoln
Life will take whatever steps are appropriate and necessary to cause such a
policy to comply with section 7702, including possibly refunding any premiums
paid that exceed the limitations allowable under section 7702 (together with
interest or other earnings on any premiums refunded as required by law). For
these reasons, Lincoln Life reserves the right to modify the policy as
necessary to qualify it as a life insurance contract under section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Separate Account to be
"adequately diversified" in
20
<PAGE>
order for the policy to be treated as a life insurance contract for federal tax
purposes. The Separate Account, through the various funds or series in which it
invests, intends to comply with the diversification requirements prescribed in
Treasury Regulations, which affect how each fund's or series assets may be
invested. Lincoln Life does not have control over the funds or series or their
investments. Nonetheless, Lincoln Life believes that the funds or series will
be operated in compliance with the requirements prescribed by the Treasury.
The regulations relating to diversification requirements do not provide
guidance concerning the extent to which policyowners may direct their
investments to the subaccounts of a Separate Account. When additional guidance
is provided, the policy may need to be modified to comply with such guidance.
It is not clear what this additional guidance will provide nor whether it will
be applied on a prospective basis only. For these reasons, Lincoln Life
reserves the right to modify the policy as necessary to prevent the owner from
being considered the owner of the assets of the Separate Account or otherwise
to qualify the policy for favorable tax treatment.
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable life contract will not be treated as a life insurance contract
for tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may
require the company to impose limitations on a contract owner's right to
control the investment. It is not known whether any such guidelines would have
a retroactive effect.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. IN GENERAL. Lincoln Life believes that the proceeds and cash value increases
of a policy should be treated in a manner consistent with a fixed benefit life
insurance policy for federal income tax purposes. Thus, the death benefit under
the policy should be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code.
A change in a policy's specified amount, a change in death benefit option, the
payment of premiums, the addition of additional insurance, a policy loan, a
partial withdrawal, a lapse with outstanding indebtedness, exchange of a
policy, or a surrender may have tax consequences depending upon the
circumstances. In addition, federal estate and generation skipping transfer,
and state and local estate inheritance, and other tax consequences of ownership
or receipt of policy proceeds depend upon the circumstances of each owner or
beneficiary. A competent tax advisor should be consulted for further
information. Generally, the owner will not be deemed to be in constructive
receipt of the cash value, including increments thereof, under the policy until
there is a distribution. The tax consequences of distributions from, and loans
taken from or secured by, a policy depend on whether the policy is classified
as a "Modified Endowment Contract" under section 7702A.
2. MODIFIED ENDOWMENT CONTRACTS. A policy may be treated as a Modified
Endowment Contract depending upon the amount of premiums paid in relation to
the death benefit provided under such policy. In addition, if a policy is
"materially changed," it may be treated as a Modified Endowment Contract
depending upon such relationship after such change. The premium limitation and
material change rules for determining whether a policy is a Modified Endowment
Contract are extremely complex. Moreover, due to the policy's flexibility,
classification of a policy as a Modified Endowment Contract will depend upon
the circumstances of each policy. Accordingly, a prospective owner should
contact a competent tax advisor before purchasing a policy to determine the
circumstances in which the policy would be a Modified Endowment Contract. In
addition, an owner should contact a competent tax advisor before paying any
additional premium or making any other change to, including an exchange of, a
policy to determine whether such premium payment or change would cause the
policy to be treated as a Modified Endowment Contract.
Lincoln Life will monitor premiums paid into each policy after the date of this
prospectus to determine when a premium payment will exceed the 7-pay test and
cause the policy to become a Modified Endowment Contract. If the owner has
given Lincoln Life instructions that the policy should not be allowed to become
a Modified Endowment Contract, any premiums in excess of the 7-pay Limitation
will first be applied to reduce any outstanding loan on the policy, and any
further excess will be refunded to the owner within 7 days. If the owner has
not given Lincoln Life instructions to the contrary, however, the premium will
be paid into the policy and a letter of notification of Modified Endowment
Contract status will be sent to the owner. The letter of notification will
include the available options, if any, for remedying the Modified Endowment
Contract status of the policy.
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as a Modified Endowment Contracts are subject to the
following tax rules: First, all distributions, including distributions upon
surrender and benefits paid at maturity, from such a policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the cash value immediately before the distribution over the investment in the
policy (described below) at such time. Second, loans taken from, or secured by,
such a policy are treated as distributions from such a policy and taxed
accordingly. Third, a 10 percent additional income tax is imposed on the
portion of any distribution from, or loan taken from or secured by, such a
policy that is included in income except where the distribution or loan is made
on or after the owner attains age 591 2, is attributable to the owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life of the owner or the joint lives of the owner and the
owner's beneficiary. Fourth,
21
<PAGE>
the cost of insurance for certain riders which are not "qualified additional
benefits" such as the Convalescent Care Rider may be treated as distributions
from such a policy and taxed accordingly.
4. DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Distributions from a policy that is not classified as a Modified Endowment
Contract are generally treated as first recovering the investment in the policy
(described below) and then, only after the return of all such investment in the
policy, as distributing taxable income. An exception to this general rule
occurs in the case of a decrease in the specified amount, a change in death
benefits from Type 2 to Type 1, or any other change that reduces benefits under
the policy in the first 15-years after the policy is issued and that results in
a cash distribution to the owner in order for the policy to continue complying
with the section 7702 definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the policy) under rules prescribed in section 7702.
Loans from, or secured by, a policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the owner.
Upon a complete surrender or lapse of a policy that is not a Modified Endowment
Contract, or when benefits are paid at such a policy's maturity date, if the
amount received plus the amount of indebtedness exceeds the total investment in
the policy, the excess will generally be treated as ordinary income subject to
tax.
Finally, neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a policy that is not a Modified Endowment
Contract are subject to the 10 percent additional income tax.
5. POLICY LOAN INTEREST. Generally, interest paid on any loan under a policy
which is owned by an individual is not deductible. In addition, interest on any
loan under a policy owned by a taxpayer and covering the life of any individual
who is an officer of or is financially interested in the business carried on by
that taxpayer will not be tax deductible to the extent the aggregate amount of
such loans with respect to contracts covering such individual exceeds $50,000.
No amount of policy loan interest is, however, deductible if the policy was
deemed for federal tax purposes to be a single premium life insurance contract.
The owner should consult a competent tax advisor as to whether the policy would
be so deemed.
6. INVESTMENT IN THE POLICY. Investment in the policy means (i) the aggregate
amount of any premiums or other consideration paid for a policy, minus (ii) the
aggregate amount received under the policy which is excluded from the gross
income of the owner (except that the amount of any loan from, or secured by, a
policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus, (iii) the amount of any
loan from, or secured by, a policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the owner.
7. MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by
Lincoln Life (or its affiliates) to the same owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in gross income under section 72 (e) of the Code.
8. TAXATION OF CONVALESCENT CARE BENEFIT RIDER AND ACCELERATED BENEFIT ELECTION
RIDER. The tax treatment of benefits paid under the Convalescent Care Benefit
Rider and Accelerated Benefit Election Rider, as well as the tax treatment of a
policy with such riders, is uncertain. Future legislation or interpretations
may treat all or part of such payments as taxable distributions from the
policy. Alternatively, such payments may be excluded from taxable income to the
extent they are used to pay for actual long-term care services or are
considered a death benefit under section 101(a)(1) of the Code. A competent tax
advisor should be consulted for further information.
TAXATION OF THE SEPARATE ACCOUNT
Lincoln Life does not initially expect to incur any income tax upon the
earnings or the realized capital gains attributable to the Separate Account.
Based upon these expectations, no charge is being made currently to the
Separate Account for federal income taxes which may be attributable to the
Separate Account. If, however, Lincoln Life determines that it may incur such
taxes, it may assess a charge for those taxes from the Separate Account.
VOTING RIGHTS
To the extent required by law, Lincoln Life will vote shares of the funds and
series held in the Separate Account at regular and special shareholder meetings
of the funds and series in accordance with instructions received from persons
having voting interests in the Separate Account. If, however, the Investment
Company Act of l940 or any regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result Lincoln Life
determines that it is permitted to vote the fund shares in its own right, it
may elect to do so.
The number of votes which each policyowner has the right to instruct will be
determined as one vote for each $100 of policy value in each subaccount.
Fractional shares will be allocated for amounts less than $100. The number of
votes which the policyowner has the right to instruct will be determined as of
the date coincident with the date established by the various series for
determining shareholders eligible to vote at the meetings of the funds and
series. Voting instructions will be solicited by written communications prior
to such meeting in accordance with procedures established by the funds and
series. Lincoln Life will vote shares of each fund and series as to which no
timely instructions are received in proportion
22
<PAGE>
to the voting instructions which are received with respect to all policies
participating in that fund or series. Each person having a voting interest will
receive proxy material, reports and other materials relating to the
appropriate portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Lincoln Life may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of any of the funds or series or to
approve or disapprove an investment advisory contract for a fund or series. In
addition, Lincoln Life itself may disregard voting instructions in favor of
changes initiated by a policyowner in the investment policy or the investment
advisor of a fund or series if Lincoln Life reasonably disapproves of such
changes. A change would be disapproved only if the proposed change is contrary
to state law or prohibited by state regulatory authorities or Lincoln Life
determined that the change would have an adverse effect on its General Account
in that the proposed investment policy for any fund or series may result in
overly speculative or unsound investments. In the event Lincoln Life does
disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next semiannual report to policyowners.
STATE REGULATION OF LINCOLN LIFE AND THE SEPARATE ACCOUNT
Lincoln Life, a stock life insurance company organized under the laws of
Indiana, is subject to regulation by the Insurance Department of the State of
Indiana. An annual statement is filed with the Indiana Department of Insurance
(Department) on or before March 1st of each year covering the operations and
reporting on the financial condition of Lincoln Life as of December 31 of the
preceding year. Periodically, the Department examines the liabilities and
reserves of Lincoln Life and the Separate Account and certifies their adequacy,
and a full examination of Lincoln Life's operations is conducted by the
Department at least once every five years.
In addition, Lincoln Life is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the Insurance Department of any other state applies the laws of the
state of domicile in determining permissible investments.
SAFEKEEPING OF THE ACCOUNT'S ASSETS
Lincoln Life holds title to the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from the General Account
assets. Records are maintained of all purchases and redemptions of fund shares
held by each subaccount. Additional protection is provided in the form of a
blanket fidelity bond which covers directors and employees of Lincoln Life. The
bond, which was issued by Fidelity and Deposit Co. of Maryland covers up to
$25,000,000.
The funds and series do not issue certificates. Thus, Lincoln Life holds the
Separate Account's assets in an open account in lief of stock certificates.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. Lincoln Life is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
EXPERTS
The financial statements of the Separate Account and the consolidated financial
statements and schedules of Lincoln Life appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, to the extent indicated in their reports thereon also appearing
elsewhere herein and in the registration statement. Such financial statements
and schedules have been included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Denis G.
Schwartz, FSA, as stated in the opinion filed as an exhibit to the Registration
Statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of l933, as amended, with respect to the
policy offered hereby. This prospectus does not contain all the information set
forth in such registration statement and the amendments and exhibits to such
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.
23
<PAGE>
Appendix A Prf NS = Preferred nonsmoker
Base minimum premiums Std NS = Standard nonsmoker
Per $1,000 of specified amount* Prf SM = Preferred smoker
Male (or unisex), age last birthday Std SM = Standard smoker
<TABLE>
<CAPTION>
Age Prf NS Std NS Prf SM Std SM Age Prf NS Std NS Prf SM Std SM
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 ** 3.62 ** **
- -------------------------------------------------------------------------------------------------
1 2.12 41 8.33 8.81 11.82 12.18
2 2.12 42 8.80 9.28 12.88 13.24
3 2.12 43 9.17 9.77 13.81 14.29
4 2.12 44 9.69 10.29 15.17 15.53
5 2.12 45 10.12 10.84 16.46 16.94
- -------------------------------------------------------------------------------------------------
6 2.12 46 10.59 11.43 17.58 18.18
7 2.12 47 11.34 12.18 18.69 19.41
8 2.13 48 11.98 13.06 20.10 20.82
9 2.21 49 12.86 13.94 21.52 22.24
10 2.31 50 13.80 15.00 22.98 23.82
- -------------------------------------------------------------------------------------------------
11 2.41 51 14.92 16.24 24.75 25.59
12 2.65 52 16.03 17.47 26.57 27.53
13 3.00 53 17.27 18.71 28.74 29.82
14 3.18 54 18.73 20.29 31.04 32.12
15 3.35 55 20.26 22.06 33.39 34.59
- -------------------------------------------------------------------------------------------------
16 3.59 3.71 4.29 4.41 56 21.90 23.82 35.66 36.98
17 3.94 4.06 4.64 4.76 57 23.72 25.76 36.62 38.06
18 4.12 4.24 4.82 4.94 58 25.72 27.88 37.59 39.15
19 4.12 4.24 4.82 4.94 59 27.78 30.18 38.68 40.36
20 4.12 4.24 5.00 5.12 60 30.13 32.65 39.90 41.70
- -------------------------------------------------------------------------------------------------
21 4.12 4.24 5.05 5.29 61 32.83 35.47 41.25 43.17
22 4.12 4.24 5.05 5.29 62 34.55 37.43 42.79 44.83
23 4.12 4.24 5.23 5.47 63 35.58 38.70 44.46 46.74
24 4.12 4.24 5.41 5.65 64 36.80 40.04 46.01 48.65
25 4.12 4.24 5.41 5.65 65 38.03 41.51 47.93 50.57
- -------------------------------------------------------------------------------------------------
26 4.17 4.29 5.41 5.65 66 38.73 42.39 51.20 52.47
27 4.36 4.48 5.41 5.65 67 39.58 43.30 53.53 54.93
28 4.57 4.69 5.41 5.65 68 41.17 45.11 55.99 57.52
29 4.78 4.90 5.60 5.84 69 43.28 47.35 58.82 60.26
30 5.01 5.13 5.94 6.18 70 45.66 49.78 61.93 63.21
- -------------------------------------------------------------------------------------------------
31 5.26 5.38 6.18 6.42 71 48.30 52.46 65.39 66.41
32 5.52 5.64 6.50 6.74 72 51.55 55.63 69.24 70.09
33 5.80 5.92 6.84 7.08 73 55.35 59.42 73.74 74.33
34 6.09 6.21 7.20 7.44 74 59.69 63.68 78.52 78.90
35 6.40 6.52 7.58 7.82 75 64.41 68.23 83.30 83.55
- -------------------------------------------------------------------------------------------------
36 6.73 6.85 7.99 8.23 76 69.46 72.85 87.78 88.03
37 7.08 7.20 8.42 8.66 77 74.84 77.72 92.28 92.54
38 7.21 7.57 9.11 9.35 78 80.70 96.81 97.06
39 7.60 7.96 9.88 10.24 79 87.32 88.72 101.48 101.74
40 8.02 8.38 10.76 11.12 80 94.43 95.11 106.44 106.69
- -------------------------------------------------------------------------------------------------
* To determine the death benefit guarantee monthly premium, multiply the specified amount divided
by 1000 times the number shown for the age and classification of the insured, then add $100 per
policy and divide the result by 12. Additional amounts are required for riders and/or substandards.
** This classification is not available below the age of 16.
</TABLE>
24
<PAGE>
APPENDIX A CONTINUED Prf NS = Preferred nonsmoker
Base minimum premiums Std NS = Standard nonsmoker
Per $1,000 of specified amount* Prf SM = Preferred smoker
Female, age last birthday Std SM = Standard smoker
<TABLE>
<CAPTION>
Age Prf NS Std NS Prf SM Std SM Age Prf NS Std NS Prf SM Std SM
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 ** 2.98 ** **
- -------------------------------------------------------------------------------------------------------------
1 1.76 41 7.06 7.42 9.29 9.53
2 1.76 42 7.43 7.79 9.88 10.24
3 1.76 43 7.70 8.18 10.58 10.94
4 1.76 44 7.99 8.59 11.64 12.00
5 1.76 45 8.42 9.02 12.70 13.06
- -------------------------------------------------------------------------------------------------------------
6 1.76 46 8.76 9.48 13.46 13.94
7 1.76 47 9.24 9.96 14.34 14.82
8 1.76 48 9.63 10.47 15.28 15.88
9 1.83 49 10.06 11.02 16.52 17.12
10 1.90 50 10.69 11.65 17.75 18.35
- -------------------------------------------------------------------------------------------------------------
11 1.98 51 11.57 12.53 19.04 19.76
12 2.12 52 12.33 13.41 20.46 21.18
13 2.15 53 13.21 14.29 21.75 22.59
14 2.24 54 14.15 15.35 23.16 24.00
15 2.33 55 14.92 16.24 24.57 25.41
- -------------------------------------------------------------------------------------------------------------
16 2.30 2.42 2.76 2.88 56 15.62 16.94 25.69 26.65
17 2.40 2.52 2.88 3.00 57 16.38 17.82 26.92 27.88
18 2.51 2.63 3.06 3.18 58 17.15 18.71 28.04 29.12
19 2.62 2.74 3.13 3.25 59 18.03 19.59 29.27 30.35
20 2.73 2.85 3.28 3.40 60 19.26 20.82 31.04 32.12
- -------------------------------------------------------------------------------------------------------------
21 2.85 2.97 3.43 3.55 61 20.73 22.41 33.21 34.41
22 2.98 3.10 3.58 3.70 62 22.73 24.53 35.60 36.92
23 3.12 3.24 3.74 3.86 63 25.08 27.00 36.75 38.19
24 3.25 3.37 3.92 4.04 64 27.61 29.65 37.97 39.53
25 3.41 3.53 4.10 4.22 65 30.19 32.47 39.19 40.87
- -------------------------------------------------------------------------------------------------------------
26 3.56 3.68 4.29 4.41 66 32.23 34.59 39.74 41.52
27 3.73 3.85 4.49 4.61 67 33.48 35.93 40.14 42.12
28 3.90 4.02 4.71 4.83 68 33.83 36.35 41.44 42.92
29 4.09 4.21 4.93 5.05 69 34.44 36.92 43.19 44.63
30 4.28 4.40 5.17 5.29 70 35.49 38.12 45.32 46.67
- -------------------------------------------------------------------------------------------------------------
31 4.37 4.61 5.42 5.54 71 37.48 40.19 47.97 49.20
32 4.59 4.83 5.69 5.81 72 39.99 42.75 51.10 52.29
33 4.82 5.06 5.97 6.09 73 43.05 45.85 54.79 55.89
34 5.06 5.30 6.27 6.39 74 46.75 49.51 59.11 60.04
35 5.32 5.56 6.58 6.70 75 50.82 53.53 63.83 64.47
- -------------------------------------------------------------------------------------------------------------
36 5.59 5.83 6.79 7.03 76 55.39 57.93 68.68 69.06
37 5.76 6.12 7.14 7.38 77 60.51 62.76 73.61 73.86
38 6.06 6.42 7.50 7.74 78 66.49 68.31 79.00 79.26
39 6.38 6.74 7.88 8.12 79 73.50 74.73 84.97 85.22
40 6.71 7.07 8.58 8.82 80 81.21 81.89 91.60 91.86
- -------------------------------------------------------------------------------------------------------------
* To determine the death benefit guarantee monthly premium, multiply the specified amount divided by 1000
times the number shown for the age and classification of the insured, then add $100 per policy and divide the
result by 12. Additional amounts are required for riders and/or substandards.
** This classification is not available below the age of 16.
</TABLE>
25
<PAGE>
APPENDIX B
Surrender charges Prf NS = Preferred nonsmoker
Per $1,000 of specified amount* Std NS = Standard nonsmoker
Male (or unisex), age last birthday Prf SM = Preferred smoker
Std SM = Standard smoker
<TABLE>
<CAPTION>
Age Prf NS Std NS Prf SM Std SM Age Prf NS Std NS Prf SM Std SM
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 ** 3.52 ** **
- -----------------------------------------------------------------------------------------------------------------
1 2.79 41 10.98 11.62 15.60 16.06
2 2.79 42 11.59 12.23 16.98 17.47
3 2.79 43 12.10 12.89 18.22 18.85
4 2.79 44 12.78 13.57 20.02 20.48
5 2.79 45 13.35 14.30 21.71 22.35
- -----------------------------------------------------------------------------------------------------------------
6 2.79 46 13.97 15.09 23.19 23.98
7 2.79 47 14.96 16.06 24.66 25.61
8 2.79 48 15.80 17.23 26.53 27.48
9 2.90 49 16.96 18.39 28.40 29.35
10 3.04 50 18.22 19.80 30.34 31.44
- -----------------------------------------------------------------------------------------------------------------
11 3.17 51 19.69 21.43 32.65 33.77
12 3.48 52 21.14 23.06 35.07 36.32
13 3.96 53 22.79 24.68 37.93 39.36
14 4.18 54 24.73 26.77 40.96 42.39
15 4.42 55 26.73 29.11 44.07 45.65
- -----------------------------------------------------------------------------------------------------------------
16 4.73 4.88 5.65 5.81 56 28.91 31.44 47.06 48.40
17 5.19 5.35 6.12 6.27 57 31.31 33.99 48.33 48.40
18 5.43 5.59 6.36 6.51 58 33.95 36.81 48.40 48.40
19 5.43 5.59 6.36 6.51 59 36.65 39.82 48.40 48.40
20 5.43 5.59 6.58 6.75 60 39.75 43.08 48.40 48.40
- -----------------------------------------------------------------------------------------------------------------
21 5.43 5.59 6.67 6.97 61 43.32 46.82 48.40 48.40
22 5.43 5.59 6.67 6.97 62 45.58 48.40 48.40 48.40
23 5.43 5.59 6.89 7.22 63 46.97 48.40 48.40 48.40
24 5.43 5.59 7.13 7.44 64 48.40 48.40 48.40 48.40
25 5.43 5.59 7.13 7.44 65 48.40 48.40 48.40 48.40
- -----------------------------------------------------------------------------------------------------------------
26 5.50 5.65 7.13 7.44 66 48.40 48.40 48.40 48.40
27 5.74 5.92 7.13 7.44 67 48.40 48.40 48.40 48.40
28 6.03 6.18 7.13 7.44 68 48.12 48.12 48.40 48.40
29 6.31 6.47 7.37 7.70 69 47.85 47.85 48.35 48.35
30 6.60 6.78 7.83 8.14 70 47.62 47.62 48.28 48.28
- -----------------------------------------------------------------------------------------------------------------
31 6.93 7.08 8.14 8.47 71 47.42 47.42 48.21 48.21
32 7.28 7.44 8.56 8.89 72 47.24 47.24 48.18 48.18
33 7.66 7.81 9.02 9.33 73 47.06 47.06 48.17 48.17
34 8.03 8.18 9.50 9.81 74 46.79 46.86 48.14 48.14
35 8.45 8.60 9.99 10.32 75 46.44 46.79 47.85 47.85
- -----------------------------------------------------------------------------------------------------------------
36 8.87 9.04 10.54 10.85 76 46.06 46.44 46.81 46.81
37 9.35 9.50 11.11 11.42 77 45.38 46.06 45.65 45.65
38 9.50 9.99 12.01 12.34 78 44.08 45.38 44.37 44.37
39 10.03 10.49 13.02 13.51 79 42.67 42.67 42.96 42.96
40 10.58 11.04 14.19 14.67 80 41.12 41.12 41.41 41.41
- -----------------------------------------------------------------------------------------------------------------
* For requested increases in the specified amount, the applicable surrender charge will be two-thirds that of the
corresponding surrender charge listed above.
** This classification is not available below the age of 16.
</TABLE>
26
<PAGE>
APPENDIX B CONTINUED
Surrender charges Prf NS = Preferred nonsmoker
Per $1,000 of specified amount* Std NS = Standard nonsmoker
Female, age last birthday Prf SM = Preferred smoker
Std SM = Standard smoker
<TABLE>
<CAPTION>
Age Prf NS Std NS Prf SM Std SM Age Prf NS Std NS Prf SM Std SM
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 ** 2.90 ** **
- --------------------------------------------------------------------------------------------------------------
1 2.31 41 9.31 9.79 12.25 12.56
2 2.31 42 9.79 10.27 13.02 13.51
3 2.31 43 10.14 10.78 13.95 14.43
4 2.31 44 10.54 11.33 15.36 15.84
5 2.31 45 11.11 11.90 16.76 17.23
- --------------------------------------------------------------------------------------------------------------
6 2.31 46 11.55 12.50 17.75 18.39
7 2.31 47 12.19 13.13 18.92 19.56
8 2.31 48 12.72 13.82 20.17 20.97
9 2.40 49 13.27 14.54 21.80 22.59
10 2.51 50 14.10 15.36 23.43 24.22
- --------------------------------------------------------------------------------------------------------------
11 2.62 51 15.27 16.52 25.12 26.07
12 2.79 52 16.28 17.69 26.99 27.94
13 2.82 53 17.42 18.85 28.69 29.81
14 2.95 54 18.68 20.26 30.56 31.68
15 3.06 55 19.69 21.43 32.43 33.53
- --------------------------------------------------------------------------------------------------------------
16 3.04 3.19 3.63 3.78 56 20.61 22.35 33.90 35.16
17 3.17 3.32 3.78 3.96 57 21.63 23.52 35.53 36.81
18 3.30 3.45 4.03 4.18 58 22.62 24.68 37.00 38.43
19 3.45 3.61 4.14 4.29 59 23.78 25.85 38.63 40.06
20 3.61 3.76 4.31 4.47 60 25.41 27.48 40.96 42.39
- --------------------------------------------------------------------------------------------------------------
21 3.76 3.92 4.51 4.66 61 27.37 29.57 43.82 45.41
22 3.92 4.09 4.71 4.88 62 29.99 32.36 46.97 48.40
23 4.11 4.27 4.93 5.08 63 33.09 35.64 48.40 48.40
24 4.29 4.44 5.17 5.32 64 36.43 39.12 48.40 48.40
25 4.49 4.64 5.39 5.57 65 39.84 42.86 48.40 48.40
- --------------------------------------------------------------------------------------------------------------
26 4.69 4.86 5.65 5.81 66 43.19 46.35 48.40 48.40
27 4.91 5.08 5.92 6.07 67 45.56 48.40 48.40 48.40
28 5.15 5.30 6.20 6.36 68 46.75 48.40 48.40 48.40
29 5.39 5.54 6.51 6.67 69 48.17 48.17 48.31 48.31
30 5.65 5.81 6.82 6.97 70 47.78 47.78 47.97 47.97
- --------------------------------------------------------------------------------------------------------------
31 5.76 6.07 7.15 7.30 71 47.41 47.41 47.67 47.67
32 6.05 6.36 7.50 7.66 72 46.96 46.96 47.41 47.41
33 6.36 6.67 7.88 8.03 73 46.38 46.38 47.11 47.11
34 6.67 7.00 8.27 8.43 74 45.76 45.76 46.71 46.71
35 7.02 7.33 8.69 8.84 75 45.13 45.13 46.22 46.22
- --------------------------------------------------------------------------------------------------------------
36 7.37 7.70 8.95 9.26 76 44.54 44.54 45.73 45.73
37 7.59 8.07 9.42 9.72 77 43.99 43.99 45.30 45.30
38 7.99 8.47 9.90 10.21 78 43.48 43.48 44.06 44.06
39 8.40 8.89 10.41 10.71 79 42.51 42.51 42.65 42.60
40 8.84 9.33 11.33 11.64 80 40.94 40.94 41.07 41.07
- --------------------------------------------------------------------------------------------------------------
* For requested increases in the specified amount, the applicable surrender charge will be two-thirds that
of the corresponding surrender charge listed above.
** This classification is not available below the age of 16.
</TABLE>
27
<PAGE>
APPENDIX C
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
TIMOTHY J. ALFORD Senior Vice President (formerly Vice President and Second Vice President),
SENIOR VICE PRESIDENT Lincoln National Life Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
NEAL ARNOLD Vice President (formerly Second Vice President), Lincoln National Life Insurance Co.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
ROBERT A. ANKER President and Chief Operating Officer, Lincoln National Corp. and Chairman and
CHAIRMAN OF THE BOARD, CHIEF Chief Executive Officer (formerly President and Chief Operating Officer) Lincoln
EXECUTIVE OFFICER AND DIRECTOR National Life Insurance Co. Formerly: Chairman; President, American States
200 East Berry Street Insurance Co.; Executive Vice President, American States Life Insurance Co.
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
CARL L. BAKER Vice President and Deputy General Counsel (formerly Associate General Counsel);
VICE PRESIDENT AND Lincoln National Life Insurance Co.
DEPUTY GENERAL COUNSEL
- -----------------------------------------------------------------------------------------------------------------------------
ROLAND C. BAKER President, First Penn-Pacific Life Insurance Co. Formerly: Chairman and CEO,
VICE PRESIDENT Baker, Ralish, Shipley & Politzer, Inc.
1801 S. Meyers Road
Oakbrook Terrace, Ill. 60181
- -----------------------------------------------------------------------------------------------------------------------------
DAVID N. BECKER Vice President, Lincoln National Life Insurance Co.
VICE PRESIDENT,
APPOINTED ACTUARY AND
VALUATION ACTUARY
- -----------------------------------------------------------------------------------------------------------------------------
JOANN E. BECKER Vice President, Lincoln National Life Insurance Co. and Lincoln Investment
VICE PRESIDENT Management Inc.; President, The Richard Leahy Corp. and President, LNC Equity Sales
200 East Berry Street Corp.
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
JOHN M. BEHRENDT Vice President, Lincoln National Life Insurance Co. and Lincoln Financial
VICE PRESIDENT Group, Inc. Formerly: President, LNC Equity Sales Corp.
- -----------------------------------------------------------------------------------------------------------------------------
JON A. BOSCIA President and Chief Operating Officer, Lincoln National Life Insurance Co.
PRESIDENT, DIRECTOR AND Formerly: President; Executive Vice President, Lincoln Investment Management Inc.
CHIEF OPERATING OFFICER
- -----------------------------------------------------------------------------------------------------------------------------
CAROLYN P. BRODY Vice President (formerly Second Vice President), Lincoln National Life Insurance Co.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
STEVEN R. BRODY Senior Vice President (formerly Executive Vice President), Lincoln Investment
VICE PRESIDENT Management Inc.
200 East Berry Street
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
HAROLD B. CARSTENSEN, JR. Vice President, Lincoln National Life Insurance Co. Formerly: Software
VICE PRESIDENT Director, Magnavox Electronic Systems Co.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
APPENDIX C
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
Name, address and position(s)
with applicant PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
DONALD C. CHAMBERS, M.D. Senior Vice President and Chief Medical Director (formerly Vice President and
SENIOR VICE PRESIDENT AND Chief Medical Director), Lincoln National Life Insurance Co.
CHIEF MEDICAL DIRECTOR
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
THOMAS L. CLAGG Vice President and Associate General Counsel, Lincoln National Life Insurance Co.
VICE PRESIDENT AND
ASSOCIATE GENERAL COUNSEL
- -----------------------------------------------------------------------------------------------------------------------------
KENNETH J. CLARK Senior Vice President (formerly Vice President), Lincoln National Life Insurance Co.
SENIOR VICE PRESIDENT
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance Co.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
MARTHA O. D'AMBROSIO Vice President and General Auditor, Lincoln National Corp. and Lincoln National Life
VICE PRESIDENT AND Insurance Co. Formerly: Senior Manager, KPMG Peat Marwick.
GENERAL AUDITOR
- -----------------------------------------------------------------------------------------------------------------------------
ARTHUR W. DETORE, M.D. Vice President (formerly Second Vice President), Lincoln National Life Insurance Co.
VICE PRESIDENT Formerly: Vice President, Lincoln National Risk Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
C. LAWRENCE EDRIS Vice President (formerly Senior Vice President), Lincoln National Life Insurance Co.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
THOMAS W. FITCH Vice President, First Penn-Pacific Life Insurance Co. and Lincoln National
VICE PRESIDENT Life Insurance Co.
1801 S. Meyers Road
Oakbrook Terrace, Ill. 60181
- -----------------------------------------------------------------------------------------------------------------------------
ELIZABETH A. FREDERICK Vice President (formerly Second Vice President) and Associate General Counsel,
VICE PRESIDENT AND Lincoln National Life Insurance Co.
ASSOCIATE GENERAL COUNSEL
- -----------------------------------------------------------------------------------------------------------------------------
LUCY D. GASE Vice President and Assistant Secretary (formerly Second Vice President; Assistant Vice
VICE PRESIDENT AND President), Lincoln National Life Insurance Co.
ASSISTANT SECRETARY
- -----------------------------------------------------------------------------------------------------------------------------
MELANIE T. HALL Vice President (formerly Second Vice President; Assistant Vice President), Lincoln
VICE PRESIDENT National Life Insurance Co.
- -----------------------------------------------------------------------------------------------------------------------------
PHILLIP A. HARTMAN Vice President, Lincoln National Life Insurance Co.
VICE PRESIDENT and Lincoln Financial Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
J. MICHAEL HEMP Senior Vice President (formerly Regional Chief Executive Officer), Lincoln Dallas RMO
SENIOR VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
MATTHEW P. HENDERSON Vice President, Lincoln National Life Insurance Co. (formerly
VICE PRESIDENT Vice President, Second Vice President), Lincoln National Corp.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
APPENDIX C
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
Name, address and position(s)
with applicant PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
DAVID A. HOPPER Vice President, Lincoln National Life Insurance Co.
VICE PRESIDENT
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
JAMES R. HOREIN Senior Vice President, Lincoln National Life Insurance Co.
SENIOR VICE PRESIDENT
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
JACK D. HUNTER Executive Vice President and General Counsel, Lincoln National Corp. and The
EXECUTIVE VICE PRESIDENT, Lincoln National Life Insurance Co.
GENERAL COUNSEL AND DIRECTOR
200 East Berry Street
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
J. MICHAEL KEEFER Vice President and Associate General Counsel, Lincoln National Corp.
VICE PRESIDENT AND
ASSOCIATE GENERAL COUNSEL
200 East Berry Street
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
DONALD E. KELLER Vice President (formerly Second Vice President), Lincoln National Life Insurance Co.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
LAWRENCE T. KISSKO Vice President, Lincoln Investment Management Inc.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
MICHAEL C. LA FRENAIS Vice President, Lincoln National Life Insurance Co. Formerly: Assistant Vice President,
VICE PRESIDENT Aurora Life Assurance Co.
- -----------------------------------------------------------------------------------------------------------------------------
STEPHEN H. LEWIS Senior Vice President, Lincoln National Life Insurance Co. Formerly
SENIOR VICE PRESIDENT President, First Penn-Pacific Life Insurance Co.
- -----------------------------------------------------------------------------------------------------------------------------
EDWARD B. MARTIN Vice President (formerly Senior Vice President), Lincoln National Life Insurance Co.;
VICE PRESIDENT President and CEO (formerly Executive Vice President and COO), Corporate Benefit
Systems Services Corp.
- -----------------------------------------------------------------------------------------------------------------------------
H. THOMAS MCMEEKIN President (formerly Executive Vice President, Senior Vice President), Lincoln
DIRECTOR Investment Management Inc.; Executive Vice President (formerly Senior Vice
200 East Berry Street President), Lincoln National Corp.
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
REED P. MILLER Vice President (formerly Senior Vice President), Lincoln National Life Insurance
VICE PRESIDENT Co. Formerly: Senior Vice President; Vice President, Lincoln National Corp.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
APPENDIX C CONTINUED
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
Name, address and position(s)
with applicant PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
OLIVER H. G. NICHOLS Vice President, Lincoln Investment Management Inc. Formerly Vice
VICE PRESIDENT President, Aetna Life & Casualty Co.
200 East Berry Street
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
DAVID M. ONGMAN Vice President, Lincoln National Life Insurance Co. Formerly: Consultant, Computer
VICE PRESIDENT Horizons Group; Vice President, The Associated Group; Consulting Center Manager,
James Martin & Co.
- -----------------------------------------------------------------------------------------------------------------------------
ARTHUR L. PAGE Vice President (formerly Second Vice President), Lincoln National Life Insurance Co.
VICE PRESIDENT
- -----------------------------------------------------------------------------------------------------------------------------
RAYMOND L. PROSSER Vice President and Associate General Counsel, Lincoln National Life Insurance Co.
VICE PRESIDENT AND (formerly Second Vice President and Director of Claims), Lincoln National Life
ASSOCIATE GENERAL COUNSEL Insurance Co.; Associate General Counsel, Lincoln National Corp. and Lincoln
One Reinsurance Place National Life Insurance Co.
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
IAN M. ROLLAND Chairman and Chief Executive Officer, Lincoln National Corp. (formerly Chairman and
DIRECTOR Chief Executive Officer, President), Lincoln National Life Insurance Co.
200 East Berry Street
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
ARTHUR S. ROSS Vice President, Lincoln National Life Insurance Co. and Lincoln Financial Group Inc.
VICE PRESIDENT Formerly: Director of PR, Guthrie Group; President and COO, Quorum Comm.
- -----------------------------------------------------------------------------------------------------------------------------
LAWRENCE T. ROWLAND Senior Vice President (formerly Vice President and Second Vice President),
SENIOR VICE PRESIDENT Lincoln National Life Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
KEITH J. RYAN Vice President, Chief Financial Officer and Assistant Treasurer (formerly Controller,
VICE PRESIDENT, CHIEF Business Controls Director), Lincoln National Life Insurance Co.
Financial Officer and
Assistant Treasurer
- -----------------------------------------------------------------------------------------------------------------------------
GABRIEL L. SHAHEEN Executive Vice President (formerly Senior Vice President; Vice President), Lincoln
EXECUTIVE VICE PRESIDENT National Life Insurance Co.
AND DIRECTOR
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -----------------------------------------------------------------------------------------------------------------------------
JOHN L. STEINKAMP Vice President and Associate General Counsel, Lincoln National Corp.
VICE PRESIDENT AND
ASSOCIATE GENERAL COUNSEL
200 East Berry Street
Fort Wayne, Ind. 46802
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
APPENDIX C continued
Executive officers and directors
Lincoln National Life Insurance Co.
<TABLE>
<CAPTION>
Name, address and position(s)
with applicant Principal occupations last five years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Casey J. Trumble Vice President, Lincoln National Corp. Formerly: tax partner, KPMG Peat Marwick.
Vice President
200 East Berry Street
Fort Wayne, Ind. 46802
- ---------------------------------------------------------------------------------------------------------------------
James A. Tunis Vice President, Lincoln National Life Insurance Co. (formerly President),
Vice President Lincoln National Information Services, Inc.
- ---------------------------------------------------------------------------------------------------------------------
William K. Tyler Senior Vice President, Lincoln National Life Insurance Co.
Senior Vice President
and Assistant Treasurer
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- ---------------------------------------------------------------------------------------------------------------------
Michael R. Walker Vice President, Lincoln National Life Insurance Co. Formerly: Vice President, Employers
Vice President Health Insurance Co; Vice President/HR, Baker Hughes, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Janet C. Whitney Vice President and Treasurer, Lincoln National Life Insurance Co. (formerly Vice
Vice President and President and General Auditor), Lincoln National Corp. and Lincoln National
Treasurer Life Insurance Co.
200 East Berry Street
Fort Wayne, Ind. 46802
- ---------------------------------------------------------------------------------------------------------------------
Michael D. Wilkins Vice President and Associate General Counsel, Lincoln National Corp.
Vice President and
Associate General Counsel
200 East Berry Street
Fort Wayne, Ind. 46802
- ---------------------------------------------------------------------------------------------------------------------
C. Suzanne Womack Secretary and Assistant Vice President, Lincoln National Corp. and Lincoln
Secretary and National Life Insurance Co.
Assistant Vice President
200 East Berry Street
Fort Wayne, Ind. 46802
- ---------------------------------------------------------------------------------------------------------------------
O. Douglas Worthington Vice President, Controller and Assistant Treasurer, Lincoln National Life Insurance
Vice President, Controller Co. (formerly Vice President), Lincoln Investment Management Inc.
and Assistant Treasurer
- ---------------------------------------------------------------------------------------------------------------------
Michael L. Wright Senior Vice President, Lincoln National Life Insurance Co. Formerly:
Senior Vice President Executive Vice President & COO; Senior Vice President, The Associated Group.
- ---------------------------------------------------------------------------------------------------------------------
Katherine K. Wyss Vice President (formerly Second Vice President), Lincoln National Life Insurance Co.
Vice President
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* The principal business address of each person listed, unless otherwise
indicated, is 1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Ind. 46801.
<PAGE>
APPENDIX D
ILLUSTRATIONS OF POLICY VALUES
The following tables have been prepared to help show how values under the
policy change with investment performance. The tables show Type 1 death
benefits, policy values, and net cash surrender values for each of the first 10
policy years, and for every five year period thereafter through the thirtieth
policy year, assuming that the return on the assets invested in the account
were a uniform, gross, after tax, annual rate of 0%, 6%, and 12%. The actual
death benefits and net cash surrender values would be different from those
shown if different policyowner underwriting assumptions were used or if the
returns averaged 0%, 6%, and 12% but fluctuated over and under those averages
throughout the years.
The death benefits and net cash surrender values shown on pages using current
charges are approximately those likely to be provided under the policy for the
investment returns indicated, assuming that the current percent of premium
charge is deducted, the current cost of insurance charges are deducted, and the
current mortality and expense risk charge is deducted. Although the
contract allows for a maximum percent of premium charge, maximum cost of
insurance charges specified in the l980 Commissioners Standard Ordinary Smoker
and Nonsmoker tables, and a maximum mortality and expense risk charge of .90%,
Lincoln Life expects that it will continue to charge the current percent of
premium charge, the current cost of insurance charges, and the current
mortality and expense risk charge for the indefinite future. The figures shown
on pages using guaranteed maximum charges show the death benefits and net cash
surrender values which would result if the guaranteed maximum percent of
premium charge, the guaranteed maximum cost of insurance charges, and the
guaranteed maximum mortality and expense risk charge were deducted. However,
these are primarily of interest only to show by comparison the benefits of the
lower current charges.
In each of the illustrations, the gross investment result is indicated and the
net investment result is listed below in parentheses. The net investment
results are lower than the gross investment results because the daily Asset
management charge and the daily mortality and expense risk charge are deducted
from the gross investment results. The gross investment results used in the
illustrations are also reduced by other expenses reflected in the value of the
net assets of the funds or series, including printing, mailing, Directors'
fees, etc. For purposes of the illustrations, this reduction is .14%, which is
the estimated recent average of these expenses. The asset management charge is
.60%, which is the current average charge for the subaccounts. (However, this
average reflects a temporary waiver of charges in regards to the three series
of the Delaware Group Premium Fund, Inc. See the Delaware Group Premium Fund,
Inc. prospectus for details.) The mortality and expense risk charge reflects a
reduction of .04% to offset excess miscellaneous fund expenses and is .64% for
the current actual charge and .90% for the guaranteed maximum charge. Thus, for
example, based on current charges and expenses a 6% gross return results in a
4.62% net return. The net return is indicated in parentheses below the gross
return.
33
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 35
Standard nonsmoker
$100,000 specified amount
$1,300 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
------------------------------------- ------------------------------------ -------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ------------------------------------- ------------------------------------ -------------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,365 $100,000 $100,000 $100,000 $ 974 $ 1,040 $ 1,107 $ 114 $ 180 $ 247
2 2,798 100,000 100,000 100,000 1,927 2,122 2,325 1,067 1,262 1,465
3 4,303 100,000 100,000 100,000 2,858 3,243 3,662 1,998 2,383 2,802
4 5,883 100,000 100,000 100,000 3,764 4,405 5,130 2,904 3,545 4,270
5 7,542 100,000 100,000 100,000 4,647 5,611 6,744 3,787 4,751 5,884
- ------------------------------------------------------------------------------------------------------------------------------------
6 9,285 100,000 100,000 100,000 5,504 6,859 8,518 4,687 6,042 7,701
7 11,114 100,000 100,000 100,000 6,334 8,150 10,467 5,560 7,376 9,693
8 13,035 100,000 100,000 100,000 7,138 9,488 12,611 6,407 8,757 11,880
9 15,051 100,000 100,000 100,000 7,913 10,871 14,971 7,225 10,183 14,283
10 17,169 100,000 100,000 100,000 8,660 12,303 17,568 8,058 11,701 16,966
- ------------------------------------------------------------------------------------------------------------------------------------
15 29,455 100,000 100,000 100,000 11,899 20,206 35,132 11,727 20,034 34,960
20 45,135 100,000 100,000 100,660 14,076 29,416 64,114 14,076 29,416 64,114
25 65,147 100,000 100,000 149,972 14,646 39,979 111,919 14,646 39,979 111,919
30 90,689 100,000 100,000 231,505 13,050 52,337 189,758 13,050 52,337 189,758
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .64% current mortality
and expense risk charge (temporarily reduced from .68% until at least May 1,
1997) and other expenses estimated at .14%. Values illustrated are also net of
any other applicable contract charges, such as premium expenses,
administration, and cost of insurance charges.
34
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 35
Standard nonsmoker
$100,000 specified amount
$1,300 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
------------------------------------- ------------------------------------ -------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ------------------------------------- ------------------------------------ -------------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,365 $100,000 $100,000 $100,000 $ 944 $ 1,009 $ 1,074 $ 84 $ 149 $ 214
2 2,798 100,000 100,000 100,000 1,866 2,056 2,253 1,006 1,196 1,393
3 4,303 100,000 100,000 100,000 2,763 3,137 3,544 1,903 2,277 2,684
4 5,883 100,000 100,000 100,000 3,634 4,256 4,958 2,774 3,396 4,098
5 7,542 100,000 100,000 100,000 4,480 5,412 6,509 3,620 4,552 5,649
- ------------------------------------------------------------------------------------------------------------------------------------
6 9,285 100,000 100,000 100,000 5,298 6,606 8,207 4,481 5,789 7,390
7 11,114 100,000 100,000 100,000 6,088 7,837 10,068 5,314 7,063 9,294
8 13,035 100,000 100,000 100,000 6,849 9,107 12,110 6,118 8,376 11,379
9 15,051 100,000 100,000 100,000 7,581 10,418 14,351 6,893 9,730 13,663
10 17,169 100,000 100,000 100,000 8,282 11,769 16,811 7,680 11,167 16,209
- ------------------------------------------------------------------------------------------------------------------------------------
15 29,455 100,000 100,000 100,000 11,274 19,145 33,291 11,102 18,973 33,119
20 45,135 100,000 100,000 100,000 13,177 27,552 60,084 13,177 27,552 60,084
25 65,147 100,000 100,000 139,260 13,384 36,850 103,926 13,384 36,850 103,926
30 90,689 100,000 100,000 212,577 10,830 46,868 174,244 10,830 46,868 174,244
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge (temporarily reduced from .68 until
at least May 1, 1997) and other expenses estimated at .14%. Values illustrated
are also net of any other applicable contract charges, such as premium
expenses, administration, and cost of insurance charges.
35
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 35
Standard smoker
$100,000 specified amount
$1,650 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
---------------------------------- ------------------------------------ -------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ---------------------------------- ------------------------------------ -------------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 1 2% gross 0% gross 6% gross 12% gross
year per year (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,733 $100,000 $100,000 $100,000 $ 1,228 $ 1,312 $ 1,397 $ 196 $ 280 $ 365
2 3,552 100,000 100,000 100,000 2,430 2,676 2,933 1,398 1,644 1,901
3 5,462 100,000 100,000 100,000 3,596 4,084 4,613 2,564 3,052 3,581
4 7,467 100,000 100,000 100,000 4,727 5,538 6,453 3,695 4,506 5,421
5 9,573 100,000 100,000 100,000 5,823 7,041 8,472 4,791 6,009 7,440
- -----------------------------------------------------------------------------------------------------------------------------------
6 11,784 100,000 100,000 100,000 6,886 8,596 10,690 5,906 7,615 9,710
7 14,106 100,000 100,000 100,000 7,905 10,196 13,119 6,977 9,267 12,191
8 16,544 100,000 100,000 100,000 8,882 11,843 15,785 8,005 10,966 14,908
9 19,104 100,000 100,000 100,000 9,817 13,543 18,715 8,992 12,717 17,890
10 21,791 100,000 100,000 100,000 10,712 15,298 21,942 9,990 14,576 21,220
- -----------------------------------------------------------------------------------------------------------------------------------
15 37,385 100,000 100,000 100,000 14,393 24,842 43,730 14,187 24,636 43,524
20 57,287 100,000 100,000 125,036 16,391 35,733 79,641 16,391 35,733 79,641
25 82,687 100,000 100,000 184,698 16,277 48,446 137,834 16,277 48,446 137,834
30 115,105 100,000 100,000 282,874 13,065 63,838 231,864 13,065 63,838 231,864
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .64% current mortality
and expense risk charge (temporarily reduced from .68% until at least May 1,
1997) and other expenses estimated at .14%. Values illustrated are also net of
any other applicable contract charges, such as premium expenses,
administration, and cost of insurance charges.
36
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 35
Standard smoker
$100,000 specified amount
$1,650 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
---------------------------------- ------------------------------------ -------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ---------------------------------- ------------------------------------ -------------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,733 $100,000 $100,000 $100,000 $ 1,172 $ 1,254 $ 1,336 $ 140 $ 222 $ 304
2 3,552 100,000 100,000 100,000 2,309 2,546 2,793 1,277 1,514 1,761
3 5,462 100,000 100,000 100,000 3,407 3,874 4,382 2,375 2,842 3,350
4 7,467 100,000 100,000 100,000 4,463 5,237 6,112 3,431 4,205 5,080
5 9,573 100,000 100,000 100,000 5,476 6,634 7,997 4,444 5,602 6,965
6 11,784 100,000 100,000 100,000 6,443 8,063 10,051 5,462 7,083 9,070
7 14,106 100,000 100,000 100,000 7,360 9,523 12,289 6,431 8,595 11,360
8 16,544 100,000 100,000 100,000 8,227 11,014 14,731 7,350 10,137 13,854
9 19,104 100,000 100,000 100,000 9,041 12,535 17,397 8,216 11,709 16,571
10 21,791 100,000 100,000 100,000 9,799 14,084 20,311 9,077 13,362 19,588
15 37,385 100,000 100,000 100,000 12,693 22,274 39,713 12,487 22,068 39,506
20 57,287 100,000 100,000 112,052 13,661 31,066 71,371 13,661 31,066 71,371
25 82,687 100,000 100,000 163,601 11,680 40,136 122,090 11,680 40,136 122,090
30 115,105 100,000 100,000 246,853 5,022 49,265 202,339 5,022 49,265 202,339
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. the death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge (temporarily reduced from .68 until
at least May 1, 1997) and other expenses estimated at .14%. Values illustrated
are also net of any other applicable contract charges, such as premium
expenses, administration, and cost of insurance charges.
37
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 55
Standard nonsmoker
$100,000 specified amount
$3,250 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
------------------------------------- ------------------------------------ -------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ------------------------------------- ------------------------------------ -------------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,413 $100,000 $100,000 $100,000 $ 2,198 $ 2,357 $ 2,517 $ 0 $ 0 $ 0
2 6,996 100,000 100,000 100,000 4,304 4,762 5,241 1,393 1,851 2,330
3 10,758 100,000 100,000 100,000 6,319 7,218 8,195 3,408 4,307 5,284
4 14,708 100,000 100,000 100,000 8,259 9,744 11,427 5,348 6,833 8,516
5 18,856 100,000 100,000 100,000 10,118 12,340 14,965 7,207 9,429 12,054
- ------------------------------------------------------------------------------------------------------------------------------------
6 23,212 100,000 100,000 100,000 11,879 14,994 18,830 9,113 12,228 16,065
7 27,785 100,000 100,000 100,000 13,545 17,714 23,072 10,925 15,094 20,452
8 32,586 100,000 100,000 100,000 15,111 20,501 27,735 12,637 18,027 25,261
9 37,628 100,000 100,000 100,000 16,570 23,358 32,876 14,241 21,029 30,547
10 42,922 100,000 100,000 100,000 17,916 26,286 38,560 15,878 24,248 36,522
- ------------------------------------------------------------------------------------------------------------------------------------
15 73,637 100,000 100,000 100,000 22,797 42,290 78,515 22,215 41,708 77,933
20 112,838 100,000 100,000 158,607 23,599 61,657 148,231 23,599 61,657 148,231
25 162,869 100,000 100,000 276,236 16,605 87,541 263,082 16,605 87,541 263,082
30 226,723 0 130,809 470,439 0 124,580 448,038 0 124,580 448,038
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .64% current mortality
and expense risk charge (temporarily reduced from .68% until at least May 1,
1997) and other expenses estimated at .14%. Values illustrated are also net of
any other applicable contract charges, such as premium expenses,
administration, and cost of insurance charges.
38
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 55
Standard nonsmoker
$100,000 specified amount
$3,250 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
------------------------------------- ------------------------------------ -------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ------------------------------------- ------------------------------------ -------------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,413 $100,000 $100,000 $100,000 $ 2,127 $ 2,282 $ 2,438 $ 0 $ 0 $ 0
2 6,996 100,000 100,000 100,000 4,156 4,601 5,067 1,245 1,690 2,156
3 10,758 100,000 100,000 100,000 6,089 6,960 7,907 3,178 4,049 4,996
4 14,708 100,000 100,000 100,000 7,918 9,354 10,981 5,007 6,443 8,070
5 18,856 100,000 100,000 100,000 9,638 11,779 14,309 6,727 8,868 11,398
- ------------------------------------------------------------------------------------------------------------------------------------
6 23,212 100,000 100,000 100,000 11,242 14,231 17,917 8,477 11,466 15,152
7 27,785 100,000 100,000 100,000 12,722 16,708 21,839 10,103 14,088 19,219
8 32,586 100,000 100,000 100,000 14,065 19,199 26,104 11,590 16,724 23,630
9 37,628 100,000 100,000 100,000 15,257 21,696 30,755 12,928 19,367 28,426
10 42,922 100,000 100,000 100,000 16,285 24,194 35,842 14,248 22,157 33,804
- ------------------------------------------------------------------------------------------------------------------------------------
15 73,637 100,000 100,000 100,000 18,531 36,602 70,690 17,948 36,019 70,107
20 112,838 100,000 100,000 141,393 13,253 48,233 132,143 13,253 48,233 132,143
25 162,869 0 100,000 244,080 0 57,850 232,457 0 57,850 232,457
30 226,723 0 100,000 409,311 0 64,258 389,820 0 64,258 389,820
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge (temporarily reduced from .68 until
at least May 1, 1997) and other expenses estimated at .14%. Values illustrated
are also net of any other applicable contract charges, such as premium
expenses, administration, and cost of insurance charges.
39
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
STANDARD SMOKER
$100,000 SPECIFIED AMOUNT
$4,250 ANNUAL PREMIUM USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
---------------------------------- ---------------------------------- ----------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ---------------------------------- ---------------------------------- ----------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net) (-1.38% net) (4.62% net) (10.62% net)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,463 $100,000 $100,000 $100,000 $ 2,676 $ 2,878 $ 3,081 $ 0 $ 0 $ 0
2 9,148 100,000 100,000 100,000 5,248 5,825 6,428 683 1,260 1,863
3 14,068 100,000 100,000 100,000 7,713 8,841 10,070 3,148 4,276 5,505
4 19,234 100,000 100,000 100,000 10,075 11,937 14,052 5,510 7,372 9,487
5 24,658 100,000 100,000 100,000 12,330 15,117 18,416 7,765 10,552 13,851
- ------------------------------------------------------------------------------------------------------------------------------------
6 30,354 100,000 100,000 100,000 14,472 18,383 23,214 10,136 14,046 18,877
7 36,334 100,000 100,000 100,000 16,509 21,752 28,514 12,400 17,643 24,406
8 42,613 100,000 100,000 100,000 18,415 25,212 34,374 14,534 21,332 30,494
9 49,206 100,000 100,000 100,000 20,187 28,775 40,882 16,535 25,123 37,230
10 56,129 100,000 100,000 100,000 21,812 32,446 48,137 18,617 29,250 44,941
- ------------------------------------------------------------------------------------------------------------------------------------
15 96,294 100,000 100,000 166,996 27,845 53,342 100,859 26,932 52,429 99,946
20 147,557 100,000 100,000 203,292 29,679 81,735 189,993 29,679 81,735 189,993
25 212,982 100,000 129,030 353,704 24,109 122,885 336,861 24,109 122,885 336,861
30 296,483 100,000 182,013 601,718 5,277 173,346 573,065 5,277 173,346 573,065
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .64% current mortality
and expense risk charge (temporarily reduced from .68% until at least May 1,
1997) and other expenses estimated at .14%. Values illustrated are also net of
any other applicable contract charges, such as premium expenses,
administration, and cost of insurance charges.
40
<PAGE>
MULTI FUND(R)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
STANDARD SMOKER
$100,000 SPECIFIED AMOUNT
$4,250 ANNUAL PREMIUM USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
---------------------------------- ---------------------------------- ----------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross (and net) gross (and net) gross (and net)
accumulated annual investment return of annual investment return of annual investment return of
End of at 5% ---------------------------------- ---------------------------------- ----------------------------------
policy interest 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
year per year (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net) (-1.64% net) (4.36% net) (10.36% net)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,463 $100,000 $100,000 $100,000 $ 2,324 $ 2,513 $ 2,703 $ 0 $ 0 $ 0
2 9,148 100,000 100,000 100,000 4,509 5,036 5,588 0 471 1,023
3 14,068 100,000 100,000 100,000 6,553 7,569 8,679 1,988 3,004 4,114
4 19,234 100,000 100,000 100,000 8,454 10,112 12,002 3,889 5,547 7,437
5 24,658 100,000 100,000 100,000 10,207 12,665 15,589 5,642 8,100 11,024
- ------------------------------------------------------------------------------------------------------------------------------------
6 30,354 100,000 100,000 100,000 11,802 15,220 19,469 7,465 10,883 15,132
7 36,334 100,000 100,000 100,000 13,220 17,766 23,677 9,111 13,658 19,568
8 42,613 100,000 100,000 100,000 14,443 20,292 28,254 10,563 16,412 24,374
9 49,206 100,000 100,000 100,000 15,450 22,786 33,254 11,798 19,134 29,602
10 56,129 100,000 100,000 100,000 16,222 25,238 38,748 13,026 22,043 35,553
- ------------------------------------------------------------------------------------------------------------------------------------
15 96,294 100,000 100,000 100,000 16,005 36,928 77,941 15,092 36,015 77,028
20 147,557 100,000 100,000 159,410 5,118 47,126 148,981 5,118 47,126 148,981
25 212,982 0 100,000 277,434 0 53,965 264,223 0 53,965 264,223
30 296,483 0 100,000 466,033 0 54,246 443,841 0 54,246 443,841
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual rates of return averaged 0.00%, 6.00%
and 12.00% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Lincoln Life or any of the funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .60% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge (temporarily reduced from .68 until
at least May 1, 1997) and other expenses estimated at .14%. Values illustrated
are also net of any other applicable contract charges, such as premium
expenses, administration, and cost of insurance charges.
41
<PAGE>
APPENDIX E
DEFINITIONS
SEPARATE ACCOUNT -- The Lincoln Life Flexible Premium Variable Life Account K,
a Separate Account established by Lincoln Life to receive and invest net
premiums paid under the policy.
AGE -- The age at the insured's last birthday on the policy date.
ATTAINED AGE -- The age of the insured on the policy anniversary on or next
preceding any monthly anniversary day.
BASE MINIMUM PREMIUM -- A premium per $1,000 of specified amount used in the
calculation of the death benefit guarantee monthly premium. The base minimum
premium is also used in determining the Contingent Deferred Sales Charge and
the Contingent Deferred Administrative Charge.
BENEFICIARY -- The beneficiary is designated by the owner in the application.
If changed, the beneficiary is as shown in the latest change filed with Lincoln
Life. If no beneficiary survives the insured, the owner or the owner's estate
will receive the benefit.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE (CDAC) -- An administrative charge
for underwriting, issue, and initial administration of the policy, which is
imposed under the policy and deducted upon surrender of the policy or voluntary
reduction in the specified amount. The Contingent Deferred Administrative
Charge is part of the total surrender charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) -- A sales charge based upon the base
minimum premium required for the first policy year, which is imposed under the
policy and deducted upon surrender of the policy or voluntary reduction in the
specified amount. The Contingent Deferred Sales Charge is part of the total
surrender charge.
COST OF INSURANCE CHARGE -- A charge deducted monthly from the policy value to
provide the life insurance protection for the insured.
DEATH BENEFIT GUARANTEE -- The guarantee that, provided the death benefit
guarantee monthly premium requirements are met, the policy will not lapse
during the first three policy years due to negative net cash surrender value.
DEATH BENEFIT GUARANTEE MONTHLY PREMIUM -- The minimum monthly premium which
must be paid each month or in advance during the first policy year and which
must continue to be paid in the second and third policy years if the policy
does not have positive net cash surrender value. Failure to pay this premium
when required will result in the policy lapsing at the end of the grace period.
DELAWARE MANAGEMENT -- Delaware Management Company Inc.
FREE LOOK PERIOD -- The period of time in which the owner may cancel the policy
and receive a refund. The owner may cancel the policy within 10 days of
receipt, or 45 days after Part 1 of the application is signed, or within 10
days after mailing or personal delivery of the notice of withdrawal right.
FUND -- Any of the individual Lincoln National funds in which the Separate
Account may invest.
GENERAL ACCOUNT -- The assets of Lincoln Life other than those allocated to the
Separate Account or any other Separate Account.
GROSS INVESTMENT RESULTS -- The gross investment results are equal to the
change in the market value of the assets of a fund from the previous valuation
day to the current day, plus the investment income on those assets during the
same period.
INSURED -- The person upon whose life the policy is issued, and who is so named
on the Policy Schedule.
INVESTMENT AMOUNT -- The portion of the policy value invested in the Separate
Account, and equal in amount to the policy value minus amounts invested in the
General Account (including any outstanding loans).
LINCOLN LIFE (WE, OUR, US) -- Lincoln National Life Insurance Co.
MATURITY DATE -- The policy anniversary following the insured's 99th birthday,
if living. It is the last date insurance coverage can remain in force and the
date any remaining net cash surrender value will be payable.
MONTHLY ANNIVERSARY DAY -- The same date in each month as the policy date.
NET CASH SURRENDER VALUE -- The amount payable to the owner upon surrender of
the policy. It is equal to the policy value minus any surrender charge, minus
any outstanding loan and plus any unearned loan interest.
NET INVESTMENT RESULTS -- The gross investment results of a fund minus the
asset management charges and any miscellaneous fund expenses, and minus the
mortality and expense risk charge.
OPTION DATE -- Any date the policy terminates under the termination provision.
The term option date may also be used with certain riders.
OWNER (YOU, YOUR) -- The person so designated in the application or as
subsequently changed. If a policy has been absolutely assigned, the assignee is
the owner. A collateral assignee is not the owner.
PLANNED PERIODIC PREMIUM -- A scheduled premium of a level amount at a fixed
interval over a specified period of time.
POLICY -- The Flexible Premium Variable Life Insurance policy offered by
Lincoln Life and described in this prospectus.
POLICY DATE -- The date set forth in the policy that is used to determine
policy years and policy months. Policy anniversaries are measured from the
policy date. The policy
42
<PAGE>
date is ordinarily the earlier of the date the full initial premium is received
from the owner or the date on which the policy is approved for issue.
POLICY VALUE -- The sum of all values in the Separate Account and in the
General Account at any time, irrespective of outstanding loans or surrender
charge.
PROCEEDS -- The amount payable on the maturity date, or on surrender of the
policy, or after the death of any insured person. The proceeds will be
different on each of these events.
RECORD DATE -- The record date is the date the policy is recorded on the books
of Lincoln Life as an in-force policy. Ordinarily, the policy will be recorded
as in-force within three business days after the later of the date we receive
the last outstanding requirement or the date of underwriting approval. The
record date controls the timing of the transfer of initial assets from the
General Account to the various subaccounts.
SERIES -- Currently there are three series available under the Delaware Group
Premium Fund, Inc. in which the Separate Account may invest.
SPECIFIED AMOUNT -- The minimum death benefit payable under the policy so long
as the policy remains in force. The death benefit proceeds will be reduced by
any outstanding loan and any due and unpaid charges, and increased by any
unearned loan interest.
SUBACCOUNT -- A subdivision of the Separate Account. Each subaccount invests
exclusively in the shares of a specified fund.
SURRENDER CHARGE -- A charge deducted from policy value upon surrender of the
policy or upon a voluntary reduction in specified amount during the first 16
policy years or during the 16 years following a requested increase in specified
amount. The surrender charge is equal to the combination of the Contingent
Deferred Sales Charge and the Contingent Deferred Administrative Charge.
43
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Statement of assets and liability
December 31, 1995
<TABLE>
<CAPTION>
Lincoln Lincoln
National Lincoln National
Percent Aggressive National Capital
of net Growth Bond Appreciation
assets Combined Account Account Account
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
- Lincoln National Aggressive Growth Fund, Inc.
110,033 shares at $12.18 per share
(cost-$1,176,909) 11.1% $1,340,481 $1,340,481
- Lincoln National Bond Fund, Inc.
35,346 shares at $12.25 per share
(cost-$412,270) 3.6 432,873 $432,873
- Lincoln National Capital Appreciation Fund, Inc.
125,448 shares at $12.92 per share
(cost-$1,425,503) 13.5 1,620,311 $1,620,311
- Lincoln National Equity-Income Fund, Inc.
165,050 shares at $13.51 per share
(cost-$1,960,375) 18.5 2,229,342
- Lincoln National Global Asset Allocation Fund, Inc.
24,748 shares at $13.39 per share
(cost-$303,772) 2.8 331,397
- Lincoln National Growth and Income Fund, Inc.
68,406 shares at $29.76 per share
(cost-$1,856,777) 16.9 2,035,520
- Lincoln National International Fund, Inc.
135,768 shares at $13.40 per share
(cost-$1,733,087) 15.1 1,818,966
- Lincoln National Managed Fund, Inc.
21,590 shares at $15.89 per share
(cost-$322,588) 2.8 343,171
- Lincoln National Money Market Fund, Inc.
16,908 shares at $10.00 per share
(cost-$169,079) 1.4 169,079
- Lincoln National Social Awareness Fund, Inc.
17,147 shares at $22.59 per share
(cost-$356,905) 3.2 387,342
- Lincoln National Special Opportunities Fund, Inc.
45,221 shares at $27.38 per share
(cost-$1,149,222) 10.3 1,238,276
------ ------------ ----------- ---------- -----------
TOTAL INVESTMENTS (Cost -- $10,866,487) 99.2 11,946,758 1,340,481 432,873 1,620,311
Dividends receivable 0.8 101,581 234 13,846 7,021
------ ------------ ----------- ---------- -----------
TOTAL ASSETS 100.0% 12,048,339 1,340,715 446,719 1,627,332
LIABILITY -- Payable to Lincoln National Life
Insurance Co. 0.0 5,626 599 214 781
------ ------------ ----------- --------- -----------
NET ASSSETS 100.0% $12,042,713 $1,340,116 $446,505 $1,626,551
====== ============ =========== ========== ===========
UNITS OUTSTANDING 976,583 376,692 1,244,792
=========== ========== ===========
NET ASSET VALUE PER UNIT $ 1.372 $ 1.185 $ 1.307
=========== ========== ===========
</TABLE>
See accompanying Notes to financial statements.
44
<PAGE>
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln Lincoln
National National National Lincoln Lincoln National National National
Equity- Global Asset Growth and National National Money Social Special
Income Allocation Income International Managed Market Awareness Opportunities
Account Account Account Account Account Account Account Account
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$2,229,342
$331,397
$2,035,520
$1,818,966
$343,171
169,079
387,342
1,238,276
- ---------- --------- ----------- ----------- -------- --------- --------- -----------
2,229,342 331,397 2,035,520 1,818,966 343,171 169,079 387,342 1,238,276
24,214 5,461 20,504 4,574 4,901 5,094 2,674 13,058
- ---------- --------- ----------- ----------- -------- --------- --------- -----------
2,253,556 336,858 2,056,024 1,823,540 348,072 174,173 390,016 1,251,334
1,071 162 940 877 135 82 175 590
- ---------- --------- ----------- ----------- -------- --------- --------- -----------
$2,252,485 $336,696 $2,055,084 $1,822,663 $347,937 $174,091 $389,841 $1,250,744
========== ========= =========== =========== ======== ========= ========= ===========
1,637,675 270,388 1,440,827 1,671,024 266,927 161,877 269,175 917,426
========== ========= =========== =========== ======== ========= ========= ===========
$ 1.375 $ 1.245 $ 1.426 $ 1.091 $ 1.303 $ 1.075 $ 1.448 $ 1.363
========== ========= =========== =========== ======== ========= ========= ===========
</TABLE>
45
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Statements of operations
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
National Lincoln National National
Aggressive National Capital Equity-
Growth Bond Appreciation Income
Combined Account Account Account Account
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period from May 17, 1994 to December 31, 1994
Net Investment Income:
- Dividends from investment income $ 3,159 $ 38 $ 484 $ 248 $ 614
- Mortality and expense risk charge (823) (84) (41) (93) (131)
---------- -------- ------- -------- --------
NET INVESTMENT INCOME (LOSS) 2,336 (46) 443 155 483
Net realized and unrealized gain (loss)
on investments:
- Net realized gain (loss) on invesments (174) 1 (13) (2) (5)
- Net change in unrealized appreciation
or depreciation on investments (2,197) 902 (262) 563 (1,391)
---------- -------- ------- -------- --------
NET GAIN (LOSS) ON INVESTMENTS (2,371) 903 (275) 561 (1,396)
---------- -------- ------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ (35) $ 857 $ 168 $ 716 $ (913)
========== ======== ======= ======== ========
YEAR ENDED DECEMBER 31, 1995
Net Investment Income:
- Dividends from investment income $ 101,581 $ 234 $13,846 $ 7,021 $ 24,214
- Dividends from net realized gain
on investments 38,968 - - - 2,304
- Mortality and expense risk charge (33,482) (3,564) (1,258) (4,913) (6,573)
---------- -------- ------- -------- --------
NET INVESTMENT INCOME (LOSS) 107,067 (3,330) 12,588 2,108 19,945
Net realized and unrealized gain
on investments:
- Net realized gain on investments 38,900 7,569 1,104 3,796 7,164
- Net change in unrealized appreciation
or depreciation on investments 1,082,468 162,670 20,865 194,245 270,358
---------- -------- ------- -------- --------
NET GAIN ON INVESTMENTS 1,121,368 170,239 21,969 198,041 277,522
---------- -------- ------- -------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,228,435 $166,909 $34,557 $200,149 $297,467
========== ======== ======= ======== ========
</TABLE>
See accompanying Notes to financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
Lincoln
National Lincoln Lincoln Lincoln Lincoln
Global National Lincoln Lincoln National National National
Asset Growth and National National Money Social Special
Allocation Income International Managed Market Awareness Opportunities
Account Account Account Account Account Account Account
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 178 $ 507 $ (39) $ 219 $ 521 $ 94 $ 295
(34) (94) (160) (28) (69) (21) (68)
------- -------- -------- ------- ------ ------- --------
144 413 (199) 191 452 73 227
(21) (8) (14) (2) - (63) (47)
(67) 226 (2,027) (66) - (211) 136
------- -------- -------- ------- ------ ------- --------
(88) 218 (2,041) (68) - (274) 89
------- -------- -------- ------- ------ ------- --------
$ 56 $ 631 $ (2,240) $ 123 $ 452 $ (201) $ 316
======= ======== ======== ======= ====== ======= ========
$ 5,461 $ 20,504 $ 4,574 $ 4,901 $5,094 $ 2,674 $ 13,058
- 12,785 17,410 78 - 1,063 5,328
(1,022) (4,807) (6,019) (718) (551) (755) (3,302)
------- -------- -------- ------- ------ ------- --------
4,439 28,482 15,965 4,261 4,543 2,982 15,084
2,773 5,054 329 2,686 - 4,943 3,482
27,692 178,517 87,906 20,649 - 30,648 88,918
------- -------- -------- ------- ------ ------- --------
30,465 183,571 88,235 23,335 - 35,591 92,400
------- -------- -------- ------- ------ ------- --------
$34,904 $212,053 $104,200 $27,596 $4,543 $38,573 $107,484
======= ======== ======== ======= ====== ======= ========
</TABLE>
47
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Statements of changes in net assets
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
National Lincoln National National
Aggressive National Capital Equity-
Growth Bond Appreciation Income
Combined Account Account Account Account
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Changes from operations:
-Net investment income (loss) $ 2,336 $ (46) $ 443 $ 155 $ 483
-Net realized gain (loss) on investments (174) 1 (13) (2) (5)
-Net change in unrealized appreciation
or depreciation on investments (2,197) 902 (262) 563 (1,391)
----------- ---------- -------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS (35) 857 168 716 (913)
Net increase from unit transactions 1,203,420 124,935 50,921 160,599 257,703
----------- ---------- -------- ---------- ----------
TOTAL INCREASE IN NET ASSETS AND
NET ASSETS AT DECEMBER 31, 1994 1,203,385 125,792 51,089 161,315 256,790
Changes from operations:
-Net investment income (loss) 107,067 (3,330) 12,588 2,108 19,945
-Net realized gain on investments 38,900 7,569 1,104 3,796 7,164
-Net change in unrealized appreciation
or depreciation on investments 1,082,468 162,670 20,865 194,245 270,358
----------- ---------- -------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,228,435 166,909 34,557 200,149 297,467
Net increase from unit transactions 9,610,893 1,047,415 360,859 1,265,087 1,698,228
----------- ---------- -------- ---------- ----------
TOTAL INCREASE IN NET ASSETS 10,839,328 1,214,324 395,416 1,465,236 1,995,695
----------- ---------- -------- ---------- ----------
NET ASSETS AT DECEMBER 31, 1995 $12,042,713 $1,340,116 $446,505 $1,626,551 $2,252,485
=========== ========== ======== ========== ==========
</TABLE>
See accompanying Notes to financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln
National National Lincoln Lincoln National National National
Global Asset Growth and National National Money Social Special
Allocation Income International Managed Market Awareness Opportunities
Account Account Account Account Account Account Account
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 144 $ 413 $ (199) $ 191 $ 452 $ 73 $ 227
(21) (8) (14) (2) - (63) (47)
(67) 226 (2,027) (66) - (211) 136
-------- ---------- ---------- -------- -------- -------- ----------
56 631 (2,240) 123 452 (201) 316
43,277 167,869 260,900 31,730 13,804 18,314 73,368
-------- ---------- ---------- -------- -------- -------- ----------
43,333 168,500 258,660 31,853 14,256 18,113 73,684
4,439 28,482 15,965 4,261 4,543 2,982 15,084
2,773 5,054 329 2,686 - 4,943 3,482
27,692 178,517 87,906 20,649 - 30,648 88,918
-------- ---------- ---------- -------- -------- -------- ----------
34,904 212,053 104,200 27,596 4,543 38,573 107,484
258,459 1,674,531 1,459,803 288,488 155,292 333,155 1,069,576
-------- ---------- ---------- -------- -------- -------- ----------
293,363 1,886,584 1,564,003 316,084 159,835 371,728 1,177,060
-------- ---------- ---------- -------- -------- -------- ----------
$336,696 $2,055,084 $1,822,663 $347,937 $174,091 $389,841 $1,250,744
======== ========== ========== ======== ======== ======== ==========
</TABLE>
49
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Notes to financial statements
December 31, 1995
1. Accounting policies
The Separate Account: Lincoln Life Flexible Premium Variable Life Account K
(Separate Account) was established as a segregated investment account of
Lincoln National Life Insurance Co. (Lincoln Life) on March 9, 1994. The
Separate Account was registered on May 2, 1994, under the Investment Company
Act of 1940, as amended, as a unit investment trust, and commenced
investment activity on May 17, 1994.
Investments: The Separate Account invests in Lincoln National Aggressive
Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National
Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc.,
Lincoln National Global Asset Allocation Fund, Inc., Lincoln National Growth
and Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Money Market Fund, Inc.,
Lincoln National Social Awareness Fund, Inc., and Lincoln National Special
Opportunities Fund, Inc. (funds). Investments in the funds are stated at the
closing net asset values per share on December 31, 1995. The funds are
registered as open-end management investment companies.
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by the average cost method.
Dividends: Dividends paid to the Separate Account are automatically
reinvested in shares of the funds of the payable date.
Federal income taxes: Operations of the Separate Account form a part of and
are taxed with operations of Lincoln Life, which is taxed as a "life
insurance company" under the Internal Revenue Code. Using current law, no
federal income taxes are payable with respect to the Separate Account's net
investment income and the net realized gain on investments.
2. Mortality and expense risk charge and other transactions with affiliate
Percent of premium charge: Prior to allocation of net premiums to the
Separate Account, premiums paid are reduced by a percent of premium charge
equal to 3.95% of the premium. Amounts retained during 1995 and 1994 by
Lincoln Life for such charges were $235,219 and $43,097, respectively.
Separate Account charges: Amounts are charged daily to the Separate Account
by Lincoln Life for a mortality and expense risk charge at a current annual
rate of .64% of the average daily net asset value of the Separate Account.
These charges are made in return for Lincoln Life's assumption of risks
associated with adverse mortality experience or excess administrative
expenses in connection with policies issued.
Other charges: Other charges which are paid to Lincoln Life by redeeming
Separate Account units are for monthly administrative charges, the cost of
insurance, transfer and withdrawal charges, and contingent surrender
charges. These other charges for 1995 and 1994 amounted to $1,085,945 and
$47,812, respectively.
The monthly administrative charge amounts to $7.50 for each policy in force
and is intended to compensate Lincoln Life for continuing administration
of the policies, premium billings, overhead expenses, and other
miscellaneous expenses.
Lincoln Life assumes the responsibility for providing the insurance benefits
included in the policy. The cost of insurance is determined each month based
upon the applicable insurance rate and the current death benefit. The cost
of insurance can vary from month to month since the determination of both
the insurance rate and the current death benefit depends upon a number of
variables as described in the Separate Account's prospectus.
The transfer charge amounts to $10 each time a policyowner transfers funds
from one account to another, however, the transfer charge is currently being
waived for all transfers. The withdrawal charge is currently the greater of
$10 or 3% of the amount withdrawn for each withdrawal from the policy value
by the policyowner.
Surrender charges are deducted if the policy is surrendered during the first
sixteen policy years. Surrender charges in the first five years are
approximately 132% of the required base minimum annual premium. Surrender
charges in years six through sixteen decrease by policy year to 0% in the
seventeenth year. Additional surrender charges are deducted upon surrender
of increases to the specified amount.
50
<PAGE>
This page was intentionally left blank.
51
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Notes to financial statements continued
3. NET ASSETS
Net assets at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln
National Lincoln National National
Aggressive National Capital Equity-
Growth Bond Appreciation Income
Combined Account Account Account Account
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit transactions $10,814,313 $1,172,350 $411,780 $1,425,686 $1,955,931
Accumulated net investment
income (loss) 109,403 (3,376) 13,031 2,263 20,428
Accumulated net realized gain
on investments 38,726 7,570 1,091 3,794 7,159
Net unrealized appreciation
on investments 1,080,271 163,572 20,603 194,808 268,967
----------- ---------- -------- ---------- ----------
$12,042,713 $1,340,116 $446,505 $1,626,551 $2,252,485
=========== ========== ======== ========== ==========
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Lincoln Lincoln Lincoln Lincoln Lincoln
National National Lincoln Lincoln National National National
Global Asset Growth and National National Money Social Special
Allocation Income International Managed Market Awareness Opportunities
Account Account Account Account Account Account Account
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$301,736 $1,842,400 $1,720,703 $320,218 $169,096 $351,469 $1,142,944
4,583 28,895 15,766 4,452 4,995 3,055 15,311
2,752 5,046 315 2,684 - 4,880 3,435
27,625 178,743 85,879 20,583 - 30,437 89,054
- -------- ---------- ---------- -------- -------- -------- ----------
$336,696 $2,055,084 $1,822,663 $347,937 $174,091 $389,841 $1,250,744
======== ========== ========== ======== ======== ======== ==========
</TABLE>
53
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Notes to financial statements continued
4. Summary of changes from unit transactions
<TABLE>
<CAPTION>
Year Ended Period from May 17, 1994
December 31, 1995 to December 31, 1994
- --------------------------------------------------------------------------------------------------------------
Units Amount Units Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lincoln National Aggressive Growth Account
Purchases 1,159,747 $1,427,495 132,136 $134,367
Redemptions (305,953) (380,080) (9,347) (9,432)
---------- ---------- -------- ----------
853,794 1,047,415 122,789 124,935
Lincoln National Bond Account
Purchases 424,613 471,334 56,090 55,770
Redemptions (99,138) (110,475) (4,873) (4,849)
---------- ---------- -------- ----------
325,475 360,859 51,217 50,921
Lincoln National Capital Appreciation Account
Purchases 1,370,722 1,602,221 174,005 177,145
Redemptions (283,683) (337,134) (16,252) (16,546)
---------- ---------- -------- ----------
1,087,039 1,265,087 157,753 160,599
Lincoln National Equity-Income Account
Purchases 1,894,714 2,316,819 265,500 274,499
Redemptions (506,306) (618,591) (16,233) (16,796)
---------- ---------- -------- ----------
1,388,408 1,698,228 249,267 257,703
Lincoln National Global Asset Allocation Account
Purchases 337,111 383,453 47,818 48,241
Redemptions (109,622) (124,994) (4,919) (4,964)
---------- ---------- -------- ----------
227,489 258,459 42,899 43,277
Lincoln National Growth and Income Account
Purchases 1,673,828 2,191,176 172,419 177,722
Redemptions (395,844) (516,645) (9,576) (9,853)
---------- ---------- -------- ----------
1,277,984 1,674,531 162,843 167,869
Lincoln National International Account
Purchases 1,898,555 1,960,609 277,792 282,935
Redemptions (483,694) (500,806) (21,629) (22,035)
---------- ---------- -------- ----------
1,414,861 1,459,803 256,163 260,900
Lincoln National Managed Account
Purchases 304,840 370,882 34,796 35,061
Redemptions (69,401) (82,394) (3,308) (3,331)
---------- ---------- -------- ----------
235,439 288,488 31,488 31,730
Lincoln National Money Market Account
Purchases 388,505 409,737 481,209 488,017
Redemptions (240,559) (254,445) (467,278) (474,213)
---------- ---------- -------- ----------
147,946 155,292 13,931 13,804
Lincoln National Social Awareness Account
Purchases 338,743 453,053 23,608 24,224
Redemptions (87,411) (119,898) (5,765) (5,910)
---------- ---------- -------- ----------
251,332 333,155 17,843 18,314
Lincoln National Special Opportunities Account
Purchases 1,097,775 1,395,688 81,410 84,111
Redemptions (251,286) (326,112) (10,473) (10,743)
---------- ---------- -------- ----------
846,489 1,069,576 70,937 73,368
---------- ----------
NET INCREASE FROM UNIT TRANSACTIONS $9,610,893 $1,203,420
========== ==========
</TABLE>
54
<PAGE>
Lincoln Life Flexible Premium Variable Life Account K
Notes to financial statements continued
5. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1995:
<TABLE>
<CAPTION>
Aggregate Aggregate
cost of proceeds
purchases from sales
- ----------------------------------------------------------------------------------
<S> <C> <C>
Lincoln National Aggressive Growth Account $ 1,114,283 $ 69,835
Lincoln National Bond Account 396,536 36,256
Lincoln National Capital Appreciation Account 1,304,940 43,782
Lincoln National Equity-Income Account 1,796,345 100,770
Lincoln National Global Asset Allocation Account 310,954 53,193
Lincoln National Growth and Income Account 1,752,616 68,710
Lincoln National International Account 1,552,603 80,653
Lincoln National Managed Account 327,545 39,354
Lincoln National Money Market Account 341,211 185,874
Lincoln National Social Awareness Account 391,626 57,902
Lincoln National Special Opportunities Account 1,116,802 44,348
----------- --------
$10,405,461 $780,677
=========== ========
</TABLE>
55
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors of Lincoln National Life Insurance Co. and
Policyowners of Lincoln Life Flexible Premium Variable Life Account K
We have audited the accompanying statement of assets and liability of Lincoln
Life Flexible Premium Variable Life Account K (Separate Account) as of December
31, 1995, and the related statements of operations and changes in net assets for
the year then ended and the period from May 17, 1994 (commencement of
operations) to December 31, 1994. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An Audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lincoln Life Flexible Premium
Variable Life Account K at December 31, 1995, and the results of its operations
and the changes in its net assets for the year then ended and the period from
May 17, 1994 to December 31,1994, in conformity with generally accepted
accounting principles.
/S/ Ernst & Young LLP
Fort Wayne, Indiana
March 13, 1996
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Assets
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost: 1995-$18,852,837;
1994-$18,193,928) $20,414,785 $17,692,214
Equity (cost: 1995-$480,261; 1994-$416,351) 598,435 456,333
Mortgage loans on real estate 3,147,783 2,795,914
Real estate 746,023 679,512
Policy loans 565,325 528,731
Other investments 241,219 158,196
Total investments 25,713,570 22,310,900
Cash and invested cash 802,743 990,880
Property and equipment 53,830 54,989
Deferred acquisition costs 953,834 1,736,526
Premiums and fees receivable 117,634 123,494
Accrued investment income 352,301 367,370
Assets held in separate accounts 18,461,629 13,000,540
Federal income taxes -- 134,463
Amounts recoverable from reinsurers 2,940,976 2,069,292
Goodwill 5,149 3,385
Other assets 185,398 233,708
Total assets $49,587,064 $41,025,547
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Liabilities and shareholder's equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits, claims and
claims expenses $ 8,435,019 $ 7,540,772
Unearned premiums 55,174 61,472
Total policy liabilities and accruals 8,490,193 7,602,244
Contractholder funds 18,171,822 17,028,628
Liabilities related to separate accounts 18,461,629 13,000,540
Federal income taxes 166,430 --
Short-term debt 124,783 153,656
Long-term debt 40,827 54,794
Other liabilities 1,412,534 1,264,730
Total liabilities 46,868,218 39,104,592
Shareholder's equity:
Common stock, $2.50 par value:
Authorized, issued and outstanding
shares-10 million (owned by Lincoln
National Corporation) 25,000 25,000
Additional paid-in capital 809,557 791,605
Retained earnings 1,440,994 1,428,969
Net unrealized gain (loss) on
securities available-for-sale 443,295 (324,619)
Total shareholder's equity 2,718,846 1,920,955
Total liabilities and shareholder's equity $49,587,064 $41,025,547
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Revenue:
Insurance premiums $ 846,873 $1,099,480 $1,972,630
Insurance fees 450,423 390,384 425,083
Net investment income 1,899,630 1,673,981 1,823,459
Realized gain (loss) on investments 136,195 (138,522) 92,150
Gain (loss) on sale of affiliates -- 68,954 (98,500)
Other 3,405 20,946 35,781
Total revenue 3,336,526 3,115,223 4,250,603
Benefits and expenses:
Benefits and settlement expenses 2,122,616 2,194,047 3,033,139
Underwriting, acquisition,
insurance and other expenses 764,346 660,363 881,703
Interest expense 67 615 96
Total benefits and expenses 2,887,029 2,855,025 3,914,938
Income before Federal income taxes
and cumulative effect of
accounting change 449,497 260,198 335,665
Federal income taxes 127,472 40,400 142,544
Income before cumulative
effect of accounting change 322,025 219,798 193,121
Cumulative effect of accounting
change (postretirement benefits) -- -- 45,582
Net income $ 322,025 $ 219,798 $ 147,539
Earnings per share:
Income before cumulative
effect of accounting change $ 32.20 $ 21.98 $ 19.31
Cumulative effect of accounting
change (postretirement benefits) -- -- (4.56)
Net income $ 32.20 $ 21.98 $ 14.75
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Shareholder's Equity
Year ended December 31
1995 1994 1993
(000's omitted)
Common stock-balance
at beginning and end of year $ 25,000 $ 25,000 $ 25,000
Additional paid-in capital:
Balance at beginning of year 791,605 791,444 791,223
Contribution from Lincoln
National Corporation 17,952 161 221
Balance at end of year 809,557 791,605 791,444
Retained earnings:
Balance at beginning of year 1,428,969 1,334,171 1,198,632
Net income 322,025 219,798 147,539
Dividends declared (310,000) (125,000) (12,000)
Balance at end of year 1,440,994 1,428,969 1,334,171
Net unrealized gain (loss) on
securities available-for-sale:
Balance at beginning of year (324,619) 621,161 47,303
Cumulative effect of
accounting change -- -- 564,153
Other change during the year 767,914 (945,780) 9,705
Balance at end of year 443,295 (324,619) 621,161
Total shareholder's equity
at end of year $2,718,846 $1,920,955 $2,771,776
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from operating activities
Net income $ 322,025 $ 219,798 $ 147,539
Adjustments to reconcile net income
to net cash provided
by operating activities:
Deferred acquisition costs 124,526 (171,063) (92,183)
Premiums and fees receivable 6,082 10,755 80,582
Accrued investment income 15,069 (54,434) (18,827)
Policy liabilities and accruals 621,603 114,038 345,142
Contractholder funds 1,335,625 1,769,240 1,248,058
Amounts recoverable from reinsurers (883,425) (884,388) (700,622)
Federal income taxes 95,745 8,364 (130,308)
Provisions for depreciation 39,089 38,870 41,516
Amortization of discount and premium (86,653) 7,928 (100,274)
Realized loss (gain) on investments (244,995) 219,682 (115,881)
Loss (gain) on sale of affiliates -- (68,954) 98,500
Cumulative effect of
accounting change -- -- 45,582
Other 458,542 (4,599) 51,369
Net adjustments 1,481,208 985,439 752,654
Net cash provided by
operating activities 1,803,233 1,205,237 900,193
Cash flows from investing activities
Securities available-for-sale:
Purchases (13,549,807) (12,100,213) (7,171,684)
Sales 12,163,673 9,326,809 7,139,781
Maturities 929,018 958,065 42,707
Fixed maturity securities
held for investment:
Purchases -- -- (5,903,805)
Sales -- -- 2,805,980
Maturities -- -- 1,639,739
Purchases of other investments (1,711,427) (1,421,321) (1,936,013)
Sale or maturity of other investments 1,198,536 1,457,157 1,142,872
Sale of affiliates -- 520,340 --
Decrease in cash collateral
on loaned securities (39,681) (163,872) (40,454)
Other (213,708) (37,606) 83,751
Net cash used in
investing activities (1,223,396) (1,460,641) (2,197,126)
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from financing activities
Principal payments on long-term debt $ (13,967) $ (200) $ (1,138)
Issuance of long-term debt -- -- 10,314
Net increase (decrease) in
short-term debt (28,873) 3,629 13,047
Universal life and investment
contract deposits 1,716,239 2,381,829 2,418,037
Universal life and
investment contract withdrawals (2,149,325) (1,604,450) (1,503,105)
Capital contribution from
Lincoln National Corporation 17,952 161 221
Dividends paid to shareholder (310,000) (125,000) (12,000)
Net cash provided by
(used in) financing activities (767,974) 655,969 925,376
Net increase (decrease) in cash (188,137) 400,565 (371,557)
Cash at beginning of year 990,880 590,315 961,872
Cash at end of year $ 802,743 $ 990,880 $ 590,315
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include The Lincoln National
Life Insurance Company ("Company") and its majority-owned subsidiaries. The
Company and its subsidiaries operate multiple insurance businesses. Operations
are divided into two business segments (see Note 9). These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles.
Use of Estimates
The nature of the insurance business requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investments
The Company classifies its fixed maturity securities and equity securities
(common and non-redeemable preferred stocks) as available-for-sale and,
accordingly, such securities are carried at fair value. The cost of fixed
maturity securities is adjusted for amortization of premiums and discounts.
The cost of fixed maturity and equity securities is adjusted for declines in
value that are other than temporary.
For the mortgage-backed securities portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When estimates of prepayments change, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the securities. This adjustment is reflected in net investment
income.
Mortgage loans on real estate are carried at outstanding principal balances
less unaccrued discounts and net of reserves for declines that are other than
temporary. Investment real estate is carried at cost less allowances for
depreciation. Such real estate is carried net of reserves for declines in
value that are other than temporary. Real estate acquired through foreclosure
proceedings is recorded at fair value on the settlement date which establishes
a new cost basis. If
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
a subsequent periodic review of a foreclosed property indicates the fair
value, less estimated costs to sell, is lower than the carrying value at the
settlement date, the carrying value is adjusted to the lower amount. Policy
loans are carried at the aggregate unpaid balances. Any changes to the
reserves for mortgage loans on real estate and real estate are reported as a
realized gain (loss) on investments.
Cash and invested cash are carried at cost and include all highly liquid debt
instruments purchased with a maturity of three months or less, including
participation in a short-term investment pool administered by Lincoln National
Corporation ("LNC"), the Company's parent.
Realized gain (loss) on investments is recognized in net income, net of
related amortization of deferred acquisition costs, using the specific
identification method. Changes in the fair values of securities carried at
fair value are reflected directly in shareholder's equity after deductions for
related adjustments for deferred acquisition costs and amounts required to
satisfy policyholder commitments that would have been recorded if these
securities would have been sold at their fair value, and after deferred taxes
or credits to the extent deemed recoverable.
Derivatives
The Company hedges certain portions of its exposure to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risk by entering into derivative
transactions. A description of the Company's accounting for its hedge of such
risks is discussed in the following two paragraphs.
The premium paid for an interest rate cap is deferred and amortized to net
investment income on a straight-line basis over the term of the interest rate
cap. Any settlement received in accordance with the terms of the interest
rate caps is recorded as investment income. Spread-lock agreements, interest
rate swaps and financial futures, which hedge fixed maturity securities
available-for-sale, are carried at fair value with the change in fair value
reflected directly in shareholder's equity. Realized gain (loss) from the
settlement of such derivatives is deferred and amortized over the life of the
hedged assets as an adjustment to the yield. Foreign exchange forward
contracts, foreign currency options and foreign currency swaps, which hedge
some of the foreign exchange risk of investments in fixed maturity securities
denominated in foreign currencies, are carried at fair value with the change
in fair value reflected in earnings. Realized gain (loss) from the settlement
of such derivatives is also reflected in earnings.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate fluctuations,
the widening of bond yield spreads over comparable maturity U.S. Government
obligations and foreign exchange risk; and the derivatives used are designated
as a hedge and reduce the indicated risk by having a high correlation of
changes in the value of the derivatives and the items being hedged at both the
inception of the hedge and throughout the hedge period. Should such criteria
not be met, the change in value of the derivatives is included in net income.
Property and Equipment
Property and equipment owned for company use is carried at cost less
allowances for depreciation.
Premiums and Fees
Revenue for universal life and other interest-sensitive life insurance policies
consists of policy charges for cost of insurance, policy initiation and
administration, and surrender charges that have been assessed. Traditional
individual life-health and annuity premiums are recognized as revenue over the
premium-paying period of the policies. Group health premiums are prorated over
the contract term of the policies.
Assets Held in Separate Accounts/Liabilities Related to Separate Accounts
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable life
and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's consolidated statements of
income.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
Deferred Acquisition Costs
Commissions and other costs of acquiring universal life insurance, variable
universal life insurance, traditional life insurance, annuities and group
health insurance which vary with and are primarily related to the production
of new business, have been deferred to the extent recoverable. Acquisition
costs for universal and variable universal life insurance policies are being
amortized over the lives of the policies in relation to the incidence of
estimated gross profits from surrender charges and investment, mortality and
expense margins, and actual realized gain (loss) on investments. That
amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of policies are revised. The
traditional life-health and annuity acquisition costs are amortized over the
premium-paying period of the related policies using assumptions consistent
with those used in computing policy reserves.
Expenses
Expenses for universal and variable universal life insurance policies include
interest credited to policy account balances and benefit claims incurred
during the period in excess of policy account balances. Interest crediting
rates associated with funds invested in the Company's general account during
1993 through 1995 ranged from 6.1% to 8.25%.
Goodwill
The cost of acquired subsidiaries in excess of the fair value of net assets
(goodwill) is amortized using the straight-line method over periods that
generally correspond with the benefits expected to be derived from the
acquisitions. Goodwill is amortized over 40 years. The carrying value of
goodwill is reviewed periodically for indicators of impairment in value.
Policy Liabilities and Accruals
The liabilities for future policy benefits and expenses for universal and
variable universal life insurance policies consist of policy account balances
that accrue to the benefit of the policyholders, excluding surrender charges.
The liabilities for future policy benefits and expenses for traditional life
policies and immediate and deferred paid-up annuities are computed using a net
level premium method and assumptions for investment yields, mortality and
withdrawals based principally on Company experience projected at the time of
policy issue, with provision for possible adverse deviations. Interest
assumptions for traditional direct individual life reserves for all policies
range from 2.3% to 11.7% graded to 5.7% after 30 years depending on time of
policy issue. Interest rate assumptions for reinsurance reserves range from
5.0% to 11.0% graded to 8.0% after 20 years. The interest assumptions for
immediate and deferred paid-up annuities range from 4.5% to 8.0%.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
With respect to its policy liabilities and accruals, the Company carries on a
continuing review of its 1) overall reserve position, 2) reserving techniques
and 3) reinsurance arrangements, and as experience develops and new
information becomes known, liabilities are adjusted as deemed necessary. The
effects of changes in estimates are included in the operating results for the
period in which such estimates occur.
Reinsurance
The Company enters into reinsurance agreements with other companies in the
normal course of their business. The Company may assume reinsurance from
unaffiliated companies and/or cede reinsurance to such companies.
Assets/liabilities and premiums/benefits from certain reinsurance contracts
which grant statutory surplus to other insurance companies have been netted on
the balance sheets and income statements, respectively, since there is a right
of offset. All other reinsurance agreements are reported on a gross basis.
Depreciation
Provisions for depreciation of investment real estate and property and
equipment owned for Company use are computed principally on the straight-line
method over the estimated useful lives of the assets.
Postretirement Medical and Life Insurance Benefits
The Company accounts for its postretirement medical and life insurance
benefits using the full accrual method.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company and eligible subsidiaries have elected to file consolidated
Federal and state income tax returns with their parent, LNC. Pursuant to an
intercompany tax sharing agreement with LNC, the Company and its eligible
subsidiaries provide for income taxes on a separate return filing basis. The
tax sharing agreement also provides that the Company and eligible subsidiaries
will receive benefit for net operating losses, capital losses and tax credits
which are not usable on a separate return basis to the extent such items may
be utilized in the consolidated income tax returns of LNC.
The Company uses the liability method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax return purposes. The Company
establishes a valuation allowance for any portion of its deferred tax assets
which are unlikely to be realized.
2. Changes in Accounting Principles and Changes in Estimates
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company changed its method of accounting for
postretirement medical and life insurance benefits for its eligible employees
and agents from a pay-as-you-go method to a full accrual method in accordance
with Financial Accounting Standards No. 106 entitled "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("FAS 106"). This full
accrual method recognizes the estimated obligation for retired employees and
agents and active employees and agents who are expected to retire in the
future. The effect of the change was to increase net periodic postretirement
benefit cost by $7,800,000 and decrease income before cumulative effect of
accounting change by $5,100,000 ($0.51 per share). The implementation of FAS
106 resulted in a one-time charge to the first quarter 1993 net income of
$45,600,000 or $4.56 per share ($69,000,000 pre-tax) for the cumulative effect
of the accounting change. See Note 6 for additional disclosures regarding
postretirement benefits other than pensions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Accounting by Creditors for Impairment of a Loan
Financial Accounting Standards No. 114 entitled "Accounting by Creditors for
Impairment of a Loan" ("FAS 114") issued in May 1993, was adopted by the
Company effective January 1, 1993. FAS 114 requires that if an impaired
mortgage loan's fair value as described in Note 3 is less than the recorded
investment in the loan, the difference is recorded in the mortgage loan
allowance for losses account. The adoption of FAS 114 resulted in additions
to the mortgage loan allowance for losses account and reduced first quarter
1993 income before cumulative effect of accounting change and net income by
$37,700,000 or $3.77 per share ($57,200,000 pre-tax). See Note 3 for further
mortgage loan disclosures. Most of the effect of this change in accounting
was within the Life Insurance and Annuities business segment.
Accounting for Certain Investments in Debt and Equity Securities
Financial Accounting Standards No. 115 entitled "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115") issued in May 1993, was
adopted by the Company as of December 31, 1993. In accordance with the rules,
the prior year financial statements have not been restated to reflect the
change in accounting principle. Under FAS 115, securities can be classified
as available-for-sale, trading or held-to-maturity according to the holder's
intent. The Company classified its entire fixed maturity securities portfolio
as "available-for-sale." Securities classified as available-for-sale are
carried at fair value and unrealized gains and losses on such securities are
carried as a separate component of shareholder's equity. The ending balance
of shareholder's equity at December 31, 1993 was increased by $564,200,000
(net of $377,500,000 of related adjustments to deferred acquisition costs,
$50,700,000 of policyholder commitments and $303,700,000 in deferred income
taxes, all of which would have been recognized if those securities would have
been sold at their fair value, net of amounts applicable to Security-
Connecticut Corporation) to reflect the net unrealized gain on fixed maturity
securities classified as available-for-sale previously carried at amortized
cost. Prior to the adoption of FAS 115, the Company carried a portion of its
fixed maturity securities at fair value with unrealized gains and losses
carried as a separate component of shareholder's equity. The remainder of
such securities were carried at amortized cost.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Change in Estimate for Net Investment Income Related to Mortgage-Backed
Securities
At December 31, 1993, the Company had $5,942,100,000 invested in mortgage-
backed securities. As indicated in Note 1, the Company recognizes income on
these securities using a constant effective yield based on anticipated
prepayments. With the implementation of new investment software in December
1993, the Company was able to significantly refine its estimate of the
effective yield on such securities to better reflect actual prepayments and
estimates of future prepayments. This resulted in an increase in the
amortization of purchase discount on these securities of $58,000,000 and,
after related amortization of deferred acquisition costs ($18,300,000) and
income taxes ($14,300,000), increased 1993's income before cumulative effect
of accounting change and net income by $25,500,000 or $2.55 per share. Most
of the effect of this change in estimate was within the Life Insurance and
Annuities business segment.
Change in Estimate for Disability Income Reserves
During the fourth quarter of 1993, income before cumulative effect of
accounting change and net income decreased by $15,500,000 or $1.55 per share
as the result of strengthening reinsurance disability income reserves by
$23,900,000. The need for this reserve increase within the Reinsurance
segment was identified as the result of management's assessment of current
expectations for morbidity trends and the impact of lower investment income
due to lower interest rates.
During the fourth quarter of 1995, the Company completed an in-depth review of
the experience of its disability income business. As a result of this study,
and based on the assumption that recent experience will continue in the
future, income before cumulative effect of accounting change and net income
decreased by $33,500,000 or $3.35 per share ($51,500,000 pre-tax) as a result
of strengthening disability income reserves by $15,200,000 and writing-off
deferred acquisition costs of $36,300,000 in the Reinsurance segment.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $1,549.4 $1,357.4 $1,497.6
Equity securities 8.9 7.4 4.3
Mortgage loans on real estate 268.3 271.3 294.2
Real estate 110.0 97.8 75.2
Policy loans 35.4 32.7 36.0
Invested cash 55.4 46.4 24.8
Other investments 15.8 7.3 8.0
Investment revenue 2,043.2 1,820.3 1,940.1
Investment expenses 143.6 146.3 116.6
Net investment income $1,899.6 $1,674.0 $1,823.5
</TABLE>
The realized gain (loss) on investments is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Gross gain $239.6 $ 69.6 $ 91.1
Gross loss (87.8) (294.1) (8.4)
Equity securities available-for-sale:
Gross gain 82.3 50.2 88.3
Gross loss (31.3) (50.5) (33.7)
Fixed maturity securities held for investment:
Gross gain -- -- 209.9
Gross loss -- -- (69.5)
Other investments 42.2 5.1 (161.8)
Related restoration or amortization
of deferred acquisition costs and
provision for policyholder
commitments (108.8) 81.2 (23.7)
Total $136.2 $(138.5) $ 92.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Provisions (credits) for write-downs and net changes in provisions for losses,
which are included in realized gain (loss) on investments shown above, are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $10.4 $14.2 $ 55.6
Equity securities 3.3 6.8 --
Mortgage loans on real estate 14.7 19.5 136.7
Real estate (7.2) 13.0 21.8
Other long-term investments (1.5) .3 3.9
Guarantees (2.2) 4.3 1.7
Total $17.5 $58.1 $219.7
</TABLE>
The change in unrealized appreciation (depreciation) on investments in fixed
maturity and equity securities is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities
available-for-sale $2,063.7 $(1,903.7) $1,387.1
Equity securities available-for-sale 78.1 (26.0) 9.2
Fixed maturity securities
held for investment -- -- (959.7)
Total $2,141.8 $(1,929.7) $ 436.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost, gross unrealized gain and loss and fair value of securities
available-for-sale are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $12,412.1 $1,141.0 $28.7 $13,524.4
U.S. Government bonds 569.6 83.9 .1 653.4
Foreign governments bonds 927.9 70.3 .6 997.6
Mortgage-backed securities:
Mortgage pass-through securities 1,072.5 41.0 3.2 1,110.3
Collateralized mortgage obligations 3,816.3 262.5 7.4 4,071.4
Other mortgage-backed securities 2.8 .3 -- 3.1
State and municipal bonds 12.3 .1 -- 12.4
Redeemable preferred stocks 39.3 2.9 -- 42.2
Total fixed maturity securities 18,852.8 1,602.0 40.0 20,414.8
Equity securities 480.3 123.6 5.5 598.4
Total $19,333.1 $1,725.6 $45.5 $21,013.2
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $11,519.3 $143.3 $514.4 $11,148.2
U.S. Government bonds 1,048.4 6.9 25.5 1,029.8
Foreign governments bonds 541.2 4.7 12.5 533.4
Mortgage-backed securities:
Mortgage pass-through securities 1,176.8 3.0 44.1 1,135.7
Collateralized mortgage obligations 3,835.5 85.8 148.6 3,772.7
Other mortgage-backed securities 5.0 .1 .1 5.0
State and municipal bonds 16.3 .4 -- 16.7
Redeemable preferred stocks 51.4 .2 .9 50.7
Total fixed maturity securities 18,193.9 244.4 746.1 17,692.2
Equity securities 416.3 56.4 16.4 456.3
Total $18,610.2 $300.8 $762.5 $18,148.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Future maturities of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Fair
Cost Value
(in millions)
<S> <C> <C>
Due in one year or less $ 278.4 $ 282.6
Due after one year through five years 2,955.7 3,102.1
Due after five years through ten years 4,918.2 5,265.9
Due after ten years 5,808.9 6,579.4
Subtotal 13,961.2 15,230.0
Mortgage-backed securities 4,891.6 5,184.8
Total $18,852.8 $20,414.8
</TABLE>
The foregoing data is based on stated maturities. Actual maturities will
differ in some cases because borrowers may have the right to call or pre-pay
obligations.
At December 31, 1995, the current par, amortized cost and estimated fair value
of investments in mortgage-backed securities summarized by interest rates of
the underlying collateral are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Current Fair
Par Cost Value
(in millions)
<S> <C> <C> <C>
Below 7% $ 292.6 $ 290.5 $ 293.6
7%-8% 1,302.8 1,276.9 1,318.2
8%-9% 1,607.0 1,564.7 1,669.8
Above 9% 1,810.5 1,759.5 1,903.2
Total $5,012.9 $4,891.6 $5,184.8
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The quality ratings of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
<S> <C>
Treasuries and AAA 34.1%
AA 8.0
A 25.9
BBB 24.5
BB 3.9
Less than BB 3.6
100.0%
</TABLE>
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When the Company determines that a loan is impaired, a provision
for loss is established for the difference between the carrying value of the
mortgage loan and the estimated value. Estimated value is based on either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral. The provision for losses is reported as realized gain (loss) on
investments. Mortgage loans deemed to be uncollectible are charged against
the provision for losses and subsequent recoveries, if any, are credited to
the provision for losses.
The provision for losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the provision for losses is based on the
Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of the
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently
subjective as it requires estimating the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Impaired loans along with the related allowance for losses are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Impaired loans with allowance for losses $144.7 $246.0
Allowance for losses (28.5) (56.6)
Impaired loans with no allowance for losses 2.1 2.2
Net impaired loans $118.3 $191.6
</TABLE>
Impaired loans with no allowance for losses are a result of direct write-downs
or for collateral dependent loans where the fair value of the collateral is
greater than the recorded investment in such loans.
A reconciliation of the mortgage loan allowance for losses for these impaired
mortgage loans is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Balance at beginning of year $56.6 $220.7 $129.1
Provisions for losses 14.7 19.5 79.5
Provision for adoption of FAS 114 -- -- 57.2
Releases due to write-downs (12.0) -- --
Releases due to sales (15.9) (164.7) (12.2)
Releases due to foreclosures (14.9) (18.9) (32.9)
Balance at end of year $28.5 $ 56.6 $220.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Average recorded investment in impaired loans $181.7 $467.5 $703.6
Interest income recognized on impaired loans 16.6 36.1 47.3
</TABLE>
All interest income on impaired loans was recognized on the cash basis of
income recognition.
As of December 31, 1995 and 1994, the Company had restructured loans of
$62,500,000 and $36,200,000, respectively. The Company recorded $6,300,000
and $800,000 interest income on these restructured loans in 1995 and 1994,
respectively. Interest income in the amount of $6,600,000 and $3,900,000
would have been recorded on these loans according to their original terms in
1995 and 1994, respectively. As of December 31, 1995 and 1994, the Company
had no outstanding commitments to lend funds on restructured loans.
As of December 31, 1995, the Company's investment commitments for fixed
maturity securities (primarily private placements), mortgage loans on real
estate and real estate were $543,100,000.
Fixed maturity securities available-for-sale, mortgage loans on real estate
and real estate with a combined carrying value at December 31, 1995 of
$1,300,000 were non-income producing for the year ended December 31, 1995.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost information for mortgage loans on real estate, real estate and other
long-term investments are net of allowances for losses. The balance sheet
account for other liabilities includes a reserve for guarantees of third-party
debt. The amount of allowances and a reserve for such items is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Mortgage loans on real estate $28.5 $56.6
Real estate 46.6 65.2
Other long-term investments 11.8 13.5
</TABLE>
Details underlying the balance sheet caption "Net Unrealized Gain (Loss) on
Securities Available-for-Sale," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Fair value of securities available-for-sale $21,013.2 $18,148.5
Cost of securities available-for-sale 19,333.1 18,610.2
Unrealized gain (loss) 1,680.1 (461.7)
Adjustments to deferred acquisition costs (492.1) 158.2
Amounts required to satisfy
policyholder commitments (510.1) 8.6
Deferred income credits (taxes) (234.6) 105.9
Valuation allowance for deferred tax assets -- (135.6)
Net unrealized gain (loss) on
securities available-for-sale $ 443.3 $ (324.6)
</TABLE>
Adjustments to deferred acquisition costs and amounts required to satisfy
policyholder commitments are netted against the Deferred Acquisition Costs
asset account and included with the Future Policy Benefits, Claims and Claims
Expense liability account on the balance sheet, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes
The Federal income tax expense (benefit) before cumulative effect of
accounting change is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Current $172.5 $(93.4) $261.3
Deferred (45.0) 133.8 (118.8)
Total $127.5 $ 40.4 $142.5
</TABLE>
Cash paid for Federal income taxes in 1995, 1994 and 1993 was $27,500,000,
$41,400,000 and $272,600,000, respectively. The cash paid in 1995 is net of a
$146,900,000 cash refund related to the carryback of 1994 capital losses to
prior years.
The effective tax rate on pre-tax income before cumulative effect of
accounting change is lower than the prevailing corporate Federal income tax
rate. A reconciliation of this difference is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Tax rate times pre-tax income $157.3 $91.1 $117.5
Effect of:
Tax-exempt investment income (22.0) (21.5) (16.2)
Participating policyholders' share 5.4 3.4 4.1
Loss (gain) on sale of affiliates -- (24.1) 34.5
Other items (13.2) (8.5) 2.6
Provision for income taxes $127.5 $40.4 $142.5
Effective tax rate 28.4% 15.5% 42.5%
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Federal income tax recoverable (liability) is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Current $ (25.0) $118.2
Deferred (141.4) 16.3
Total $(166.4) $134.5
</TABLE>
Significant components of the Company's net deferred tax asset (liability) are
as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Deferred tax assets:
Policy liabilities and accruals
and contractholder funds $ 694.5 $430.9
Loss on investments -- 16.8
Net unrealized loss on
securities available-for-sale -- 161.6
Postretirement benefits other than pensions 25.3 24.2
Other 39.5 34.6
Total deferred tax assets 759.3 668.1
Valuation allowance for deferred tax assets -- (135.6)
Net deferred tax assets 759.3 532.5
Deferred tax liabilities:
Deferred acquisition costs 218.8 475.5
Net unrealized gain on
securities available-for-sale 579.6 --
Gain on investments 7.7 --
Other 94.6 40.7
Total deferred tax liabilities 900.7 516.2
Net deferred tax (liability) asset $(141.4) $ 16.3
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Company is required to establish a "valuation allowance" for any portion
of its deferred tax assets which are unlikely to be realized. At December 31,
1994, $161,600,000 of deferred tax assets relating to net unrealized capital
losses on fixed maturity and equity securities available-for-sale were
available to be recorded in shareholder's equity before considering a
valuation allowance. For Federal income tax purposes, capital losses may only
be used to offset capital gains in the current year or during a three year
carryback and five year carryforward period. Due to these restrictions, and
the uncertainty at that time of future capital gains, these deferred tax
assets were substantially offset by a valuation allowance of $135,600,000. By
December 31, 1995, the fair values of fixed maturity and equity securities
available-for-sale were greater than the cost basis resulting in unrealized
capital gains. Accordingly, no valuation allowance was established as of
December 31, 1995 since management believes it is more likely than not that
the Company will realize the benefit of its deferred tax assets.
Prior to 1984, a portion of the life companies' current income was not subject
to current income tax, but was accumulated for income tax purposes in a
memorandum account designated as "policyholders' surplus." The total of the
life companies' balances in their respective "policyholders' surplus" accounts
at December 31, 1983 of $204,800,000 was "frozen" by the Tax Reform Act of
1984 and, accordingly, there have been no additions to the accounts after that
date. That portion of current income on which income taxes have been paid
will continue to be accumulated in a memorandum account designated as
"shareholder surplus," and is available for dividends to the shareholder
without additional payment of tax. The December 31, 1995 total of the life
companies' account balances for their "shareholder surplus" was
$1,554,000,000. Should dividends to the shareholder for each life company
exceed its respective "shareholder surplus," amounts would need to be
transferred from its respective "policyholders' surplus" and would be subject
to Federal income tax at that time. In connection with the 1993 sale of a
life insurance affiliate (see Note 10), $8,800,000 was transferred from
policyholders' surplus to shareholder surplus and current income tax of
$3,100,000 was paid. Under existing or foreseeable circumstances, the Company
neither expects nor intends that distributions will be made from the remaining
balance in "policyholders' surplus" of $196,000,000 that will result in any
such tax. Accordingly, no provision for deferred income taxes has been
provided by the Company on its "policyholders' surplus" account. In the event
that such excess distributions are made, it is estimated that income taxes of
approximately $68,600,000 would be due.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data
The balance sheet captions, "Real Estate," "Other Investments" and "Property
and Equipment," are shown net of allowances for depreciation as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate $ 51.6 $ 37.0
Other investments 14.6 12.2
Property and equipment 100.7 104.7
</TABLE>
Details underlying the balance sheet caption, "Contractholder Funds," are as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Premium deposit funds $17,886.9 $16,770.3
Undistributed earnings on participating business 91.9 63.6
Other 193.0 194.7
Total $18,171.8 $17,028.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
Details underlying the balance sheet captions, "Short-term and Long-term
Debt," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Short-term debt:
Short-term notes $123.5 $150.8
Current portion of long-term debt 1.3 2.9
Total short-term debt $124.8 $153.7
Long-term debt less current portion:
7% mortgage note payable, due 1996 $ -- $ 4.9
9.48% mortgage note payable, due 1996 -- 7.7
12% mortgage note payable, due 1996 -- .2
8.42% mortgage note payable, due 1997 7.0 7.2
8.25% mortgage note payable, due 1997 10.1 10.2
8% mortgage note payable, due 1997 2.1 --
8.75% mortgage note payable, due 1998 18.4 18.8
9.75% mortgage note payable, due 2002 3.2 5.8
Total long-term debt $ 40.8 $ 54.8
</TABLE>
Future maturities of long-term debt are as follows (in millions):
1996 -- $ 1.3 1998 -- $18.4 2000 -- $ --
1997 -- 19.2 1999 -- -- Thereafter -- 3.2
Cash paid for interest for 1995, 1994 and 1993 was $67,000, $615,000 and
$96,000, respectively.
Reinsurance transactions included in the income statement caption, "Insurance
Premiums," are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Insurance assumed $777.6 $910.8 $807.5
Insurance ceded 441.7 716.7 568.6
Net reinsurance premiums $335.9 $194.1 $238.9
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
The income statement caption, "Benefits and Settlement Expenses," is net of
reinsurance recoveries of $456,000, $524,000 and $438,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The income statement caption, "Underwriting, Acquisition, Insurance and Other
Expenses," includes amortization of deferred acquisition costs of
$399,700,000, $115,200,000 and $241,000,000 for the years ended December 31,
1995, 1994 and 1993, respectively. An additional $(85,200,000), $81,200,000
and ($23,700,000) of deferred acquisition costs was restored (amortized) and
netted against "Realized Gain (Loss) on Investments" for the years ended
December 31, 1995, 1994 and 1993, respectively.
6. Employee Benefit Plans
Pension Plans
LNC maintains funded defined benefit pension plans for most of its employees
and, prior to January 1, 1995, full-time agents. The benefits for employees
are based on total years of service and the highest 60 months of compensation
during the last 10 years of employment. The benefits for agents were based on
a percentage of each agent's yearly earnings. The plans are funded by
contributions to tax-exempt trusts. The Company's funding policy is
consistent with the funding requirements of Federal laws and regulations.
Contributions are intended to provide not only the benefits attributed to
service to date, but also those expected to be earned in the future. Plan
assets consist principally of listed equity securities and corporate
obligations and government bonds.
All benefits applicable to the funded defined benefit plan for agents were
frozen as of December 31, 1994. The curtailment of this plan did not have a
significant effect on net pension cost for 1994. Effective January 1, 1995,
pension benefits for agents have been provided by a new defined contribution
plan. Contributions to this plan will be based on 2.3% of an agent's earnings
up to the social security wage base and 4.6% of any excess.
LNC also administers two types of unfunded, nonqualified, defined benefit
plans for certain employees and agents. A supplemental retirement plan
provides defined benefit pension benefits in excess of limits imposed by
Federal tax law. A salary continuation plan provides certain officers of the
Company defined pension benefits based on years of service and final monthly
salary upon death or retirement.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The status of the funded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(162.1) $(130.5)
Nonvested benefits (9.2) (7.3)
Accumulated benefit obligation (171.3) (137.8)
Effect of projected future compensation increases (37.2) (24.3)
Projected benefit obligation (208.5) (162.1)
Plan assets at fair value 196.4 159.3
Projected benefit obligations in
excess of plan assets (12.1) (2.8)
Unrecognized net loss (gain) 12.6 (.5)
Unrecognized prior service cost 1.2 1.1
Prepaid (accrued) pension cost
included in other liabilities $ 1.7 $ (2.2)
</TABLE>
The status of the unfunded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(7.0) $(5.4)
Nonvested benefits (1.5) (1.0)
Accumulated benefit obligation (8.5) (6.4)
Effect of projected future compensation increases (2.4) (2.5)
Projected benefit obligation (10.9) (8.9)
Unrecognized transition obligation -- --
Unrecognized net loss (gain) 1.0 (.3)
Unrecognized prior service cost .8 .8
Accrued pension costs included in other liabilities $(9.1) $(8.4)
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The determination of the projected benefits obligation for the defined benefit
plans was based on the following assumptions:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 8.0% 7.0%
Rate of increase in compensation:
Salary continuation plan 6.0 6.5 6.0
All other plans 5.0 5.0 5.0
Expected long-term rate of return on plan assets 9.0 9.0 9.0
</TABLE>
The components of net pension cost for the defined benefit pension plans are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 5.0 $ 8.9 $ 8.5
Interest cost on projected benefit obligation 13.2 12.9 12.4
Actual return on plan assets (36.3) 4.7 (20.1)
Net amortization (deferral) 22.9 (18.6) 6.1
Net pension cost $ 4.8 $ 7.9 $ 6.9
</TABLE>
401(k)
LNC and the Company sponsor contributory defined contribution plans for
eligible employees and agents. The Company's contributions to the plans are
equal to each participant's pre-tax contribution, not to exceed 6% of base
pay, multiplied by a percentage, ranging from 25% to 150%, which varies
according to certain incentive criteria as determined by LNC's Board of
Directors. Expense for these plans amounted to $8,000,000, $13,200,000 and
$11,800,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
Postretirement Medical and Life Insurance Benefit Plans
LNC sponsors unfunded defined benefit plans that provide postretirement
medical and life insurance benefits to full-time employees and agents who,
depending on the plan, have worked for the Company 10 to 15 years and attained
age 55 to 60. Medical benefits are also available to spouses and other
dependents of employees and agents. For medical benefits, limited
contributions are required from individuals retired prior to November 1, 1988;
contributions for later retirees, which can be adjusted annually, are based on
such items as years of service at retirement and age at retirement. The life
insurance benefits are noncontributory, although participants can elect
supplemental contributory benefits.
The status of the postretirement medical and life insurance benefit plans and
the amounts recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(39.8) $(34.9)
Fully eligible active plan participants (9.9) (7.0)
Other active plan participants (20.8) (15.0)
Accumulated postretirement benefit obligation (70.5) (56.9)
Unrecognized net gain (.8) (5.5)
Accrued plan cost included in other liabilities $(71.3) $(62.4)
</TABLE>
The components of periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost $1.5 $1.7 $2.6
Interest cost 4.4 4.2 4.6
Amortization cost (credit) (.8) .1 --
Net periodic postretirement benefit cost $5.1 $6.0 $7.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The calculation of the accumulated postretirement benefit obligation assumes a
weighted-average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) of 9.5% for 1996 gradually
decreasing to 5.5% by 2004 and remaining at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point each year would increase the accumulated postretirement
benefit obligation as of December 1995 and 1994 by $5,100,000 and $4,100,000,
respectively, and the aggregate of the estimated service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1995 by $488,000. The calculation assumes a long-term rate of
increase in compensation of 5.0% for both December 31, 1995 and 1994. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 8.0% at December 31, 1995 and
1994, respectively.
7. Restrictions, Commitments and Contingencies
Shareholder's Equity Restrictions
Net income as determined in accordance with statutory accounting practices for
the Company and its insurance subsidiaries in 1995, 1994 and 1993 was
$284,500,000, $366,700,000 and $237,000,000, respectively. The Company's
shareholder's equity as determined in accordance with statutory accounting
practices at December 31, 1995 and 1994 was $1,732,900,000 and $1,679,700,000,
respectively.
The Company is subject to certain insurance department regulatory restrictions
as to the transfer of funds and payments of dividends to LNC. In 1996, the
Company can transfer up to $284,500,000 without seeking prior approval from
the insurance regulators.
Disability Income Claims
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1995 and 1994 is a net
liability of $602,600,000 and $441,700,000, respectively, excluding deferred
acquisition costs. The bulk of the increase to this liability relates to the
assumption of a large block of disability claim reserves and related assets
during the third quarter of 1995. In addition, as indicated in Note 2, the
Company strengthened its disability income reserves and wrote off certain
related deferred acquisition costs in the fourth quarter of 1995. The
reserves were established on the assumption that the recent experience will
continue in the future. If incidence levels or claim termination rates vary
significantly from these assumptions, further adjustments to reserves may be
required in the future. It is not possible to provide a meaningful estimate
of a range of possible outcomes at this time. The Company reviews and updates
the level of these reserves on an on-going basis.
Compliance of Qualified Annuity Plans
Tax authorities continue to focus on compliance of qualified annuity plans
marketed by insurance companies. If sponsoring employers cannot demonstrate
compliance and the insurance company is held responsible due to its marketing
efforts, the Company and other insurers may be subject to potential liability.
It is not possible to provide a meaningful estimate of the range of potential
liability at this time. Management continues to monitor this matter and to
take steps to minimize any potential liability.
Group Pension Annuities
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold, are supported by a single portfolio of assets
which attempts to match the duration of these liabilities. Due to the very
long-term nature of group pension annuities and the resulting inability to
exactly match cash flows, a risk exists that future cash flows from
investments will not be reinvested at rates as high as currently earned by the
portfolio. This situation could cause losses which would be recognized at
some future time.
Leases
The Company and certain of its subsidiaries lease their home office properties
through sale-leaseback agreements. The agreements provide for a 25 year lease
period with options to renew for six additional terms of five years each. The
agreements also provide the Company with the right of first refusal to
purchase the properties during the term of the lease, including renewal
periods, at a price as defined in the agreements. In addition, the Company
has the option to purchase the leased properties at fair market value as
defined in the agreements on the last day of the initial 25 year lease period
ending in 2009 or the last day of any of the renewal periods.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Total rental expense under operating leases in 1995, 1994 and 1993 was
$24,400,000, $21,700,000 and $27,100,000. Future minimum rental commitments
are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 20.9
1997 19.5
1998 18.3
1999 18.3
2000 17.7
Thereafter 172.4
Total $267.1
</TABLE>
Insurance Ceded and Assumed
The Company cedes insurance to other companies, including certain affiliates.
The portion of risks exceeding each companys retention limit is reinsured
with other insurers. The Company seeks reinsurance coverage within the
business segment that sells life insurance that limits its liabilities on an
individual insured to $3,000,000. To cover products other than life
insurance, the Company acquires other insurance coverages with retentions and
limits which management believes are appropriate for the circumstances. The
accompanying financial statements reflect premiums, benefits and settlement
expenses and deferred acquisition costs, net of insurance ceded (see Note 5).
The Company and its subsidiaries remain liable if their reinsurers are unable
to meet their contractual obligations under the applicable reinsurance
agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1995, the Company has provided $92,700,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receivables
from the ceding company, which are secured by future profits on the reinsured
business. However, the Company is subject to the risk that the ceding company
may become insolvent and the right of offset would not be permitted.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Vulnerability from Concentrations
At December 31, 1995, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
Also at December 31, 1995, the Company did not have a concentration of 1)
business transactions with a particular customer, lender or distributor, 2)
revenues from a particular product of service, 3) sources of supply of labor
or services used in the business or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a serve
impact to the Company's financial condition.
Other Contingency Matters
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In some
instances, these proceedings include claims for punitive damages and similar
types of relief in unspecified or substantial amounts, in addition to amounts
for alleged contractual liability or requests for equitable relief. After
consultation with counsel and a review of available facts, it is management's
opinion that these proceedings ultimately will be resolved without materially
affecting the consolidated financial statements of the Company.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or rehabilitated
companies. Mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. The Company has accrued for
expected assessments net of estimated future premium tax deductions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Guarantees
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-balance-
sheet risks, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
Notional or
Contract Amounts
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate partnerships $ 3.3 $17.6
Mortgage loan pass-through certificates 63.6 78.2
Total $66.9 $95.8
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans. In some cases, the terms of these arrangements involve
guarantees by each of the partners to indemnify the mortgagor in the event a
partner is unable to pay its principal and interest payments. In addition,
the Company has sold commercial mortgage loans through grantor trusts which
issued pass-through certificates. The Company has agreed to repurchase any
mortgage loans which remain delinquent for 90 days at a repurchase price
substantially equal to the outstanding principal balance plus accrued interest
thereon to the date of repurchase. It is management's opinion that the value
of the properties underlying these commitments is sufficient that in the event
of default the impact would not be material to the Company. Accordingly, both
the carrying value and fair value of these guarantees is zero at December 31,
1995 and 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Derivatives
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risks. In addition, the Company
is subject to the risks associated with changes in the value of its
derivatives; however, such changes in the value generally are offset by
changes in the value of the items being hedged by such contracts. Outstanding
derivatives with off-balance-sheet risks, shown in notional or contract
amounts along with their carrying value and estimated fair values, are as
follows:
<TABLE>
<CAPTION>
Assets (Liabilities)
Notional or Carrying Fair Carrying Fair
Contract Amounts Value Value Value Value
December 31 December 31 December 31
1995 1994 1995 1995 1994 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate
cap agreements $5,110.0 $4,400.0 $22.7 $5.3 $23.3 $34.4
Spread-lock
agreements 600.0 1,300.0 (.9) (.9) 3.2 3.2
Financial
futures contracts -- 382.5 -- -- (7.5) (7.5)
Interest rate swaps 5.0 5.0 .2 .2 .2 .2
5,715.0 6,087.5 22.0 4.6 19.2 30.3
Foreign currency
derivatives:
Foreign exchange
forward contracts 15.7 21.2 (.6) (.6) .2 .2
Foreign currency
options 99.2 -- 1.9 1.4 -- --
Foreign currency
swaps 15.0 -- .4 .4 -- --
129.9 21.2 1.7 1.2 .2 .2
$5,844.9 $6,108.7 $23.7 $5.8 $19.4 $30.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts is as follows:
<TABLE>
<CAPTION>
Interest Rate Caps Spread Locks
December 31 December 31
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $4,400.0 $3,800.0 $1,300.0 $1,700.0
New contracts 710.0 600.0 800.0 --
Terminations and maturities -- -- (1,500.0) (400.0)
Balance at end of year $5,110.0 $4,400.0 $ 600.0 $1,300.0
</TABLE>
<TABLE>
<CAPTION>
Financial Futures
Contracts Options
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $ 382.5 $ 33.1 $ -- $ --
New contracts 810.5 1,087.7 181.6 308.0
Terminations and maturities (1,193.0) (738.3) (181.6) (308.0)
Balance at end of year $ -- $ 382.5 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Derivatives
Foreign
Exchange Foreign Foreign
Forward Currency Currency
Contracts Options Swaps
1995 1994 1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 21.2 $ -- $ -- $-- $ -- $--
New contracts 131.2 38.5 356.6 -- 15.0 --
Terminations and maturities (136.7) (17.3) (257.4) -- -- --
Balance at end of year $ 15.7 $21.2 $ 99.2 $-- $15.0 $--
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Interest Rate Caps
The interest rate cap agreements, which expire in 1997 through 2003, entitle
the Company to receive payments from the counterparties on specified future
reset dates, contingent on future interest rates. For each cap, the amount of
such quarterly payments, if any, is determined by the excess of a market
interest rate over a specified cap rate times the notional amount divided by
four. The purpose of the Company's interest rate cap agreement program is to
protect its annuity line of business from the effect of fluctuating interest
rates. The premium paid for the interest rate caps is included in other
assets ($22,700,000 and $23,400,000 as of December 31, 1995 and 1994,
respectively) and is being amortized over the terms of the agreements and is
included in net investment income.
Spread Locks
Spread-lock agreements in effect at December 31, 1995 all expire in 2005.
Spread-lock agreements provide for a lump sum payment to or by the Company
depending on whether the spread between the swap rate and a specified U.S.
Treasury note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity U.S. Treasury
security and the price sensitivity of the swap at that time, expressed in
dollars per basis point. The purpose of the Company's spread-lock program is
to protect a portion of its fixed maturity securities against widening of
spreads.
Financial Futures
The Company uses exchange-traded financial futures contracts and options on
those financial futures to hedge against interest rate risks and to manage
duration of a portion of its fixed maturity securities. Financial futures
contracts obligate the Company to buy or sell a financial instrument at a
specified future date for a specified price and may be settled in cash or
through delivery of the financial instrument. Cash settlements on the change
in market values of financial futures contracts are made daily. Options on
financial futures give the Company the right, but not the obligation, to
assume a long or short position in the underlying futures at a specified price
during a specified time period.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Foreign Currency Derivatives
The Company uses a combination of foreign exchange forward contracts, foreign
currency options and foreign currency swaps, all of which are traded over-the-
counter, to hedge some of the foreign exchange risk of investments in fixed
maturity securities denominated in foreign currencies. The foreign currency
forward contracts obligate the Company to deliver a specified amount of
currency at a future date at a specified exchange rate. Foreign currency
options give the Company the right, but not the obligation, to buy or sell a
foreign currency at a specific exchange rate during a specified time period.
A foreign currency swap is a contractual agreement to exchange the currencies
of two different countries pursuant to an agreement to reexchange the two
currencies at the same rate of exchange at a specified future date.
Additional Derivative Information
Expenses for the agreements and contracts described above amounted to
$5,600,000 and $5,400,000 in 1995 and 1994, respectively. Deferred losses of
$21,800,000 as of December 31, 1995, resulting from 1) terminated and expired
spread-lock agreements, 2) financial futures contracts and 3) options on
financial futures, are included with the related fixed maturity securities to
which the hedge applied and are being amortized over the life of such
securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, spread-lock agreements,
interest rate swaps, foreign exchange forward contracts, foreign currency
options and foreign currency swaps, but the Company does not anticipate
nonperformance by any of these counterparties. The credit risk associated
with such agreements is minimized by purchasing such agreements from financial
institutions with long-standing, superior performance records. The amount of
such exposure is essentially the net replacement cost or market value for such
agreements with each counterparty if the net market value is in the Company's
favor. At December 31, 1995, the exposure was $6,900,000.
8. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair value of the Company's financial instruments.
Considerable judgment is required to develop these fair values and,
accordingly, the estimates shown are not necessarily indicative of the amounts
that would be realized in a one time, current market exchange of all of the
Company's financial instruments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Fixed Maturity and Equity Securities
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services
or, in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the coupon rate,
credit quality and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
Mortgage Loans on Real Estate
The estimated fair value of mortgage loans on real estate was established
using a discounted cash flow method based on credit rating, maturity and
future income when compared to the expected yield for mortgages having similar
characteristics. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service coverage,
loan to value, caliber of tenancy, borrower and payment record. Fair values
for impaired mortgage loans are measured based either on the present value of
expected future cash flows discounted at the loan's effective interest rate,
at the loan's market price or the fair value of the collateral if the loan is
collateral dependent.
Policy Loans
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using Treasury interest rates consistent
with the maturity durations assumed. These durations were based on historical
experience.
Other Investments and Cash and Invested Cash
The carrying value for assets classified as other investments and cash and
invested cash in the accompanying balance sheets approximates their fair
value.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Investment Type Insurance Contracts
The balance sheet captions, "Future Policy Benefits, Claims and Claims
Expenses" and "Contractholder Funds," include investment type insurance
contracts (i.e., deposit contracts and guaranteed interest contracts). The
fair values for the deposit contracts and certain guaranteed interest
contracts are based on their approximate surrender values. The fair values
for the remaining guaranteed interest and similar contracts are estimated
using discounted cash flow calculations based on interest rates currently
being offered on similar contracts with maturities consistent with those
remaining for the contracts being valued.
The remainder of the balance sheet captions, "Future Policy Benefits, Claims
and Claims Expenses" and "Contractholder Funds," that do not fit the
definition of "investment type insurance contracts" are considered insurance
contracts. Fair value disclosures are not required for these insurance
contracts and have not been determined by the Company. It is the Company's
position that the disclosure of the fair value of these insurance contracts is
important in that readers of these financial statements could draw
inappropriate conclusions about the Company's shareholder's equity determined
on a fair value basis if only the fair value of assets and liabilities defined
as financial instruments are disclosed. The Company and other companies in
the insurance industry are monitoring the related actions of the various rule-
making bodies and attempting to determine an appropriate methodology for
estimating and disclosing the "fair value" of their insurance contract
liabilities.
Short-Term and Long-Term Debt
Fair values for long-term debt issues are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for similar
types of borrowing arrangements. For short-term debt, the carrying value
approximates fair value.
Guarantees
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on historical
performance where repurchases have been negligible and the current status,
which indicates none of the loans are delinquent, the fair value liability for
the guarantees related to the mortgage loan pass-through certificates is
insignificant. Fair values for all other guarantees are based on fees that
would be charged currently to enter into similar agreements, taking into
consideration the remaining terms of the agreements and the counterparties'
credit standing.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Derivatives
The Company's derivatives include interest rate cap agreements, spread-lock
agreements, foreign currency exchange contracts, financial futures contracts,
options on financial futures, interest rate swaps, foreign currency options
and foreign currency swaps. Fair values for these contracts are based on
current settlement values. The current settlement values are based on quoted
market prices for the foreign currency exchange contracts, financial future
contracts and options on financial futures and on brokerage quotes, which
utilized pricing models or formulas using current assumptions, for all other
swaps and agreements.
Investment Commitments
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real estate
are based on the difference between the value of the committed investments as
of the date of the accompanying balance sheets and the commitment date, which
would take into account changes in interest rates, the counterparties' credit
standing and the remaining terms of the commitments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
Carrying Fair Carrying Fair
Assets (Liabilities) Value Value Value Value
(in millions)
<S> <C> <C> <C> <C>
Fixed maturity securities $20,414.8 $20,414.8 $17,692.2 $17,692.2
Equity securities 598.4 598.4 456.3 456.3
Mortgage loans on real estate 3,147.8 3,330.5 2,795.9 2,720.6
Policy loans 565.3 557.4 528.7 508.1
Other investments 241.2 241.2 158.2 158.2
Cash and invested cash 802.7 802.7 990.9 990.9
Investment type
insurance contracts:
Deposit contracts and
certain guaranteed
interest contracts (15,390.8) (15,179.1) (14,294.7) (14,052.5)
Remaining guaranteed
interest and similar
contracts (2,470.9) (2,396.5) (2,485.5) (2,423.9)
Short-term debt (124.8) (124.8) (153.7) (153.7)
Long-term debt (40.8) (36.7) (54.8) (57.0)
Derivatives 23.7 5.8 19.4 30.5
Investment commitments -- (.8) -- (.5)
</TABLE>
As of December 31, 1995 and 1994, the carrying value of the deposit contracts
and certain guaranteed contracts is net of deferred acquisition costs of
$333,797,000 and $399,000,000, respectively, excluding adjustments for
deferred acquisition costs applicable to changes in fair value of securities.
The carrying values of these contracts are stated net of deferred acquisition
costs in order that they be comparable with the fair value basis.
9. Segment Information
The Company has two major business segments: Life Insurance and Annuities and
Reinsurance. The Life Insurance and Annuities segment offers universal life,
pension products and other individual coverages through a network of career
agents, independent general agencies and insurance agencies located within a
variety of financial institutions. These products are sold throughout the
United States by the Company. Reinsurance sells reinsurance products and
services to insurance companies, HMOs, self-funded employers and other primary
risk accepting organizations in the U.S. and economically attractive
international markets. Effective in the fourth quarter of 1995, operating
results of the direct disability income business previously included in the
Life Insurance and Annuities segment is now included in the Reinsurance
segment. This direct disability income business, which is no longer being
sold, is now managed by the Reinsurance segment along with its disability
income business. Prior to the sale of 100% of the ownership of its primary
underwriter of employee life-health benefit coverages in 1994 (see Note 10),
the Employee Life-Health Benefits segment distributed group life and health
insurance, managed health care and other related coverages through career
agents and independent general agencies. Activity which is not included in
the major business segments is shown as "Other Operations."
"Other Operations" includes operations not directly related to the business
segments and unallocated corporate items (i.e., corporate investment income,
interest expense on corporate debt and unallocated corporate overhead
expenses).
The revenue, pre-tax income and assets by segment for 1993 through 1995 are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Revenue:
Life Insurance and Annuities $2,569.2 $2,065.3 $2,341.9
Reinsurance 751.2 660.4 610.7
Employee Life-Health Benefits -- 314.9 1,326.8
Other Operations 16.1 74.6 (28.8)
Total $3,336.5 $3,115.2 $4,250.6
Income (loss) before income taxes and
cumulative effect of accounting change:
Life Insurance and Annuities $ 361.0 $ 75.6 $ 265.3
Reinsurance 83.5 93.9 31.6
Employee Life-Health Benefits -- 22.9 83.0
Other Operations 5.0 67.8 (44.2)
Total $ 449.5 $ 260.2 $ 335.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Segment Information (continued)
<TABLE>
<CAPTION>
December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Assets:
Life Insurance and Annuities $45,280.0 $37,675.9 $36,021.0
Reinsurance 3,383.5 2,311.5 2,328.9
Employee Life-Health Benefits -- -- 588.5
Other Operations 923.6 1,038.1 770.0
Total $49,587.1 $41,025.5 $39,708.4
</TABLE>
Provisions for depreciation and capital additions were not material.
10. Sale of Affiliates
In December 1993, the Company recorded a provision for loss of $98,500,000
(also $98,500,000 after-tax) in the "Other Operations" segment for the sale of
Security-Connecticut Life Insurance Company ("Security-Connecticut"). The
sale was completed on February 2, 1994 through an initial public offering and
the Company received cash and notes, net of related expenses, totaling
$237,700,000. The loss on sale and disposal expenses did not differ
materially from the estimate recorded in the fourth quarter of 1993. For the
year ended December 31, 1993, Security-Connecticut, which operated in the Life
Insurance and Annuities segment, had revenue of $274,500,000 and net income of
$24,000,000.
In 1994, the Company completed the sale of 100% of the common stock of
EMPHESYS (parent company of Employers Health Insurance Company, which
comprised the Employee Life-Health Benefits segment) for $348,200,000 of cash,
net of related expenses, and a $50,000,000 promissory note. A gain on sale of
$69,000,000 (also $69,000,000 after-tax) was recognized in 1994 in "Other
Operations". For the year ended December 31, 1993, EMPHESYS had revenues of
$1,304,700,000 and net income of $55,300,000. EMPHESYS had revenue and net
income of $314,900,000 and $14,400,000, respectively, during the three months
of ownership in 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
11. Subsequent Event
In January 1996, LNC announced that it had signed a definitive agreement to
acquire the group tax-sheltered annuity business of UNUM Corporation's
affiliates. This purchase is expected to be completed in the form of a
reinsurance transaction with an initial ceding commission of approximately
$70,000,000. This ceding commission represents the present value of business
in-force and, accordingly, will be classified as other intangible assets upon
the close of this transaction. This transaction, which is expected to close
in the third quarter of 1996, will increase LNC's assets and policy
liabilities and accruals by approximately $3,200,000,000.
12. Transactions With Affiliates
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"), has
a nearly exclusive general agents contract with the Company under which it
sells the Company's products and provides the service that otherwise would be
provided by a home office marketing department and regional offices. For
providing these selling and marketing services, the Company paid LFGI override
commissions and operating expense allowances of $81,900,000, $78,500,000 and
$74,500,000 in 1995, 1994 and 1993, respectively. LFGI incurred expenses of
$10,400,000, $10,700,000 and $10,500,000 in 1995, 1994 and 1993, respectively,
in excess of the override commission and operating expense allowances received
from the Company, which the Company is not required to reimburse.
Cash and invested cash at December 31, 1995 and 1994 include the Company's
participation in a short-term investment pool with LNC of $333,800,000 and
$428,300,000, respectively. Related investment income amounted to
$22,500,000, $17,100,000 and $9,100,000 in 1995, 1994 and 1993, respectively.
Short-term debt at December 31, 1995 and 1994 includes $67,000,000 and
$68,600,000, respectively, borrowed from LNC. The Company paid interest to
LNC of $24,000, $8,000 and $137,000 in 1995, 1994 and 1993, respectively.
The Company provides services to and receives services from affiliated
companies which resulted in a net receipt of $7,500,000, $13,900,000 and
$18,900,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Transactions With Affiliates (continued)
The Company both cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income includes reinsurance
transactions with affiliated companies as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1995 1994
(in millions)
<S> <C> <C>
Insurance assumed $ 17.6 $ 19.8
Insurance ceded 214.4 481.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Future policy benefits and claims assumed $ 344.8 $341.3
Future policy benefits and claims ceded 1,344.5 857.7
Amounts recoverable on paid and unpaid losses 65.9 36.8
Reinsurance payable on paid losses 5.5 3.5
Funds held under reinsurance treaties-net liability 712.3 238.4
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit aggregating
$340,800,000 and $308,200,000 at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, LNC had guaranteed $275,300,000 and $298,200,000,
respectively, of these letters of credit. At December 31, 1995, the Company
has a receivable (included in the foregoing amounts) from affiliated insurance
companies in the amount of $241,900,000 for statutory surplus relief received
under financial reinsurance ceded agreements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Lincoln
National Life Insurance Company, a wholly owned subsidiary of Lincoln National
Corporation, as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995. Our audits also included the
financial statement schedules listed on B- . These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Lincoln
National Life Insurance Company at December 31, 1995, and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions, accounting for impairment of loans and accounting for certain
investments in debt and equity securities.
/S/ ERNST & YOUNG LLP
Fort Wayne, Indiana
February 7, 1996
<PAGE>
FINANCIAL SCHEDULES
The following consolidated financial statement schedules of The Lincoln National
Life Insurance Company and subsidiaries are included on Pages B- through
B- .
I Summary of Investments Other than Investments in Related Parties December
31, 1995
III Supplementary Insurance Information Years ended December 31, 1995, 1994 and
1993
IV Reinsurance Years ended December 31, 1995, 1994 and 1993
V Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and
1993
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or the required information is included
in the consolidated financial statements, and therefore have been omitted.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Amount at
Which
Shown in
the Balance
Type of Investment Cost Value Sheet
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
United States Government and
government agencies and authorities $ 569,552 $ 653,444 $ 653,444
States, municipalities
and political subdivisions 12,325 12,375 12,375
Mortgage-backed securities 4,891,521 5,184,751 5,184,751
Foreign governments 927,901 997,567 997,567
Public utilities 2,572,309 2,772,990 2,772,990
Convertibles and bonds
with warrants attached 181,431 199,658 199,658
All other corporate bonds 9,658,371 10,551,770 10,551,770
Redeemable preferred stocks 39,427 42,230 42,230
Total fixed maturity securities 18,852,837 20,414,785 20,414,785
Equity securities available-for-sale:
Common stocks:
Public utilities 8,980 10,989 10,989
Banks, trust and insurance companies 74,897 89,197 89,197
Industrial, miscellaneous and all other 345,434 436,556 436,556
Nonredeemable preferred stocks 50,950 61,693 61,693
Total equity securities 480,261 598,435 598,435
Mortgage loans on real estate 3,176,275 3,147,783 (A)
Real estate:
Investment properties 635,135 635,135
Acquired in satisfaction of debt 157,441 110,888 (A)
Policy loans 565,325 565,325
Other investments 253,015 241,219 (A)
Total investments $24,120,189 $25,713,570
</TABLE>
(A) Investments which are deemed to have declines in value that are other than
temporary are written down or reserved for to reduce their carrying value to
their estimated realizable value.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Future Policy
Benefits, Other Policy
Deferred Claims and Claims and
Acquisition Claim Unearned Benefits Premium
Segment Costs Expenses Premiums Payable Revenue (A)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $ 713,213 $6,530,475 $ 9,145 $-- $ 685,258
Reinsurance 247,921 1,855,039 45,951 -- 611,416
Other (including consolidating
adjustments) (7,300) 49,505 78 -- 622
Total $ 953,834 $8,435,019 $ 55,174 $-- $1,297,296
Year ended December 31, 1994:
Life insurance and annuities $1,427,692 $5,888,581 $ 11,201 $-- $ 647,416
Reinsurance 304,913 1,626,033 51,618 -- 542,034
Employee life-health benefits -- -- -- -- 299,338
Other (including consolidating
adjustments) 3,921 26,158 (1,347) -- 1,076
Total $1,736,526 $7,540,772 $ 61,472 $-- $1,489,864
Year ended December 31, 1993:
Life insurance and annuities $ 999,126 $6,782,207 $ 5,188 $-- $ 662,353
Reinsurance 298,787 1,616,088 54,157 -- 491,397
Employee life-health benefits -- 228,892 -- -- 1,243,576
Other (including consolidating
adjustments) -- 171,043 315 -- 387
Total $1,297,913 $8,798,230 $ 59,660 $-- $2,397,713
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information (continued)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column G Column H Column I Column J Column K
Amortization
Benefits, of Deferred
Net Claims and Policy Other
Investment Claim Acquisition Operating Premium
Segment Income (B) Expenses Costs Expenses (B) Written
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $1,741,231 $1,649,119 $298,020 $261,016 $--
Reinsurance 134,000 472,198 101,729 93,750 --
Other (including consolidating
adjustments) 24,399 1,299 -- 9,898 --
Total $1,899,630 $2,122,616 $399,749 $364,664 $--
Year ended December 31, 1994:
Life insurance and annuities $1,542,552 $1,554,479 $ 85,697 $349,529 $--
Reinsurance 116,957 419,266 29,477 117,238 --
Employee life-health benefits (C) 10,838 218,672 -- 73,355 --
Other (including consolidating
adjustments) 3,634 1,630 -- 5,682 --
Total $1,673,981 $2,194,047 $115,174 $545,804 $--
Year ended December 31, 1993:
Life insurance and annuities $1,676,163 $1,615,883 $197,363 $268,066 $--
Reinsurance 115,582 467,824 38,351 72,840 --
Employee life-health benefits 54,513 943,235 -- 300,648 --
Other (including consolidating
adjustments) (22,799) 6,197 5,275 (744) --
Total $1,823,459 $3,033,139 $240,989 $640,810 $--
(A) Includes insurance fees on universal life and other interest sensitive products.
(B) The allocation of expenses between investments and other operations are based on a number of assumptions and estimates.
Results would change if different methods were applied.
(C) Includes data through the March 21, 1994 date of sale of the direct writer of employee life-health coverages.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance (A)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force $ 51,570,782 $17,612,782 $142,794,000 $176,752,000 80.8%
Premiums:
Health insurance 302,463 299,222 273,572 276,813 98.8
Life insurance (B) 658,936 142,523 504,070 1,020,483 49.4
Total $ 961,399 $ 441,745 $ 777,642 $ 1,297,296
Year ended December 31, 1994:
Life insurance in force $ 79,802,000 $45,822,000 $125,640,000 $159,620,000 78.7%
Premiums:
Health insurance 666,609 496,090 359,659 530,178 67.8
Life insurance (B) 629,185 220,678 551,179 959,686 57.4
Total $ 1,295,794 $ 716,768 $ 910,838 $ 1,489,864
Year ended December 31, 1993:
Life insurance in force $135,401,000 $61,401,000 $109,257,000 $183,257,000 59.6%
Premiums:
Health insurance 1,387,414 217,705 262,171 1,431,880 18.3
Life insurance (B) 771,408 350,907 545,332 965,833 56.5
Total $ 2,158,822 $ 568,612 $ 807,503 $ 2,397,713
(A) Special-purpose bulk reinsurance transactions have been excluded.
(B) Includes insurance fees on universal life and other interest sensitive products.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule V
Valuation and Qualifying Accounts
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Charged
Charged to
Balance at to Other Balance at
Beginning Costs and Accounts- Deductions- End of
of Period Expenses (A) Describe Describe (B) Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $ 56,614 $ 2,659 $-- $ (30,781) $ 28,492
Reserve for real estate 65,186 (7,227) -- (11,406) 46,553
Reserve for other long-term investments 13,492 (1,541) -- (155) 11,796
Year ended December 31, 1994:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $220,671 $ 19,464 $-- $(183,521) $ 56,614
Reserve for real estate 121,427 13,058 -- (69,299) 65,186
Reserve for other long-term investments 26,730 262 -- (13,500) 13,492
Included in other liabilities:
Investment guarantees 1,804 4,280 -- (6,084) --
Year ended December 31, 1993:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $129,093 $136,717 $-- $ (45,139) $220,671
Reserve for real estate 114,178 21,776 -- (14,527) 121,427
Reserve for other long-term investments 31,582 3,905 -- (8,757) 26,730
Included in other liabilities:
Investment guarantees 12,550 1,674 -- (12,420) 1,804
(A) Exclude charges for the direct write-off of assets. The negative amounts represent improvements in the underlying assets for
which valuation accounts had previously been established.
(B) Deductions reflect sales or foreclosures of the underlying holdings.
</TABLE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of --- pages.
The signatures.
The following exhibits:
1. (1) Certified Resolution of the Board of Directors of the Company
establishing the Account.*
(2) Not applicable.
(3) (a) Proposed Form of Underwriting Agreement.*
(b) Form of Agents Contract.*
(c) Commission Schedule (Revised).*
(4) Not applicable.
(5) Form of Policy.*
(6) (a) Certificate of Incorporation of the Company.*
(b) By-Laws of the Company.*
(7) Not applicable.
(8) Proposed Form of Participation Agreement (Revised).*
(9) Proposed Form of Indemnification Agreement (Revised).*
(10) Form of Application.*
2. See Exhibit 1(5)
3. Opinion and Consent of Jeremy Sachs, Esquire.*
4. Not applicable.
5. Opinion and Consent of Denis G. Schwartz, FSA, Assistant Vice President
(Revised).*
6. Consent of Ernst & Young LLP, Independent Auditors.
7. Memorandum describing the Company's issuance, transfer and redemption and
conversion procedures for the Policy.*
8. Other Exhibits.*
(1) Power of Attorney - Jack D. Hunter
(2) Power of Attorney - Gabriel Shaheen
(3) Power of Attorney - Ian M. Rolland
(4) Power of Attorney - Robert A. Anker
(5) Power of Attorney - O. Douglas Worthington
(6) Power of Attorney - Jon A. Boscia
(7) Power of Attorney - Richard C. Vaughan
*Previously filed as an exhibit to the registration statement
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 The Lincoln National
Life Insurance Company has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned hereunto duly
authorized, in the City of Fort Wayne, State of Indiana, on the 30th day of
April, 1996.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY on its
own behalf of its SEPARATE ACCOUNT K
By: /S/REED P. MILLER
---------------------------------
Reed P. Miller, Vice President
Pursuant to the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/S/IAN M. ROLLAND Director 4-30-96
- ---------------------
Ian M. Rolland
/S/GABRIEL L. SHAHEEN Executive Vice President ----
- --------------------- and Director
Gabriel L. Shaheen
/S/JON A. BOSCIA President, Chief Operating 4-30-96
- --------------------- Officer and Director
Jon A. Boscia
/S/KEITH J. RYAN Vice President, Assistant 4-30-96
- --------------------- Treasurer and Chief Financial
Keith J. Ryan Officer (Principal Financial Officer)
/S/RICHARD C. VAUGHAN Director 4-30-96
- --------------------
Richard C. Vaughan
/S/H. THOMAS MCMEEKIN Director ----
- --------------------
H. Thomas McMeekin
/S/ROBERT A. ANKER Chief Executive Officer 4-30-96
- -------------------- and Director (Principal
Robert A. Anker Executive Officer)
/S/JACK D. HUNTER Executive Vice President, 4-30-96
- ------------------- General Counsel and Director
Jack D. Hunter
/S/O. DOUGLAS WORTHINGTON Assistant Treasurer and
- ------------------------- Vice President (Chief Accounting
Officer>
Exhibit 6
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. 33-76432)
and related Prospectus pertaining to the Lincoln National Flexible Premium
Variable Life Account K and to the use therein of our reports (a) dated
February 7, 1996 with respect to the consolidated financial statements of The
Lincoln National Life Insurance Company and (b) dated March 13, 1996 with
respect to the financial statements of Lincoln National Flexible Premium
Variable Life Account K.
/S/ERNST & YOUNG LLP
Fort Wayne, Indiana
April 26, 1996
<PAGE>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with the
exception of American States Lloyds Insurance Company, Delaware Distributors,
L.P., Founders CBO, L.P., and Lincoln National Mezzanine Fund, L.P.
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| ---------------------------------------
|--| American States Insurance Company |
| | 100% - Indiana - Property/Casualty |
| ---------------------------------------
| | ----------------------------------------
| |--| American Economy Insurance Company |
| | | 100% - Indiana - Property/Casualty |
| | ----------------------------------------
| | | ----------------------------------------------
| | |--| American States Insurance Company of Texas |
| | | 100% - Texas - Property/Casualty |
| | ----------------------------------------------
| | --------------------------------------------
| |--| American States Life Insurance Company |
| | | 100% - Indiana - Life/Health |
| | --------------------------------------------
| | -------------------------------------------------
| |--| American States Lloyds Insurance Company |
| | | Lloyds Plan - * - Texas - Property/Casualty |
| | -------------------------------------------------
| | -------------------------------------------------
| |--| American States Preferred Insurance Company |
| | | 100% - Indiana - Property/Casualty |
| | -------------------------------------------------
| | ---------------------------------
| |--| City Insurance Agency, Inc. |
| | | 100% - Indiana |
| | ---------------------------------
| | -------------------------------------------------
| |--| Insurance Company of Illinois |
| | 100% - Illinois - Fire & Casualty Insurance |
| -------------------------------------------------
|
1
<PAGE>
- ---------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ---------------------------------
|
| --------------------------------------
|--| Delaware Management Holdings, Inc. |
| | 100% - Delaware - Holding Company |
| --------------------------------------
| | -------------------------------------
| |--| DMH Corp. |
| | 100% - Delaware - Holding Company |
| -------------------------------------
| | --------------------------------------
| |--| Delaware Distributors, Inc. |
| | | 100% - Delaware - General Partner |
| | --------------------------------------
| | | ------------------------------------------------------------
| | |--| Delaware Distributors, L.P. |
| | | 100% - Delaware - Mutual Fund Distributor & Broker/Dealer|
| | ------------------------------------------------------------
| | ------------------------------------------
| |--| Delaware International Advisers Ltd. |
| | | 81.1% - Delaware - Investment Advisor |
| | ------------------------------------------
| | -----------------------------------------
| |--| Delaware International Holdings Ltd. |
| | | 100% - Delaware - Marketing Services |
| | -----------------------------------------
| | | ----------------------------------------
| | |--| Delaware International Advisers Ltd. |
| | | 18.9% - Delaware - Investment Advisor|
| | ----------------------------------------
| | ----------------------------------------
| |--| Delaware Investment Counselors, Inc. |
| | | 100% - Delaware - Investment Advisor |
| | ----------------------------------------
| | -----------------------------------------
| |--| Delaware Management Company, Inc. |
| | | 100% - Delaware - Investment Advisor |
| | -----------------------------------------
| | | --------------------------------------
| | |--| Founders Holdings, Inc. |
| | | 100% - Delaware - General Partner |
| | --------------------------------------
| | | ---------------------------------------------
| | |--| Founders CBO, L.P. |
| | | 100% - Delaware - Investment Partnership |
| | ---------------------------------------------
| | | -------------------------------------------------
| | |--| Founders CBO Corporation |
| | | 100% - Delaware - Co-Issuer with Founders CBO |
| | -------------------------------------------------
| | --------------------------------------
| |--| Delaware Management Trust Company |
| | | 100% - Delaware - Trust Services |
| | --------------------------------------
| | -----------------------------------------------------------
| |--| Delaware Service Company, Inc. |
| | 100% - Delaware - Shareholder Services & Transfer Agent |
| -----------------------------------------------------------
| ---------------------------------
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
| ---------------------------------
|
2
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| --------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| --------------------------------------------------
|
| ----------------------------------------
|--| The Richard Leahy Corporation |
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------
| | -----------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | -----------------------------------
| | -----------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -------------------------------------------
| | -------------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -------------------------------------------------
| | -------------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -------------------------------------------
| | ---------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | ---------------------------------------------
| | -------------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -------------------------------------------
| | ----------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | ----------------------------------------
| | ----------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| | ----------------------------------------
| | --------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | --------------------------------------
| | ------------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ------------------------------------------
|
| ---------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| ---------------------------------------------
|
|
|
3
<PAGE>
- ----------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
| ------------------------------------------------
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| ------------------------------------------------
|
| ------------------------------------
| |--| LNC Equity Sales Corporation |
| | | 100% - Indiana - Broker-Dealer |
| | ------------------------------------
| |
| | ---------------------------------------------------------------
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance |
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| | ---------------------------------------------------------------
| |
| | --------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| --------------------------------------------------
|
| -----------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| -----------------------------------------
|
| -------------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -------------------------------------------------
|
| -----------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| -----------------------------------------------
|
|
4
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -----------------------------------------------
|__| Lincoln National Investment Companies, Inc. |
| | 100% - Indiana - Holding Company |
| -----------------------------------------------
| | -------------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| | -------------------------------------------------------------
| | |
| | | ------------------------------------------------------------
| | | | Lincoln National Mezzanine Corporation |
| | |--| 100% - Indiana - General Partner for Mezzanine Financing |
| | | Limited Partnership |
| | ------------------------------------------------------------
| | | -----------------------------------------------------------
| | |--| Lincoln National Mezzanine Fund, L.P. |
| | | 50% - Delaware - Mezzanine Financing Limited Partnership|
| | -----------------------------------------------------------
| | ------------------------------------------
| |--| Lynch & Mayer, Inc. |
| | | 100% - Indiana - Investment Adviser |
| | ------------------------------------------
| | | -------------------------------------------
| | |--| Lynch & Mayer Asia, Inc. |
| | | | 100% - Delaware - Investment Management |
| | | -------------------------------------------
| | | ------------------------------------------
| | |--| Lynch & Mayer Securities Corp. |
| | | 100% - Delaware - Securities Broker |
| | ------------------------------------------
| | ------------------------------------------------------
| | | Vantage Global Advisors, Inc. |
| |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | 100% - Delaware - Investment Adviser |
| ------------------------------------------------------
| -------------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -------------------------------------------------
| | ---------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | ---------------------------------------------
| | --------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | -------------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------
| | ----------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------------
| | --------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
|
5
<PAGE>
- ----------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -------------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -------------------------------------------------
| ----------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| | ----------------------------------------------------------
| | ---------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------------
| | -----------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------
| | -------------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------------
| | -------------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------------------
| |
| | --------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| --------------------------------------------------------
| | -------------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -------------------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| -----------------------------------------------------------
|
| -----------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| -----------------------------------------
| -------------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -------------------------------------------------------------
| ------------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ------------------------------------------------
| | ------------------------------------------
| |--| Lincoln European Reinsurance Company |
| | | 100% - Belgium |
| | ------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | -----------------------------------------------------------
| | ----------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
| ----------------------------------------------------------
6
<PAGE>
- ----------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
| -----------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| -----------------------------------------------
|
| -------------------------------------------------
|--| Lincoln National Specialty Insurance Company |
| | (formerly Western Casualty and Surety Company)|
| | 100% ** - Kansas - Property/Casualty |
| -------------------------------------------------
|
| --------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| --------------------------------------------------
|
| -------------------------------------------
| | Lincoln National (UK) PLC |
|--| (formerly Cannon Lincoln PLC) |
| | 100% - England/Wales - Holding Company |
| -------------------------------------------
| |
| | ---------------------------------------------------------
| | | Allied Westminster & Company Limited |
| |--| (formerly One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| | ---------------------------------------------------------
| |
| | -------------------------------------
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive |
| | -------------------------------------
| |
| | ----------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | ----------------------------------------------------------
| |
| | ---------------------------------------------------------------
| | | HUTM Limited (formerly Hansard Unit Trust Managers Limited) |
| | | 100% - England/Wales - Unit Trust Management |
| | ---------------------------------------------------------------
| |
| | ----------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | ----------------------------------------------
| |
| | ----------------------------------------------------
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company |
| | ----------------------------------------------------
| | |
| | | ---------------------------------------------
| | |--| Laurentian Financial Advisers Limited |
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------------
| | |
| | | ------------------------------------------------
| | |--| Laurentian Fund Management Limited |
| | | | 100% - England/Wales - Investment Management |
| | | ------------------------------------------------
| | |
| | | ---------------------------------------------------------
| | |--| Laurentian Independent Financial Planning Limited |
| | | | 100% - England/Wales - Independent Financial Adviser |
| | | ---------------------------------------------------------
7
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -------------------------------------------
| | Lincoln National (UK) PLC |
|--| (formerly Cannon Lincoln PLC) |
| | 100% - England/Wales - Holding Company |
| -------------------------------------------
| |
| | ------------------------------------------
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company |
| | ------------------------------------------
| | | -----------------------------------------
| | |--| Laurentian Life PLC |
| | | | 100% - England/Wales - Life Insurance |
| | | -----------------------------------------
| | | |
| | | | -----------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Holding Company |
| | | | -----------------------------------------
| | | | |
| | | | | ---------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development |
| | | | | ---------------------------------------------
| | | | | ----------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | 100% - England/Wales - Property Investment |
| | | | ----------------------------------------------
| | | | --------------------------------------------------------
| | | |--|IMPCO Properties Limited |
| | | |100% - England/Wales - Property Investment (Inactive) |
| | | --------------------------------------------------------
| | | ---------------------------------------------
| | |--| Laurentian Management Services Limited |
| | | | 100% - England/Wales - Management Services|
| | | ---------------------------------------------
| | | | ----------------------------------
| | | |--| Jobprofit Limited |
| | | | | 100% - England/Wales - Dormant |
| | | | ----------------------------------
| | | | --------------------------------------------------
| | | |--|Laurit Limited |
| | | |100% - England/Wales - Data Processing Systems |
| | | --------------------------------------------------
| | | -----------------------------------------
| | |--| Laurentian Milldon Limited |
| | | | 100% - England/Wales - Sales Company |
| | | -----------------------------------------
| | | ------------------------------------------------
| | |--| Laurentian Unit Trust Management Limited |
| | | | 100% - England/Wales - Unit Trust Management |
| | | ------------------------------------------------
| | | | -------------------------------------------
| | | |--| LUTM Nominees Limited |
| | | | 100% - England/Wales - Nominee Services |
| | | -------------------------------------------
| | | ------------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | ------------------------------------------------------------
| | | -----------------------------------------
| | |--| The Money Club Direct Company Limited |
| | | 100% - Dormant |
| | -----------------------------------------
| |
| | ------------------------------------------
| |--| Liberty Life Assurance Company Limited |
| | | 100% - England/Wales - Life Assurance |
| | ------------------------------------------
| | -------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -------------------------------------------------
| | --------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| | --------------------------------------------
8
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
|
| ------------------------------------------
| |Lincoln National (UK) PLC |
|--|(formerly Cannon Lincoln PLC) |
| | 100% - England/Wales - Holding Company |
| ------------------------------------------
| |
| | ----------------------------------------------
| | |Lincoln Assurance Limited |
| |--|(formerly Cannon Assurance Limited) |
| | | 100% ** - England/Wales - Life Assurance |
| | ----------------------------------------------
| |
| | ---------------------------------------------------
| | | Lincoln Fund Managers Limited |
| |--| (formerly Cannon Lincoln Fund Managers Limited) |
| | | 100% - England/Wales - Unit Trust Management |
| | ---------------------------------------------------
| |
| | ------------------------------------------------------
| | | Lincoln Insurance Services Ltd. |
| |--| (formerly: Cannon Lincoln Insurance Services Ltd.) |
| | | 100% - Holding Company |
| | ------------------------------------------------------
| | |
| | | -----------------------------------
| | |--| British National Life Sales Ltd.|
| | | | 100% - Inactive |
| | | -----------------------------------
| | |
| | | -------------------------------------------------
| | |--| BNL Trustees Limited |
| | | | 100% - England/Wales - Corporate Pension Fund |
| | | -------------------------------------------------
| | |
| | | ---------------------------------------
| | |--| Chapel Ash Financial Services Ltd. |
| | | | 100% - Direct Insurance Sales |
| | | ---------------------------------------
| | |
| | | ------------------------------------------------
| | | | Lincoln General Insurance Co. Ltd. |
| | |--| (formerly: Cannon General Insurance Co. Ltd. |
| | | | 100% - Accident & Health Insurance |
| | | ------------------------------------------------
| | |
| | | ----------------------------
| | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | 100% - Inactive |
| | ----------------------------
| |
| | -----------------------------------------------------------
| | | Lincoln Investment Management Limited |
| |--| (formerly Cannon Lincoln Investment Management Ltd.) |
| | | 100% - England/Wales - Investment Management Services |
| | -----------------------------------------------------------
| | |
| | | -------------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -------------------------------------------------
| |
| | ----------------------------------------------------
| | | Lincoln National Training Services Limited |
| |--| (formerly Cannon Lincoln Training Services Ltd.) |
| | | 100% - England/Wales - Training Company |
| | ----------------------------------------------------
| |
| | ---------------------------------------------------
| | | Lincoln Pension Trustees Limited |
| |--|(formerly Cannon Pension Trustees Limited) |
| | | 100% - England/Wales - Corporate Pension Fund |
| | ---------------------------------------------------
| |
| | ----------------------------------------------------
| | | LN Management Limited |
| |--| (formerly: Cannon Lincoln Management Limited) |
| | | 100% - England/Wales - Administrative Services |
| | ----------------------------------------------------
| | |
| | | -------------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -------------------------------------
| |
9
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Sales Corporation of Connecticut (formerly: The Lincoln
Financial Group, Inc.) (Norwalk, CT)
6) Lincoln National Financial Services, Inc. (Lake Worth, FL)
7) CMP Financial Services, Inc. (Chicago, IL)
8) Lincoln National Sales Corporation of Indiana, Inc. (Indianapolis, IN)
9) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
10) The Financial Group, Inc. (Mission, KS)
10a) Financial Planning Partners, Ltd. (Mission, KS)
11) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
12) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
13) Morgan Financial Group, Inc. (Baltimore, MD)
14) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
15) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
15a) Financial Consultants of Michigan, Inc. (Troy, MI)
16) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
17) Financial Associates, Inc. (Omaha, NE)
18) Beardslee & Associates, Inc. (Clifton, NJ)
19) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.)
(Albuquerque, NM)
20) Lincoln Financial Group/Carolinas, Inc. (Charlotte, NC)
21) Lincoln Cascades, Inc. (Portland, OR)
22) Lincoln Financial Services, Inc. (Pittsburgh, PA)
23) Lincoln National Financial Group of Philadelphia, Inc.
(Philadelphia, PA)
23a) Cavalier Financial Planners, Inc. (Philadelphia, PA)
24) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
25) Lincoln Financial Services of Virginia, Inc. (Norfolk, VA)
(DBA/Group Concepts Unlimited)
11
<PAGE>
LINCOLN LIFE (TM)
1300 South Clinton
Fort Wayne, IN 46802
(219) 455-1847
May 1, 1996
Securities and Exchange Commission
Division of Investment Management
Office of Insurance Products
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
RE: Lincoln Life Flexible Premium Variable Life Account K
Registration No. 33-76432
Filing of Post-Effective Amendment No. 2 on Form S-6
Ladies and Gentlemen:
Pursuant to paragraph (b) Rule 485 under the Securities Act of 1933, Lincoln
Life Flexible Premium Variable Life Account K hereby submits its current Post-
Effective Amendment to the Registration Statement of reference, on Form S-6.
The Prospectus is dated May 1, 1996.
The following are the significant changes since the last Post-Effective
Amendment:
Prospectus:
1. Corporate Voice: The format of the Prospectus has been changed in
accordance with the parent corporation's "corporate voice" directive
to simplify language and rephrase awkward disclosure. This effort, of
course, dovetails nicely with the Commission's exhortation to
registrants to simplify prospectuses.
2. We have three Portfolios (the Delaware Equity/Income, the Delaware
Emerging Growth, and the Delaware Global Bond) from the Delaware Group
Premium Fund, Inc. Series as investment options under the contract.
3. We have updated the financial statement.
Appendices:
1. Officers and Director listings have been updated.
2. Illustrations of Policy Value Information has been updated.
The remaining changes included in this fililng are routine changes in spelling,
punctuation and syntax, or changes intended to clarify the disclosure.
In my opinion, this Post-Effective Amendment does not contain disclosure which
would render it ineligible to become effective pursuant to Paragraph (b) of
Rule 485. No material event has occurred requiring disclosure in the Prospectus
or in the Appendices, other than as listed in Paragraph (b) (1) of Rule 485,
since the filing of the previous Post-Effective Amendment.
Please call me at the above number if you have questions or comments about this
filing.
Sincerely,
/S/ROY V. WASHINGTON
Roy V. Washington
Associate Counsel
RVW/sdb
Lincoln National Life Insurance Co. is a part of Lincoln National Corp.
