<PAGE>
Registration No. 33-22740
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
POST-EFFECTIVE AMENDMENT NO. 12 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 G
(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 BRIAN BURKE, ESQUIRE
Vice President & Counsel
Deputy General Counsel The Lincoln National
The Lincoln National Life Insurance Company
Life Insurance Company 1300 South Clinton Street
1300 South Clinton Street P.O. Box 1110
P.O. Box 1110 Fort Wayne, Indiana 46801
Fort Wayne, IN 46801
_________________________
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It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1997 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Title and amount of securities being registered: Flexible Premium Variable Life
Insurance Policies. The Policies are not issued in predetermined units or
amounts.
Proposed maximum aggregate offering price to the public of the securities being
registered: The registrant has elected to register an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940. The
Rule 24f-2 notice on Form 24F-2 for the registrant's fiscal year, ending
December 31, 1996, was filed on February 27, 1997.
Approximate date of proposed public offering: As soon as practicable after April
30, 1997.
[_] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
For Lincoln National Flexible Premium Variable Life Account G
<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Cover Page
3 Not applicable
4 Lincoln Life
5 Lincoln Life
6 The Separate Account
7 Not Required
8 Not Required
9 Legal Proceedings
10 The Separate Account; Right to Examine Policy; Surrender of the
Policy; Withdrawals; Proceeds and payment options; Addition,
Deletion, or Substitution of Investments; Transfer Between
Subaccounts; Policy Lapse and Reinstatement; Voting Rights;
Premium Payment and Allocation of Premiums; Death Benefits and
Death Benefit Types; Policy Changes; Policy Value; Proceeds and
Payment Options
11 Lincoln Life; The General Account; The Separate Account
12 The Separate Account; Lincoln Life
13 Charges and Deductions
14 Requirements for Issuance of a Policy
15 Premium Payment and Allocation of Premiums
16 Premium Payment and Allocation of Premiums; Percent of Premium
Charge; Charges and Deductions
17 Surrender of the Policy
18 The Separate Account
19 Reports and Records
20 Not Applicable
21 Loans
22 Not applicable
23 Safekeeping of the Account's Assets
24 General Provisions
25 Lincoln Life
26 Not Applicable
27 Lincoln Life
28 Executive Officers and Directors of Lincoln National Life
Insurance Co.
29 Lincoln Life
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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<S> <C>
34 Not applicable
35 Distribution of the Policy
36 Not Required
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41 Lincoln Life; Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Not Applicable
45 Not Applicable
46 Not Applicable
47 The Separate Account
48 Not Applicable
49 Not Applicable
50 The Separate Account
51 Lincoln Life; Premium Payment and Allocation of Premiums;
Surrender of the Policy; Withdrawals; Proceeds; Policy Lapse
and Reinstatement; Charges and Deductions
52 Addition, Deletion and Substitution of Investments
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Required
57 Not Required
58 Not Required
59 Not Required
</TABLE>
<PAGE>
VUL III
LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G 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
Account G
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 $200,000
or more. Subject to the payment of a minimum premium for the first two policy
years, 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 Lin-
coln Life (General Account) or to Lincoln National Flexible Premium Variable
Life Account G (Separate Account). Amounts allocated to the Separate Account
may be invested in any of the following funds:
. Lincoln National Growth and Income Fund, Inc.
. Lincoln National Special Opportunities Fund, Inc.
. American Variable Insurance Series:
--Global Growth Fund
--Growth Fund
--International Fund
--Growth-Income Fund
--Asset Allocation Fund
--High-Yield Bond Fund
--Bond Fund
--U.S. Government/AAA-Rated Securities Fund
--Cash Management Fund
The amount of the death benefit may, and the policy value will, reflect the in-
vestment experience of the chosen subaccounts of the Separate Account and in-
terest 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 ex-
plained under the heading "Charges and deductions" on page 7.
It may not be advantageous to purchase a policy:
(1) as a replacement for another type of life insurance; or,
(2) to obtain additional insurance protection if the purchaser already owns an-
other flexible premium variable life insurance policy.
This prospectus is valid only if accompanied or preceded by prospectuses for
the Lincoln National Growth and Income Fund, Inc., the Lincoln National Special
Opportunities Fund, Inc., and the American Variable Insurance Series.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE REGULATORY AGENCY, NOR HAS THE COMMISSION,
OR ANY STATE REGULATORY AGENCY, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and retain it for future reference.
The date of this prospectus is April 30, 1997.
<PAGE>
Account G
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY OF THE POLICY 1
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LINCOLN LIFE, THE GENERAL ACCOUNT, AND THE SEPARATE ACCOUNT
Lincoln Life 3
The General Account 3
The Separate Account 4
The investment advisors 4
Addition, deletion or substitution of investments 4
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THE POLICY
Requirements for issuance of a policy 5
Units and unit values 5
Premium payment and allocation of premiums 5
Dollar cost averaging program 7
Effective date 7
Right to examine policy 7
Policy termination 7
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CHARGES AND DEDUCTIONS
Percent of premium charge 7
Contingent deferred sales charge 7
Contingent deferred administrative charge 8
Surrender charge 8
Monthly deductions 8
Cost of insurance charges 8
Monthly administrative charge 9
Fund charges and expenses 9
Mortality and expense risk charge 9
Other charges 9
Reduction of charges 10
Term conversion credits 10
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POLICY BENEFITS
Death benefit and death benefit types 10
Death benefit guarantee 11
Policy changes 11
Policy value 12
Transfer between subaccounts 13
Transfer to and from the General Account 13
Loans 13
Withdrawals 13
Policy lapse and reinstatement 14
Surrender of the policy 14
Proceeds and payment options 14
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
GENERAL PROVISIONS
The contract 15
Suicide 15
Representations and contestability 15
Incorrect age or sex 15
Change of owner or beneficiary 15
Assignment 16
Reports and records 16
Projection of benefits and values 16
Postponement of payments 16
Riders 16
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DISTRIBUTION OF THE POLICY 17
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FEDERAL TAX MATTERS
Tax status of the policy 18
Tax treatment of policy benefits 19
Taxation of the Separate Account 20
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VOTING RIGHTS 20
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STATE REGULATION OF LINCOLN LIFE AND THE SEPARATE ACCOUNT 21
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SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS 21
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LEGAL PROCEEDINGS 21
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EXPERTS 21
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ADDITIONAL INFORMATION 21
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APPENDIX A: Table of base minimum premiums 22
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APPENDIX B:Table of surrender charges 24
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APPENDIX C: Executive Officers & Directors of Lincoln National Life
Insurance Co. 26
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APPENDIX D:Illustrations of policy values 31
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APPENDIX E: Definitions for Separate Account G 40
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FINANCIAL STATEMENTS 44
</TABLE>
<PAGE>
Account G
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 en-
tirely qualified by more specific information contained elsewhere in this pro-
spectus. For the definition of terms used in this prospectus, see Appendix E.
Throughout this prospectus, in order to make the following documents more un-
derstandable, 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 privi-
leges, 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 spec-
ified amount, reduced by any outstanding loan and any due and unpaid charges,
and increased by any unearned loan interest. (See Death benefit and death bene-
fit types, page 10.)
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 insur-
ability satisfactory to us and will result in additional charges.
HOW ARE THE PREMIUMS FLEXIBLE?
You have considerable flexibility concerning the amount and frequency of pre-
mium payments. During the first two 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 pol-
icy 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 two policy years, you may, subject to certain restrictions, make premium
payments in any amount and at any frequency. (See Premium payments and alloca-
tion of premiums, page 5.)
WHAT MAKES MY POLICY VARIABLE?
Your policy is described as variable because the death benefit and the policy
value can vary with the investment performance of amounts you have allocated to
the subaccounts you have selected. While you bear the entire investment risk on
such amounts, you also enjoy the opportunity to obtain market rates of return
on those amounts.
WHAT FUNDS ARE AVAILABLE TO SELECT?
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 Ac-
count earn a current declared interest rate, subject to the minimum guaranteed
rate shown on the Policy Schedule. Currently three funds are available for in-
vestment by the subaccounts: the Lincoln National Growth and Income Fund, Inc.,
the Lincoln National Special Opportunities Fund, Inc., and American Variable
Insurance Series, which consists of nine funds. Each of the funds has its own
investment objective:
The Lincoln National Growth and Income Fund, Inc.--The investment objective is
long-term capital appreciation. The fund buys stocks of established companies.
The Lincoln National Special Opportunities Fund, Inc.--The investment objective
is maximum capital appreciation. The fund primarily invests in mid-size compa-
nies whose stock have significant growth potential. Current income is a second-
ary consideration.
The Global Growth Fund seeks long-term growth of capital by investing primarily
in common stocks or securities with common stock characteristics of issuers
domiciled around the world. [PLEASE NOTE: AS OF THE DATE OF THIS PROSPECTUS,
THE GLOBAL GROWTH FUND IS NOT YET AVAILABLE IN ALL STATES. PLEASE CONTACT YOUR
INVESTMENT DEALER FOR CURRENT INFORMATION ABOUT THE GLOBAL GROWTH FUND'S AVAIL-
ABILITY.]
The Growth Fund seeks growth of capital by investing primarily in common stocks
or other securities with common stock characteristics, such as convertible pre-
ferred stocks which demonstrate the potential for appreciation and/or divi-
dends.
The International Fund seeks long term growth of capital by investing primarily
in securities of issuers domiciled outside the United States.
The Growth-Income Fund seeks growth of capital and income by investing primar-
ily in common stocks or other
1
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Account G
securities which demonstrate the potential for appreciation and/or dividends.
The Asset Allocation Fund seeks high total return (including income and capital
gains) consistent with preservation of capital over the long-term through a di-
versified portfolio that can include common stocks and other equity-type secu-
rities, bonds and other intermediate and long-term fixed-income securities and
money market instruments in any combination.
The High-Yield Bond Fund seeks high current income and secondarily seeks capi-
tal appreciation by investing primarily in intermediate and long-term corporate
obligations, with emphasis on higher yielding, higher risk, lower rated or
unrated securities. IN ADDITION TO OTHER RISKS, HIGH-YIELD, HIGH-RISK BONDS
(ALSO KNOWN AS "JUNK BONDS") ARE SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND
RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN ARE IN-
VESTMENTS IN LOWER YIELDING, HIGHER RATED BONDS. FOR FURTHER INFORMATION ON THE
RISKS ASSOCIATED WITH SUCH SECURITIES, PLEASE REFER TO THE PROSPECTUS FOR THE
AMERICAN VARIABLE INSURANCE SERIES, WHICH MUST ACCOMPANY OR PRECEDE THIS PRO-
SPECTUS AND WHICH SHOULD BE READ CAREFULLY.
The Bond Fund seeks a high level of current income as is consistent with the
preservation of capital by investing in a broad variety of fixed income securi-
ties.
The U.S. Government/AAA-Rated Securities Fund seeks a high level of current in-
come consistent with prudent investment risk and preservation of capital by in-
vesting primarily in a combination of securities guaranteed by the United
States Government and other debt securities rated AAA or Aaa.
The Cash Management Fund seeks high current yield while preserving capital by
investing in a diversified selection of money market instruments.
HOW ARE PREMIUMS PROCESSED?
You determine in the application what portions of net premiums are to be allo-
cated to the General Account or the various subaccounts of the Separate Ac-
count. 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 ap-
plication. You may change future allocations of net premiums at any time with-
out 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 ma-
turity. 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 sur-
render value plus any excess sales load. (See Charges and deductions, page 7.)
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 sur-
render value after the first policy year. Loans and withdrawals decrease both
the death benefit and future policy values and may have federal income tax con-
sequences.
WHAT CHARGES AND DEDUCTIONS ARE MADE FROM MY POLICY?
Sales charges will be deducted from your policy in two forms (a percent of pre-
mium charge and a contingent deferred sales charge) as compensation for distri-
bution expenses we incur in the sales process. These distribution expenses in-
clude sales commissions, the cost of printing the prospectus and sales litera-
ture, and any advertising costs.
PERCENT OF PREMIUM CHARGE. A sales charge of 5.95% is currently deducted from
each premium you pay.
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 lapses or is surrendered. During the first policy year, the CDSC
is approximately equal to 30% of the required base minimum premium for the des-
ignated specified amount. During the second policy year, the CDSC is approxi-
mately equal to 30% of the base minimum premium required for the first two pol-
icy years for the designated specified amount. Upon actual surrender in the
first two years of the policy, the actual CDSC is subject to certain maximum
limits. See Charges and deductions, page 7. During the third and subsequent
policy years, the CDSC will equal the CDSC during the second policy year times
the percent indicated in the table on the following page.
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 lapses or is surrendered. During the
first policy year, the CDAC is approximately equal to 30% of the required base
minimum premium for the designated specified amount. During the second policy
year, the CDAC is approximately equal to 30% of the base minimum premium re-
quired for the first two policy years for the designated specified amount. Dur-
ing the third and subsequent policy years, the CDAC
2
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Account G
will equal the second year CDAC times the percent indicated in the following
table.
An additional CDAC will be imposed under the policy in the event of each re-
quested 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 suffi-
cient 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
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<S> <C>
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. See Surrender charge, on page 8.
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 (in-
cluding the cost of any optional insurance benefits) and a monthly charge equal
to $6.00 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 of $10 is deducted from each withdrawal.
A daily charge of .0021917% (which is equivalent to an annual rate of .80%) of
the average daily net assets of the Separate Account is currently imposed for
Lincoln Life's assumption of certain mortality and expense risks. This charge
is guaranteed not to exceed .90%.
No charges are currently made from the Separate Account for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
company reserves the right to make deductions from the policy to pay those tax-
es.
In addition, because the Separate Account purchases shares of the funds in-
volved, the value of the net assets of these subaccounts of the Separate Ac-
count will reflect the fees of the investment advisor and other miscellaneous
expenses incurred by those funds.
It is estimated that, in the aggregate, such fees and expenses for the funds,
expressed as an annual percentage of each fund's net assets, will range from
.36% to .75%. See page 9 for more detailed information.
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 18-20. 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 Limita-
tion.
LINCOLN LIFE, THE GENERAL ACCOUNT AND THE SEPARATE ACCOUNT
LINCOLN LIFE
Lincoln Life is a stock life insurance company incorporated under the laws of
Indiana on June 12, 1905. Lincoln Life is principally engaged in offering indi-
vidual life insurance policies and annuity contracts, and ranks among the larg-
est United States stock life insurance companies in terms of assets and life
insurance in force. Lincoln Life is also one of the leading life reinsurers in
the United States. Lincoln Life is licensed in all states (except New York) and
the District of Columbia, Guam, and the Commonwealth of the Northern Mariana
Islands.
Lincoln Life is wholly owned by Lincoln National Corp., a publicly held insur-
ance 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 Ac-
count have not been registered under the Securities Act of 1933, and the Gen-
eral Account has not been registered as an investment company under the Invest-
ment Company Act of 1940.
3
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Account G
THE SEPARATE ACCOUNT
Lincoln National Flexible Premium Variable Life Account G (Separate Account)
was established by Lincoln Life as a separate account on May 25, 1988. 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 con-
duct. The assets of the Separate Account shall, however, be available to cover
the liabilities of the General Account of Lincoln Life to the extent that the
Separate Account's assets exceed its liabilities arising under the policies
supported by it. The assets of the Separate Account will be valued once daily
at the close of regular trading (currently 4:00 p.m. New York time) on each day
the New York Stock Exchange is open. The New York Stock Exchange is currently
closed on the following holidays: New Year's Day, 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 In-
vestment Company Act of 1940 and meets the definition of "separate account" un-
der Federal Securities laws. Registration with the Securities and Exchange Com-
mission 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 eleven subaccounts. Each subaccount in-
vests exclusively in shares of one of the following funds: the Lincoln National
Growth and Income Fund, Inc., the Lincoln National Special Opportunities Fund,
Inc., or American Variable Insurance Series. American Variable Insurance Series
has nine funds available for investment by the subaccounts: the Global Growth
Fund, the Growth Fund, the International Fund, the Growth-Income Fund, the As-
set Allocation Fund, the High-Yield Bond Fund, the Bond Fund, the U.S.
Government/AAA-Rated Securities Fund, and the Cash Management Fund. Income and
both realized and unrealized gains or losses from the assets of the Separate
Account are credited to or charged against the Separate Account without regard
to the income, gains or losses arising out of any other business Lincoln Life
may conduct. The funds are also invested in by variable annuity contract hold-
ers. For an explanation of the risk involved with such mixed and/or shared
funding, see the prospectuses for the underlying funds.
There is no assurance that any of the available funds will achieve its stated
objective. For a complete description of the funds, please refer to the pro-
spectuses for the funds 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 advi-
sor for the Lincoln National Growth and Income Fund, Inc. and the Lincoln Na-
tional Special Opportunities Fund, Inc. Lincoln Investment is a wholly owned
subsidiary of Lincoln National Corp. Lincoln Investment has entered into a sub-
advisory agreement with Vantage Global Advisors, Inc., under which the sub-ad-
visor may perform some or substantially all of the advisory services required
by these two funds. No additional compensation from the assets of these funds
will be assessed as a result of the sub-advisory agreement. Lincoln Investment
is headquartered at 200 East Berry Street, Fort Wayne, Indiana 46802, and is
registered with the Securities and Exchange Commission as an investment advis-
er.
Capital Research and Management Co., an investment management organization
founded in 1931, is the investment advisor to American Variable Insurance Se-
ries and other mutual funds, including those in The American Funds Group. Capi-
tal Research and Management Co. is located at 333 South Hope Street, Los Ange-
les, Calif. 90071 and 135 South State College Boulevard, Brea, Calif. 92621. It
is also registered with the Securities and Exchange Commission as an investment
adviser.
ADDITION, DELETION, OR
SUBSTITUTION OF INVESTMENTS
Lincoln Life does not have control over the funds and therefore cannot guaran-
tee that any particular funds will be available for investment by the
subaccounts. Lincoln Life reserves the right, subject to compliance with appli-
cable law, to make additions to, deletions from, or substitutions for the
shares that are held by the Separate Account or that the Separate Account may
purchase. Lincoln Life reserves the right to eliminate the shares of any fund
and to substitute shares of another open-end, registered investment company, if
the shares are no longer available for investment, or if in the judgment of
Lincoln Life further investment in any fund should become inappropriate in view
of the purposes of the Separate Account. Lincoln Life will not substitute any
shares attributable to an owner's interest in a subaccount of the Separate Ac-
count without notice and prior approval of the Securities and Exchange Commis-
sion, to the extent required by the Investment Company Act of 1940 or other ap-
plicable 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 objec-
tive. New subaccounts may be estab-
4
<PAGE>
Account G
lished when, at the sole discretion of Lincoln Life, marketing needs or invest-
ment conditions warrant, and any new subaccounts may be made available to ex-
isting policyowners on a basis to be determined by Lincoln Life. Lincoln Life
may also eliminate one or more subaccounts if, in its sole discretion, market-
ing, tax, or investment conditions warrant.
In the event of any such substitution or change, Lincoln Life may by appropri-
ate endorsement make such changes in the policy as may be necessary or appro-
priate 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 $200,000. 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 supple-
mental application. Approval of the additional insurance will be subject to ev-
idence of insurability satisfactory to Lincoln Life.
UNITS AND UNIT VALUES
The value of policy monies invested in each subaccount is accounted for through
the use of units and unit values. A unit is an accounting unit of measure used
to calculate the value of an investment in a specified subaccount. A unit value
is the dollar value of a unit in a specified subaccount on a specified valua-
tion date. Whenever an amount is invested in a subaccount (due to net premium
payments, loan repayments, or transfer of values into a subaccount), the amount
purchases units in that subaccount; the number of units purchased is determined
by dividing the dollar amount of the transaction by the unit value on the day
the transaction is made. Similarly, whenever an amount is redeemed from a
subaccount (due to loans and loan interest charges, surrenders and surrender
charges, withdrawals and withdrawal charges, transfers of values out of a
subaccount and transfer charges, income tax deductions (if any), cost of insur-
ance charges or monthly administrative charges), units are redeemed from that
subaccount; the number of units redeemed is determined by dividing the dollar
amount of the transaction by the unit value on the day the transaction is made.
The unit value is also used to measure the net investment results in a
subaccount. The policy value on any valuation day is the sum of the values in
each subaccount in which policy values are allocated plus any policy value al-
located to the General Account. The value of each subaccount on each valuation
day is determined by multiplying the number of units held by a policy in each
subaccount by the unit value for that subaccount as determined for that valua-
tion day.
The unit value for a subaccount on a specified valuation date is determined by
dividing the value of all assets owned by that subaccount, net of the
subaccount's liabilities (including any accrued but unpaid daily mortality and
expense risk charges), by the total number of units held by policies in that
subaccount. Net investment results do not increase or decrease the number of
units held by the subaccount.
PREMIUM PAYMENT AND ALLOCATION OF PREMIUMS
Subject to certain limitations, an owner has considerable flexibility in deter-
mining the frequency and amount of premiums. During the first two policy years,
the policy will lapse unless 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 guaran-
tee monthly premium during the first two policy years will guarantee that the
policy will remain in force for the first two policy years despite negative net
cash surrender value (see Death benefit guarantee, page 11), but continued pay-
ment 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 administrative charges, and sub-
standard extra charges. A table of base minimum premiums per $1,000 of speci-
fied amount is in Appendix A, pages 22-23.
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. Alter-
natively, 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.
5
<PAGE>
Account G
Each owner will also define a planned periodic premium schedule that provides
for payment of a level premium at fixed intervals for a specified period of
time. The owner is not required to pay premiums in accord with this schedule.
Furthermore, the owner has flexibility to alter the amount, frequency, and the
time period over which planned periodic premiums are paid. Failure to pay
planned periodic premiums will not of itself cause the policy to lapse, nor
will the payment of planned periodic premiums equal to or in excess of the re-
quired death benefit guarantee monthly premiums guarantee that the policy will
remain in force beyond the first two policy years. Unless the policy is being
continued under the death benefit guarantee, (see Death benefit guarantee, page
11), the policy will lapse any time outstanding loans exceed policy value less
surrender charge or policy value less outstanding loans and less surrender
charge is insufficient to pay certain monthly deductions, and a grace period
expires without a sufficient payment. (See Policy lapse and reinstatement, page
14.) 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 es-
tablished 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 is-
sue 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 por-
tion 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 af-
ter 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 al-
lowed 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 pol-
icy, and any further excess will be refunded to the owner within 7 days of re-
ceipt. 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 Mod-
ified Endowment Contract status of the policy.
NET PREMIUMS. The net premium equals the premium paid less the percent of pre-
mium charge (see Percent of premium charge, page 7).
ALLOCATION OF NET PREMIUMS.
In the application for a
policy, the owner can allo-
cate net premiums or por-
tions thereof to the Gen-
eral Account and the vari-
ous subaccounts of the Sep-
arate Account. Notwith-
standing the allocation in
the application, all net
premiums received prior to
the record date will ini-
tially be allocated to the
General Account. Net premi-
ums received prior to the
record date will be cred-
ited to the policy on the
later of the policy date or
the date the premium is re-
ceived. The record date is
the date the policy is re-
corded on the books of Lin-
coln Life as an in-force
policy, and may coincide
with the policy date. Ordi-
narily, the policy will be
recorded as in-force within
three business days after
the later of the date we
receive the last outstand-
ing requirement or the date
of underwriting approval.
Net premiums will continue
to be allocated to the Gen-
eral Account until the rec-
ord 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 auto-
matically be transferred to
the General Account and the
subaccounts of the Separate
Account in accord with the
owner's percentage alloca-
tion in the application. No
charge will be imposed for
this initial transfer. Net
premiums paid after the
record date will be cred-
ited to the policy on the
date they are received and
will be allocated in accord
with the owner's instruc-
tions 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 noti-
fication on a form suitable
to Lincoln Life, unless the
owner has made previous ar-
rangements with Lincoln
Life to allow the alloca-
tion of future net premiums
to be changed upon tele-
phone request.
The value of the amount allocated to subaccounts of the Separate Account will
vary with the investment experience of these subaccounts and the owner bears
the entire investment risk. The value of the amount allocated to the General
Account will earn a current interest rate guaranteed to be at least 4.0%. Own-
ers should periodically review their allocations of premiums and values in
light of market conditions, interest rates, and overall estate planning re-
quirements.
6
<PAGE>
Account G
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 ($5,000 minimum)to be transferred from the
General Account to the chosen subaccounts in accord with the most recent pre-
mium allocation. The transfers continue until the end of the DCA period or un-
til the policy value in the General Account has been exhausted, whichever oc-
curs 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 pre-
mium 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 with-
drawal 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 oc-
curs: 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 sales charge of 5.95% is deducted from each pre-
mium paid.
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 only if the policy lapses or is surrendered. During the first policy
year, the CDSC is approximately equal to 30% of the required base minimum pre-
mium 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 base minimum found
in the table of base minimum premiums (see Appendix A, pages 22-23) times 30%.
During the second policy year, the CDSC is approximately equal to 30% of the
base minimum premium required for the first two policy years for the designated
specified amount. To determine the second year CDSC per $1,000 of specified
amount, multiply the base minimum premium for the first two years times 30%. If
the resulting CDSC exceeds $22.00 per $1,000 of specified amount, the CDSC is
reduced to $22.00 per $1,000 of specified amount. Furthermore, upon surrender
of the policy at any time during the first two policy years, the maximum total
sales charges actually deducted (percent of premium charge plus 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
7
<PAGE>
Account G
guarantee monthly premiums, plus 5.95% of premiums paid in excess of those
amounts.
During the third and subsequent policy years, the CDSC will equal the CDSC dur-
ing the second 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 only if the policy lapses or is surrendered.
During the first policy year, the CDAC is approximately equal to 30% of the re-
quired base minimum premium for the designated specified amount. To determine
the first year CDAC per $1,000 of specified amount, multiply the base minimum
premium found in the table of base minimum premiums (see Appendix A, pages 22-
23) times 30%.
During the second policy year, the CDAC is approximately equal to 30% of the
base minimum premium required for the first two policy years for the designated
specified amount. To determine the second year CDAC per $1,000 of specified
amount, multiply the base minimum premium for the first two years times 30%. If
the resulting CDAC exceeds $22.00 per $1,000 of specified amount, the CDAC will
be reduced to $22.00 per $1,000 of specified amount.
During the third and subsequent policy years the CDAC will equal the CDAC dur-
ing the second policy year times the percent indicated in the table below.
An additional CDAC will be imposed under the policy in the event of each re-
quested 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 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 following table,
where policy year is calculated from the date of the increase.
<TABLE>
<CAPTION>
During policy year Percent of CDSC and CDAC
(or after an increase) to be deducted
- ------------------------------------------------------------------------------
<S> <C>
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 pre-
mium is required provided that the current net cash surrender value is suffi-
cient 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 are collectively referred to as the
surrender charge. The surrender charges for the first 5 years are shown in Ap-
pendix B. For surrender charges during policy years 6 through 16 the values
shown in Appendix B should be multiplied by the percentages given in the table
under Charges and deductions above. For increases in the specified amount, ad-
ditional surrender charges apply. During the first year after an increase, the
additional surrender charges are calculated by multiplying the values in Appen-
dix B by one-fourth. During years 2-5 after an increase, the values in Appendix
B should be multiplied by one-half. During years 6 through 16 after an in-
crease, the values in Appendix B are multiplied by one-half and by the percent-
age given in the table above.
MONTHLY DEDUCTIONS. On the policy date and on each monthly anniversary day fol-
lowing, deductions will be made from the policy value. These deductions are of
two types: a monthly administrative charge and a monthly cost of insurance
charge. 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 val-
ue. 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. It will depend, among other
things, on the amount for which Lincoln Life is at risk to pay in the event of
the insured's death. On each monthly anniversary day, Lincoln Life will deter-
mine 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,
8
<PAGE>
Account G
c. the policy value on the monthly anniversary day without regard to the cost
of insurance; divided by
d. 1,000; the result multiplied by
e. the applicable cost of insurance rate per $1,000 as described below.
The cost of insurance rates are based on the sex, attained age, and rate class
of the person insured. 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 and rate class and whose policies
have been in effect for the same length of time. The cost of insurance rates
will not exceed those described in the table of guaranteed maximum insurance
rates shown in the policy. These rates are based on the 1980 Commissioner's
Standard Ordinary Mortality Table, age last birthday, for attained ages under
sixteen; on the 1980 Commissioner's Standard Ordinary Mortality Table age last
birthday, or the 1980 Commissioner's Standard Ordinary Smoker Mortality Table
age last birthday, for attained ages sixteen and over, depending on the smoking
status of the insured. Standard rate classes have guaranteed rates which do not
exceed 100% of the applicable table.
The rate class of an insured will affect the cost of insurance rate. Lincoln
Life currently places insureds into a standard rate class or rate classes in-
volving 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 di-
vided into four categories: preferred nonsmoker, standard nonsmoker, preferred
smoker, and standard smoker. 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 sim-
ilarly situated insureds who are standard smoker or standard nonsmoker respec-
tively.
MONTHLY ADMINISTRATIVE CHARGE. A monthly administrative charge of $6 is de-
ducted 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 an-
ticipate any profits from this charge. This charge is guaranteed not to in-
crease during the life of the policy.
FUND CHARGES AND EXPENSES. The investment advisor for each of the funds deducts
a daily charge as a percent of the net assets in each fund as an asset manage-
ment charge. The charge has the effect of reducing the investment results cred-
ited to the subaccounts.
Because the Separate Account purchases shares of the funds involved, the value
of the net assets of the subaccounts of the Separate Account will reflect not
only the fees of the investment advisor, but also other miscellaneous expenses
incurred by those funds.
The asset management charges, miscellaneous expenses and total expenses for
each of the funds are currently estimated, on the basis of their most recent
fiscal year experience where applicable, to be as follows:
<TABLE>
<CAPTION>
ASSET
MGT. MISC.
FUND CHARGE* EXPENSES* TOTAL*
- -------------------------------------------------------------
<S> <C> <C> <C>
LINCOLN NATIONAL FUNDS:
Growth and Income .33% .03% .36%
Special Opportunities .40% .04% .44%
AMERICAN VARIABLE INSURANCE SERIES:
Global Growth** .69% .06% .75%
Growth .42% .02% .44%
International .61% .08% .69%
Growth-Income .39% .02% .41%
Asset Allocation .47% .02% .49%
High-Yield Bond .50% .03% .53%
Bond .51% .01% .52%
U.S. Gov't/AAA-Rated .51% .02% .53%
Cash Management .45% .02% .47%
</TABLE>
*Expressed as an annual percentage of each fund's average daily net assets.
**New fund, with no prior fiscal year exeprience.
See the funds' prospectuses for more complete information about the expenses of
the funds.
MORTALITY AND EXPENSE RISK CHARGE. Lincoln Life deducts a daily charge as a
percent of the assets of the Separate Account as a mortality and expense risk
charge. This charge has the effect of reducing gross investment results cred-
ited to the subaccounts. The daily rate currently charged is .0021917% (which
is approximately equal to an annual rate of .80%) of the value of the net as-
sets of the Separate Account. This deduction may increase or decrease, but is
guaranteed not to exceed .90% in any policy year.
The mortality risk assumed is that insureds may live for a shorter period of
time than estimated and, therefore, a greater amount of death benefits will be
payable. The expense risk assumed is that expenses incurred in issuing and ad-
ministering 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
9
<PAGE>
Account G
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 is $10 for each withdrawal.
The transfer charge is incurred when the owner requests that funds be trans-
ferred 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.
Lincoln Life also reserves the right to deduct from the policy value any
amounts charged for federal or other governmental income taxes that might re-
sult from a change in the current tax laws. Current tax laws do not charge in-
come taxes on the policy value.
REDUCTION OF CHARGES
The percent of premium charge, surrender charge, and the monthly administrative
charge set forth in this prospectus may be reduced because of special circum-
stances that result in lower sales, administrative, or mortality expenses. For
example, special circumstances may exist in connection with sales to Lincoln
Life policyowners, or sales to employees of Lincoln Life. The amounts of any
reductions will reflect the reduced sales effort and administrative costs re-
sulting 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.
TERM CONVERSION CREDITS
Lincoln Life currently has a term conversion program which gives premium cred-
its to the policy if the owner is converting from a term insurance policy that
meets certain requirements. Term insurance policies issued by Lincoln Life or
by any other life insurance company may be considered for conversion to the
policy under this program and for possible term conversion credits. Except for
guaranteed term conversion privileges provided under some Lincoln Life term in-
surance policies or otherwise provided by special agreement, all term insurance
policy conversions are subject to evidence of insurability satisfactory to Lin-
coln Life. All conversion credits are deposited in the policy without the per-
cent of premium charge. The amount of the term conversion credits and the re-
quirements 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,
page 14), 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, page 14.) 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, page 14.) These proceeds will be further increased by
any additional insurance on the insured provided by rider.
The policy provides two death benefit types: Type 1, basic coverage, and Type
2, basic plus policy value coverage. Generally, the owner designates the death
benefit type in the application. The owner may change the death benefit type at
any time. (See Policy changes, page 11.)
TYPE 1. The death benefit is the greater of the specified amount of the policy
or a specified percentage of the policy value on or prior to the date of death.
The specified percentage at any time is based on the attained age of the in-
sured 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 cov-
erage. As a result, policy values under a Type 1 basic coverage tend to in-
crease 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.
10
<PAGE>
Account G
* 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 death benefits. However, because life insurance
death benefits cannot be less than 250% (the applicable specified percentage)
of policy value, any time the policy value of this policy exceeds $100,000, the
life insurance death benefit will exceed the $250,000 specified amount. If the
policy value equals or exceeds $100,000, each additional dollar added to the
policy value will increase the life insurance death benefit by $2.50. Thus, for
a policy with a specified amount of $250,000 and a policy value of $200,000,
the beneficiary will be entitled to a life insurance death benefit of $500,000
(250% X $200,000); a policy value of $300,000 will yield a life insurance death
benefit of $750,000 (250% X $300,000); a policy value of $500,000 will yield a
life insurance death benefit of $1,250,000 (250% X $500,000). Similarly, so
long as policy value exceeds $100,000, each dollar taken out of policy value
will reduce the life insurance death benefit by $2.50. If at any time the pol-
icy value multiplied by the specified percentage is less than the specified
amount, the life insurance death benefit will equal the specified amount of the
policy.
Under Type 2, a policy with a specified amount of $250,000 will generally pay
life insurance death benefits 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 a life insurance death benefit equal to $300,000 ($250,000 + $50,000); a
policy value of $100,000 will yield a life insurance death benefit of $350,000
($250,000 + $100,000). The life insurance death benefit cannot, however, be
less than 250% (the applicable specified percentage) of policy value. As a re-
sult, if the policy value of the policy exceeds $166,667, the life insurance
death benefit 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 death benefit by $2.50. A policy with a policy value of $200,000 will
therefore have a life insurance death benefit of $500,000 (250% x $200,000); a
policy value of $500,000 will yield a life insurance death benefit of
$1,250,000 (250% x $500,000); a policy value of $1,000,000 will yield a life
insurance death benefit 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 death benefit 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 death benefit
will be the specified amount plus policy value.
The above examples describe scenarios which include favorable investment per-
formance. In addition, the applicable percentage of 250% that is used is for
ages 40 or younger. Because the applicable percentage decreases as the attained
age increases, the impact of the applicable percentage on the death benefit
payment levels will be lessened as the attained age progresses beyond age 40.
DEATH BENEFIT GUARANTEE
Lincoln Life expects payment of the required death benefit guarantee monthly
premiums will be sufficient, when combined with net investment results, to pay
for all charges to the policy during the first two policy years, and thereby
provide life insurance protection on the insured for that period. In some situ-
ations, however, the combination of poor net investment results and monthly de-
ductions 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
two policy years, provided the death benefit guarantee monthly premium require-
ment continues to be met. Lincoln Life makes no charge for this additional ben-
efit.
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
11
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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 suit-
able 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 suc-
cessively, and finally against insurance provided under the original applica-
tion. 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 ap-
plication. Such increase will be subject to evidence of insurability satisfac-
tory 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 in-
crease 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 deduc-
tions assessed the policy. The policy has no guaranteed minimum policy value.
On the policy date, the policy value will be the initial net premium, minus the
sum of the following:
a. The monthly administrative 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 an annual rate of 4.0% (the General Account
guaranteed interest rate) on amounts allocated to the General Account;
d. Interest at not less than an annual rate of 4.0% 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 gov-
ernmental income taxes;
i. The monthly administrative charge;
j. The cost of insurance for the following month;
k. Any charges for extra benefits.
On any day other than a monthly anniversary day, the policy value is equal to
the sum of the following:
a. The policy value on the preceding day;
b. Any increase due to net investment results in the value of the subaccounts
to which the investment amount is allocated;
c. Interest at not less than an annual rate of 4.0% (the General Account
guaranteed interest rate) on amounts allocated to the General Account;
d. Interest at not less than an annual rate of 4.0% 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 gov-
ernmental income taxes.
The charges and deductions described above are further discussed in Charges and
deductions, page 7.
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 pe-
riod.
NET INVESTMENT RESULTS. The net investment results are the gross investment re-
sults of a fund 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 will be taken at their fair market value
in accordance with accepted accounting practices and applicable laws and regu-
lations.
12
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Account G
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 writ-
ing on a form suitable to Lincoln Life; transfers may be made by telephone re-
quest only if the owner has previously authorized telephone transfers in writ-
ing 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 de-
ducted from the amount transferred; however, the transfer charge is currently
being waived for all transfers. The minimum amount which may be transferred be-
tween 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; how-
ever, 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 pol-
icy is in force the owner
may make written request
for a loan against the pol-
icy. A written loan agree-
ment will be executed be-
tween 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 agree-
ment. 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 cer-
tain circumstances. (See
Postponement of payments,
page 16.)
A loan taken from, or secured by, a policy may have federal income tax conse-
quences. In particular, adverse tax consequences may occur if the policy lapses
with outstanding loans. (See Federal tax matters, pages 18-20.)
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 ad-
dress 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 Pol-
icy lapse and reinstatement, page 14.)
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 in-
terest not paid when due will be added to the loan amount and will bear inter-
est at the same policy loan rate.
DEDUCTION OF LOAN AND LOAN INTEREST. Ordinarily the amount of any loan or un-
paid 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, loaned amounts earn interest at an an-
nual rate of 4.95%. 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 trans-
ferred 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 in-
crease 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
13
<PAGE>
Account G
withdrawal may not be more than the net cash surrender value. A charge of $10
is made for each withdrawal and is deducted from the withdrawn amount; the bal-
ance is paid to the owner. The owner should be aware that withdrawals may re-
sult in the owner incurring a tax liability. (See Federal tax matters, pages
18-20.)
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 re-
quired 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 reduc-
tion in the death benefit equal to the specified percentage times the reduction
in policy value. (See Death benefit and death benefit types, page 10.) In such
cases, where the death benefit is reduced by an amount greater than the with-
drawal, 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. Pay-
ment of the withdrawal amount may be postponed under certain circumstances.
(See Postponement of payments, page 16.)
POLICY LAPSE AND REINSTATEMENT
During the first two policy years, insurance coverage under the policy will be
continued in force as long as the total premiums paid (minus any partial with-
drawals and minus any outstanding loans) equals or exceeds the death benefit
guarantee monthly premium times the number of months since the policy date, in-
cluding the current month. Unless coverage is being continued under the death
benefit guarantee (see Death benefit guarantee, page 11) lapse will occur when
the policy value less surrender charges and less outstanding loans is insuffi-
cient 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 sur-
render 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. If lapse occurs during the first two policy years,
any excess sales charge will be returned to the owner. If the insured dies dur-
ing the grace period, regardless of the cause of the grace period, any due and
unpaid monthly deductions will be deducted from the death benefit.
A lapsed policy may be reinstated at any time within five years after the date
of lapse and before the maturity date by submitting evidence of insurability
satisfactory to Lincoln Life and a premium sufficient to keep the policy in
force for two months. The effective date of a reinstatement will be the first
monthly anniversary day on or next following the day the application for rein-
statement is approved.
SURRENDER OF THE POLICY
The owner may surrender the policy at any time during the lifetime of the in-
sured 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. If surrender occurs during the first
two policy years, any excess sales charge will be returned to the owner. 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 Lin-
coln 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 consequence.
PROCEEDS AND PAYMENT OPTIONS
PROCEEDS. The amount payable under the policy on the maturity date, on the sur-
render 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
14
<PAGE>
Account G
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 cred-
ited 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 op-
tions 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, ap-
proval by Lincoln Life is needed before any proceeds can be applied to a pay-
ment 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 provi-
sion.
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 in-
terest 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 supple-
mental application, plus any riders, plus any amendments. The policy is issued
in consideration of the application and payment of the Initial premium. Only
statements in the application and any supplemental applications can be used to
contest the validity of the policy or defend a claim. These statements are, in
the absence of fraud, considered representations and not warranties. A change
in the policy will be binding on Lincoln Life only if the change is in writing
and the change is made by the President, Vice President, Secretary, or Assis-
tant 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 rein-
statement, minus any policy loan, plus any loan interest, minus any prior with-
drawals, and minus the cost of any riders.
REPRESENTATIONS AND CONTESTABILITY
All statements made in an application by, or on behalf of, the insured will, in
the absence of fraud, be deemed representations and not warranties. Statements
may be used to contest a claim or validity of the policy only if these state-
ments 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 from the policy date 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 suc-
cessor. All rights of the owner belong
15
<PAGE>
Account G
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 owner-
ship 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 re-
ceive 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. Fur-
thermore, 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 Of-
fice. 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. Lin-
coln 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 surren-
der value, the current death benefit, any current policy loans, any premiums
paid, any cost of insurance charges deducted, and any withdrawals made. The
report will also include any other data that may be required where the contract
is delivered.
In addition, Lincoln Life will provide to policyowners semiannually, or other-
wise as may be required by regulations under the Investment Company Act of
1940, a report containing information about the operations of the funds.
Lincoln Life has entered into an agreement with Delaware Management Holdings,
Inc., 2005 Market Street, Philadelphia, PA 19203, to provide accounting serv-
ices to the Separate Account.
PROJECTION OF BENEFITS AND VALUES
At the owner's request, Lincoln Life will provide a report to the owner which
shows projected future results. The request must be in writing on a form suit-
able 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 Ex-
change Commission; (ii) the Commission by order permits postponement for the
protection of owners; or (iii) an emergency exists, as determined by the Com-
mission, as a result of which disposal of securities is not reasonably practi-
cal 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 own-
er's bank.
RIDERS
The availability of the riders listed below is subject to approval by the State
Insurance Department of the State in which the policy is issued, and is also
subject to the current underwriting and issue procedures in place at the time
of the application. The underwriting and issue procedures are subject to change
without notice.
TERM RIDER FOR COVERED INSURED. The spouse and/or children of the Primary In-
sured may be added as an Other Insured on the base plan. Likewise, other indi-
viduals 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 de-
ducted 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 $10,000
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 maxi-
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<PAGE>
Account G
mum of $20,000 per any one family. The cost of insurance for this rider is de-
ducted 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 pur-
chase, 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 adop-
tion 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 in-
surance for this rider is deducted monthly from the policy value.
ACCIDENTAL DEATH BENEFIT RIDER. This rider is available for the Primary In-
sured, and/or those covered under the Term Rider for Covered Insured. The Acci-
dental 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 dis-
ability 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 planned periodic premium. The cost of in-
surance 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 max-
imum policy specified amounts. The rider provides benefit payments when the
health of the insured is such that covered convalescent care services are nec-
essary. The cost of insurance for this rider is deducted monthly from the pol-
icy value.
CONTINGENT OPTION RIDER. The Contingent Option Rider is a guaranteed insurabil-
ity rider that gives the owner the right to purchase an additional policy with-
out evidence of insurability upon the death of the designated person (the op-
tion life). Available to issue ages 20 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 insurabil-
ity rider that gives the owner the right to purchase an additional policy with-
out 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 own-
er's anticipated retirement date or some other date after which additional in-
surance may be needed. Available to issue ages 20 through 70. The cost of in-
surance 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 ben-
efit 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 ad-
vanced accelerated benefits creates an interest-bearing lien against the death
benefit otherwise payable at death. There is no cost of insurance for this rid-
er, but an administrative expense charge is payable upon application for bene-
fits.
DISTRIBUTION OF THE POLICY
Lincoln Life intends to offer the policy in all jurisdictions where it is li-
censed to do business. Lincoln Life, the principal underwriter for the poli-
cies, is registered with the Securities and Exchange Commission under the Secu-
rities Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers (NASD). The principal business address of
Lincoln Life is 1300 South Clinton Street, Fort Wayne, Ind. 46802.
The policy will be sold by individuals who, in addition to being licensed as
life insurance agents for Lincoln Life, are also its registered representa-
tives. These representatives ordinarily receive commissions and service fees up
to 60% of the first year required premium (the
17
<PAGE>
Account G
death benefit guarantee monthly premium times 12), plus up to 3% of all other
premiums paid, plus .25% of accumulated policy values in the third policy year
and each year thereafter. The local agency receives additional compensation on
the first year required premium and all additional premiums, plus a small per-
centage of accumulated policy values. In some situations, the local agency may
elect to share its commission with the registered representative. Selling rep-
resentatives are also eligible for bonuses and non-cash compensation if certain
production levels are reached. All compensation is paid from Lincoln Life's re-
sources, which include sales charges made under this policy.
FEDERAL TAX MATTERS
The following discussion is intended to provide a general description of the
federal income tax considerations associated with the policy. It does not pur-
port 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 understand-
ing 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 interpre-
tation by the Internal Revenue Service. Federal tax laws may change without no-
tice 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) in-
cludes a definition of a life insurance contract for federal tax purposes. This
definition can be satisfied by complying with either of two tests set forth in
section 7702. Although the Secretary of the Treasury (the Treasury) is autho-
rized to prescribe regulations interpreting the manner in which the tests under
section 7702 are to be applied, such regulations have not been issued. In addi-
tion, section 7702 of the Code was amended by imposing certain modified re-
quirements 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 ap-
plied is extremely limited. If a policy was determined not to be a life insur-
ance 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 require-
ments, Lincoln Life none theless 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 stan-
dard 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. It if is subsequently de-
termined 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, Lin-
coln 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 regula-
tion or otherwise for the investments of the Separate Account to be "adequately
diversified" in order for the policy to be treated as a life insurance contract
for federal tax purposes. The Separate Account, through the various funds in
which it invests, intends to comply with the diversification requirements pre-
scribed in Treasury Regulations, which affect how each fund's assets may be in-
vested. Lincoln Life does not have control over the American Variable Insurance
Series or its investments. Nonetheless, Lincoln Life believes that the funds
will be operated in compliance with the requirements prescribed by the Trea-
sury.
The regulations relating to diversification requirements do not provide guid-
ance 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 re-
quire the company to impose limitations on a contract owner's right
18
<PAGE>
Account G
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 insur-
ance 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 poli-
cy, or a surrender may have tax consequences depending upon the circumstances.
In addition, federal estate and generation skipping transfer, and state and lo-
cal 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 Endow-
ment Contract depending upon the amount of premiums paid in relation to the
death benefit provided under such policy. In addition, if a policy is "materi-
ally 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, classifica-
tion of a policy as a Modified Endowment Contract will depend upon the circum-
stances of each policy. Accordingly, a prospective owner should contact a com-
petent tax advisor before purchasing a policy to determine the circumstances in
which the policy would be a Modified Endowment Contract. In addition, an owner
should contact a competent tax advisor before paying any additional premium or
making any other change to, including an exchange of, a policy to determine
whether such premium payment or change would cause the policy to be treated as
a Modified Endowment Contract.
Lincoln Life will monitor premiums paid into each policy after the date of this
Prospectus to determine when a premium payment will exceed the 7-pay limitation
and cause the policy to become a Modified Endowment Contract. In simplified
terms, the 7-pay limitation is satisfied only if the accumulated premiums paid
under a policy do not at any time during the first seven policy years exceed
the sum of the equal annual premiums that would have been paid for a similar
policy providing for fully funded benefits at the end of the seven year period.
If the owner has given Lincoln Life instructions that the policy should not be
allowed to become a Modified Endowment Contract, any premiums in excess of the
7-pay limitation will first be applied to reduce any outstanding loan on the
policy, and any further excess will be refunded to the owner within 7 days. If
the owner has not given Lincoln Life instructions to the contrary, however, the
premium will be paid into the policy and a letter of notification of Modified
Endowment Contract status will be sent to the owner. The letter of notification
will include the available options, if any, for remedying the Modified Endow-
ment Contract status of the policy.
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Pol-
icies classified as Modified Endowment Contracts are subject to the following
tax rules: First, all distributions, including distributions upon surrender and
benefits paid at maturity, from such a policy are treated as ordinary income
subject to tax up to the amount equal to the excess (if any) of the cash value
immediately before the distribution over the investment in the policy (de-
scribed 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 dis-
tribution from, or loan taken from or secured by, such a policy that is in-
cluded in income except where the distribution or loan is made on or after the
owner attains age 59 1/2, is attributable to the owner's becoming disabled, or
is part of a series of substantially equal periodic payments for the life of
the owner or the joint lives of the owner and the owner's beneficiary. Fourth,
the cost of insurance for certain riders which are not "qualified additional
benefits" such as the Convalescent Care Rider may be treated as distributions
from such a policy and taxed accordingly.
4. DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Distributions from a policy that is not classified as a Modified Endowment Con-
tract 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 oc-
curs in the case of a decrease in the specified amount, a change in death bene-
fits 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.
19
<PAGE>
Account G
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 indebted-
ness 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.
For interest paid or accrued after October 13, 1996, additional rules apply
which may reduce or eliminate any interest deduction. The owner should consult
a competent tax advisor concerning the rules and limitations.
6. INVESTMENT IN THE POLICY. Investment in the policy means (i) the aggregate
amount of any premiums or other consideration paid for a policy, minus (ii) the
aggregate amount received under the policy which is excluded from the gross in-
come 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 ex-
cluded 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 Lin-
coln 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. Lincoln Life believes that any benefits paid under the Accelerated Bene-
fit Election Rider generally will be excludable from the recipient's income. It
is unclear whether Convalescent Care Benefit Riders issued prior to January 1,
1997, constitute qualified long-term care insurance contracts under the Code.
If a rider is qualified, long-term care benefits generally will be excludable
from income. (Benefits received may be includable in income, however, if other
long-term care insurance contracts or riders cover the insured.) If a rider is
not qualified, benefits may be includable in income. In addition, Convalescent
Care Benefit Riders issued after December 31, 1996, do not constitute qualified
long-term care insurance contracts under the Code. Thus, benefits received from
such riders may be includable in income.
TAXATION OF THE SEPARATE ACCOUNT
Lincoln Life does not initially expect to incur any income tax upon the earn-
ings or the realized capital gains attributable to the Separate Account. Based
upon these expectations, no charge is being made currently to the Separate Ac-
count for federal income taxes which may be attributable to the Separate Ac-
count. If, however, Lincoln Life determines that it may incur such taxes, it
may assess a charge for those taxes from the policy.
VOTING RIGHTS
To the extent required by law, Lincoln Life will vote shares of the funds held
in the Separate Account at regular and special shareholder meetings of the
funds in accordance with instructions received from persons having voting in-
terests in the Separate Account. If, however, the Investment Company Act of
l940 or any regulation thereunder should be amended or if the present interpre-
tation 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. Frac-
tional shares will be allocated for amounts less than $100. The number of votes
which the policyowner has the right to instruct will be determined as of the
date coincident with the date established by the various series for determining
shareholders eligible to vote at the meetings of the funds. Voting instructions
will be solicited by written communications prior to such meeting in accordance
with procedures established by the funds. Lincoln Life will vote shares of each
fund as to which no timely instructions are received in proportion to the vot-
ing instructions which are received with respect to all policies participating
in that fund. Each person having a voting interest will receive proxy material,
reports and other materials relating to the appropriate
portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Lincoln Life may, when required by state in-
surance regulatory authorities, disregard voting instructions if the instruc-
tions require that the shares be voted so as to cause a change in the sub-clas-
sification or investment objective of any of the series of a fund or to approve
or disapprove an
20
<PAGE>
Account G
investment advisory contract for a fund. In addition, Lincoln Life itself may
disregard voting instructions in favor of changes initiated by a policyowner in
the investment policy or the investment advisor of a fund if Lincoln Life rea-
sonably disapproves of such changes. A change would be disapproved only if the
proposed change is contrary to state law or prohibited by state regulatory au-
thorities or Lincoln Life determined that the change would have an adverse ef-
fect on its General Account in that the proposed investment policy for any fund
may result in overly speculative or unsound investments. In the event Lincoln
Life does disregard voting instructions, a summary of that action and the rea-
sons 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 Indi-
ana, is subject to regulation by the Insurance Department of the State of Indi-
ana. An annual statement is filed with the Indiana Department of Insurance (De-
partment) on or before March 1st of each year covering the operations and re-
porting on the financial condition of Lincoln Life as of December 31 of the
preceding year. Periodically, the Department examines the liabilities and re-
serves of Lincoln Life and the Separate Account and certifies their adequacy,
and a full examination of Lincoln Life's operations is conducted by the Depart-
ment 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 SEPARATE ACCOUNT'S ASSETS
Lincoln Life holds title to the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from the General Account
assets. Records are maintained of all purchases and redemptions of fund shares
held by each subaccount. Additional protection is provided in the form of a
blanket fidelity bond which covers directors and employees of Lincoln Life. The
bond, which was issued by Fidelity and Deposit Co. of Maryland covers up to
$25,000,000.
The funds do not issue certificates. Thus, Lincoln Life holds the Separate Ac-
count's assets in an open account in lieu of stock certificates.
LEGAL PROCEEDINGS
There are no material legal or administrative proceedings pending or known to
be contemplated, other than ordinary routine litigation incidental to the busi-
ness, to which Lincoln Life or the Separate Account are party or to which any
of their property is subject.
EXPERTS
The financial statements of the Separate Account and the financial statements
and schedules of Lincoln Life appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports which also appear elsewhere in this document and in the
registration statement. The financial statements and schedules audited by Ernst
& Young LLP have been included in this document in reliance on their reports
given on their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Denis G.
Schwartz, FSA, as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange Com-
mission, under the Securities Act of 1933, as amended, with respect to the pol-
icy offered hereby. This prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to such
registration statement, to all of which reference is made for further informa-
tion concerning the Separate Account, Lincoln Life and the policy offered here-
by. 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.
21
<PAGE>
Appendix A
APPENDIX A
Base minimum premiums Prf = Preferred nonsmoker
NS
Per $1,000 of specified amount* Std = Standard nonsmoker
NS
Prf = Preferred smoker
SM
Male (or unisex), age on policy date
Std = Standard smoker
SM
<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 39.32 43.04 49.73 52.61
27 4.36 4.48 5.41 5.65 67 40.80 44.64 51.53 54.65
28 4.57 4.69 5.41 5.65 68 42.34 46.42 53.46 56.82
29 4.78 4.90 5.60 5.84 69 44.08 48.40 55.58 59.18
30 5.01 5.13 5.94 6.18 70 46.07 50.51 57.83 61.67
- ---------------------------------------------------------------------------------
31 5.26 5.38 6.18 6.42 71 48.06 52.74 60.20 64.28
32 5.52 5.64 6.50 6.74 72 50.55 55.23 62.77 67.09
33 5.80 5.92 6.84 7.08 73 53.11 58.03 65.66 70.22
34 6.09 6.21 7.20 7.44 74 56.43 61.35 68.93 73.85
35 6.40 6.52 7.58 7.82 75 60.02 65.18 72.89 77.81
- ---------------------------------------------------------------------------------
36 6.73 6.85 7.99 8.23 76 63.97 69.13 77.15 81.83
37 7.08 7.20 8.42 8.66 77 68.06 73.22 81.16 85.72
38 7.21 7.57 9.11 9.35 78 72.51 77.55 85.35 89.55
39 7.60 7.96 9.88 10.24 79 77.69 82.37 89.73 93.57
40 8.02 8.38 10.76 11.12 80 83.61 87.93 94.48 97.84
- ---------------------------------------------------------------------------------
</TABLE>
* To determine the death benefit guarantee monthly premium, multiply the spec-
ified amount divided by 1000 times the number shown for the age and classifi-
cation 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.
22
<PAGE>
Appendix A
APPENDIX A CONTINUED
Base minimum premiums Prf NS= Preferred Nonsmoker
Per $1,000 of specified amount* Std NS= Standard Nonsmoker
Prf SM= Preferred Smoker
Female, age on policy date 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 2.06 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 32.72 35.12 40.35 42.15
27 3.73 3.85 4.49 4.61 67 34.52 37.04 41.38 43.42
28 3.90 4.02 4.71 4.83 68 35.42 38.06 42.54 44.70
29 4.09 4.21 4.93 5.05 69 36.64 39.28 43.82 46.10
30 4.28 4.40 5.17 5.29 70 37.86 40.74 45.43 47.83
- ---------------------------------------------------------------------------------
31 4.37 4.61 5.42 5.54 71 39.59 42.47 47.29 49.93
32 4.59 4.83 5.69 5.81 72 41.39 44.51 49.48 52.36
33 4.82 5.06 5.97 6.09 73 43.63 46.87 51.98 55.10
34 5.06 5.30 6.27 6.39 74 46.38 49.74 54.99 58.35
35 5.32 5.56 6.58 6.70 75 49.58 53.18 58.70 62.18
- ---------------------------------------------------------------------------------
36 5.59 5.83 6.79 7.03 76 53.16 56.88 62.66 66.14
37 5.76 6.12 7.14 7.38 77 57.06 60.78 66.73 70.09
38 6.06 6.42 7.50 7.74 78 61.33 65.05 71.06 74.30
39 6.38 6.74 7.88 8.12 79 66.30 69.90 75.89 78.89
40 6.71 7.07 8.58 8.82 80 71.98 75.58 81.17 83.93
- ---------------------------------------------------------------------------------
</TABLE>
* To determine the death benefit guarantee monthly premium, multiply the speci-
fied amount divided by 1000 times the number shown for the age and classifica-
tion of the insured, then add $100.00 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.
23
<PAGE>
Appendix B
APPENDIX B
Surrender charges Prf NS = Preferred nonsmoker
Std NS = Standard nonsmoker
Per $1,000 of specified amount Prf SM = Preferred smoker
Male (or unisex), age on policy date*
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 ** 3.20 ** **
- ---------------------------------------------------------------------------------
1 2.54 41 9.98 10.56 14.18 14.60
2 2.54 42 10.54 11.12 15.44 15.88
3 2.54 43 11.00 11.72 16.56 17.14
4 2.54 44 11.62 12.34 18.20 18.62
5 2.54 45 12.14 13.00 19.74 20.32
- ---------------------------------------------------------------------------------
6 2.54 46 12.70 13.72 21.08 21.80
7 2.54 47 13.60 14.60 22.42 23.28
8 2.54 48 14.36 15.66 24.12 24.98
9 2.64 49 15.42 16.72 25.82 26.68
10 2.76 50 16.56 18.00 27.58 28.58
- ---------------------------------------------------------------------------------
11 2.88 51 17.90 19.48 29.68 30.70
12 3.16 52 19.22 20.96 31.88 33.02
13 3.60 53 20.72 22.44 34.48 35.78
14 3.80 54 22.48 24.34 37.24 38.54
15 4.02 55 24.30 26.46 40.06 41.50
- ---------------------------------------------------------------------------------
16 4.30 4.44 5.14 5.28 56 26.28 28.58 42.78 44.00
17 4.72 4.86 5.56 5.70 57 28.46 30.90 43.94 44.00
18 4.94 5.08 5.78 5.92 58 30.86 33.46 44.00 44.00
19 4.94 5.08 5.78 5.92 59 33.32 36.20 44.00 44.00
20 4.94 5.08 5.98 6.14 60 36.14 39.16 44.00 44.00
- ---------------------------------------------------------------------------------
21 4.94 5.08 6.06 6.34 61 39.38 42.56 44.00 44.00
22 4.94 5.08 6.06 6.34 62 41.44 44.00 44.00 44.00
23 4.94 5.08 6.26 6.56 63 42.70 44.00 44.00 44.00
24 4.94 5.08 6.48 6.76 64 44.00 44.00 44.00 44.00
25 4.94 5.08 6.48 6.76 65 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
26 5.00 5.14 6.48 6.76 66 44.00 44.00 44.00 44.00
27 5.22 5.38 6.48 6.76 67 44.00 44.00 44.00 44.00
28 5.48 5.62 6.48 6.76 68 44.00 44.00 44.00 44.00
29 5.74 5.88 6.70 7.00 69 44.00 44.00 44.00 44.00
30 6.00 6.16 7.12 7.40 70 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
31 6.30 6.44 7.40 7.70 71 44.00 44.00 44.00 44.00
32 6.62 6.76 7.78 8.08 72 44.00 44.00 44.00 44.00
33 6.96 7.10 8.20 8.48 73 44.00 44.00 44.00 44.00
34 7.30 7.44 8.64 8.92 74 44.00 44.00 44.00 44.00
35 7.68 7.82 9.08 9.38 75 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
36 8.06 8.22 9.58 9.86 76 44.00 44.00 44.00 44.00
37 8.50 8.64 10.10 10.38 77 44.00 44.00 44.00 44.00
38 8.64 9.08 10.92 11.22 78 44.00 44.00 44.00 44.00
39 9.12 9.54 11.84 12.28 79 44.00 44.00 44.00 44.00
40 9.62 10.04 12.90 13.34 80 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
</TABLE>
+ In the first policy year, the applicable surrender charge will be one-half of
the surrender charge listed above.
* For requested increases in the specified amount, the applicable surrender
charge is based on the age the increase is effective and in the first year af-
ter the increase will be one-fourth of the corresponding surrender charge
listed above, and in subsequent years will be one-half that of the correspond-
ing surrender charge listed above.
** This classification is not available below the age of 16.
24
<PAGE>
Appendix B
APPENDIX B CONTINUED
Surrender charges Prf NS= Preferred Nonsmoker
Std NS= Standard Nonsmoker
Per $1,000 of specified amount Prf SM= Preferred Smoker
Female, age on policy date* 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 ** 2.64 ** **
- ---------------------------------------------------------------------------------
1 2.10 41 8.46 8.90 11.14 11.42
2 2.10 42 8.90 9.34 11.84 12.28
3 2.10 43 9.22 9.80 12.68 13.12
4 2.10 44 9.58 10.30 13.96 14.40
5 2.10 45 10.10 10.82 15.24 15.66
- ---------------------------------------------------------------------------------
6 2.10 46 10.50 11.36 16.14 16.72
7 2.10 47 11.08 11.94 17.20 17.78
8 2.10 48 11.56 12.56 18.34 19.06
9 2.18 49 12.06 13.22 19.82 20.54
10 2.28 50 12.82 13.96 21.30 22.02
- ---------------------------------------------------------------------------------
11 2.38 51 13.88 15.02 22.84 23.70
12 2.54 52 14.80 16.08 24.54 25.40
13 2.56 53 15.84 17.14 26.08 27.10
14 2.68 54 16.98 18.42 27.78 28.80
15 2.78 55 17.90 19.48 29.48 30.48
- ---------------------------------------------------------------------------------
16 2.76 2.90 3.30 3.44 56 18.74 20.32 30.82 31.96
17 2.88 3.02 3.44 3.60 57 19.66 21.38 32.30 33.46
18 3.00 3.14 3.66 3.80 58 20.56 22.44 33.64 34.94
19 3.14 3.28 3.76 3.90 59 21.62 23.50 35.12 36.42
20 3.28 3.42 3.92 4.06 60 23.10 24.98 37.24 38.54
- ---------------------------------------------------------------------------------
21 3.42 3.56 4.10 4.24 61 24.88 26.88 39.84 41.28
22 3.56 3.72 4.28 4.44 62 27.26 29.42 42.70 44.00
23 3.74 3.88 4.48 4.62 63 30.08 32.40 44.00 44.00
24 3.90 4.04 4.70 4.84 64 33.12 35.56 44.00 44.00
25 4.08 4.22 4.90 5.06 65 36.22 38.96 44.00 44.00
- ---------------------------------------------------------------------------------
26 4.26 4.42 5.14 5.28 66 39.26 42.14 44.00 44.00
27 4.46 4.62 5.38 5.52 67 41.42 44.00 44.00 44.00
28 4.68 4.82 5.64 5.78 68 42.50 44.00 44.00 44.00
29 4.90 5.04 5.92 6.06 69 43.96 44.00 44.00 44.00
30 5.14 5.28 6.20 6.34 70 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
31 5.24 5.52 6.50 6.64 71 44.00 44.00 44.00 44.00
32 5.50 5.78 6.82 6.96 72 44.00 44.00 44.00 44.00
33 5.78 6.06 7.16 7.30 73 44.00 44.00 44.00 44.00
34 6.06 6.36 7.52 7.66 74 44.00 44.00 44.00 44.00
35 6.38 6.66 7.90 8.04 75 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
36 6.70 7.00 8.14 8.42 76 44.00 44.00 44.00 44.00
37 6.90 7.34 8.56 8.84 77 44.00 44.00 44.00 44.00
38 7.26 7.70 9.00 9.28 78 44.00 44.00 44.00 44.00
39 7.64 8.08 9.46 9.74 79 44.00 44.00 44.00 44.00
40 8.04 8.48 10.30 10.58 80 44.00 44.00 44.00 44.00
- ---------------------------------------------------------------------------------
</TABLE>
+ In the first policy year, the applicable surrender charge will be one-half of
the surrender charge listed above.
* For requested increases in the specified amount, the applicable surrender
charge is based on the age the increase is effective and in the first year af-
ter the increase will be one-fourth of the corresponding surrender charge
listed above, and in subsequent years will be one-half that of the correspond-
ing surrender charge listed above.
** This classification is not available below the age of 16.
25
<PAGE>
Appendix C
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
- -------------------------------------------------------------------------------
<C> <S>
NANCY J. ALFORD Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
TIMOTHY J. ALFORD Senior Vice President (formerly Vice President
Senior Vice President and Second Vice President), Lincoln National
One Reinsurance Place Life Insurance Co.
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -------------------------------------------------------------------------------
NEAL E. ARNOLD Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
CARL L. BAKER Vice President and Deputy General Counsel
Vice President and (formerly Associate General Counsel); Lincoln
Deputy General Counsel National Life Insurance Co.
- -------------------------------------------------------------------------------
ROLAND C. BAKER President, First Penn-Pacific Life Insurance Co.
Vice President Formerly: Chairman and CEO, Baker, Ralish,
1801 S. Meyers Road Shipley & Politzer, Inc.
Oakbrook Terrace, Ill. 60181
- -------------------------------------------------------------------------------
DAVID N. BECKER Vice President, Lincoln National Life Insurance
Vice President, Co.
Appointed Actuary and
Valuation Actuary
- -------------------------------------------------------------------------------
JOANN E. BECKER Vice President, Lincoln National Life Insurance
Vice President Co. and Lincoln Investment Management, Inc;
200 East Berry Street Formerly: President, The Richard Leahy Corp. and
Fort Wayne, Ind. 46802 President, LNC Equity Sales Corp.
- -------------------------------------------------------------------------------
JOHN M. BEHRENDT Vice President, Lincoln National Life Insurance
Vice President Co. and Lincoln Financial Group, Inc. Formerly:
President, LNC Equity Sales Corp.
- -------------------------------------------------------------------------------
JON A. BOSCIA President and Chief Executive Officer (formerly
President, Director and Chief Operating Officer). Lincoln National Life
Chief Executive Officer Insurance Co. Formerly: President; Executive
Vice President, Lincoln Investment Management
Inc.
- -------------------------------------------------------------------------------
CAROLYN P. BRODY Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
STEVEN R. BRODY Senior Vice President (formerly Executive Vice
Vice President President), Lincoln Investment Management Inc.
200 East Berry Street
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
PRISCILLA S. BROWN Vice President, Lincoln National Life Insurance
Vice President Co. (formerly President, LNC Equity Sales Corp.:
Vice President, Lincoln Investment Management
Inc.)
- -------------------------------------------------------------------------------
HAROLD B. CARSTENSEN, JR. Vice President, Lincoln National Life Insurance
Vice President Co.
- -------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Appendix C
APPENDIX C CONTINUED
Executive officers and directors
Lincoln National Life Insurance Co.
<TABLE>
<CAPTION>
Name, address and position(s)
with registrant Principal occupations last five years
- -------------------------------------------------------------------------------
<C> <S>
DONALD C. CHAMBERS, M.D. Senior Vice President and Chief Medical Director
Senior Vice President and (formerly Vice President and
Chief Medical Director Chief Medical Director), Lincoln National Life
One Reinsurance Place Insurance Co.
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -------------------------------------------------------------------------------
THOMAS L. CLAGG Vice President and Associate General Counsel,
Vice President and Lincoln National Life Insurance Co.
Associate General Counsel
- -------------------------------------------------------------------------------
KENNETH J. CLARK Senior Vice President, Lincoln National Life
Senior Vice President Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -------------------------------------------------------------------------------
KELLY D. CLEVENGER Vice President, Lincoln National Life Insurance
Vice President Co.
- -------------------------------------------------------------------------------
MARTHA O. D'AMBROSIO Vice President and General Auditor, Lincoln
Vice President and National Corp. and Lincoln National Life
General Auditor Insurance Co. Formerly: Senior Manager, KPMG
Peat Marwick.
- -------------------------------------------------------------------------------
JEFFREY K. DELLINGER Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
ARTHUR W. DETORE, M.D. Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co. Formerly:
Vice President, Lincoln National Risk
Management, Inc.
- -------------------------------------------------------------------------------
C. LAWRENCE EDRIS Vice President (formerly Senior Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
THOMAS W. FITCH Senior Vice President (formerly Vice President),
Senior Vice President First Penn-Pacific Life Insurance Co. and
1801 S. Meyers Road Lincoln National Life Insurance Co.
Oakbrook Terrace, Ill. 60181
- -------------------------------------------------------------------------------
ELIZABETH A. FREDERICK Vice President (formerly Second Vice President)
Vice President and and Associate General Counsel, Lincoln National
Associate General Counsel Life Insurance Co.
- -------------------------------------------------------------------------------
LUCY D. GASE Vice President and Assistant Secretary (formerly
Vice President and Second Vice President; Assistant Vice
Assistant Secretary President), Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
MELANIE T. HALL Vice President (formerly Second Vice President;
Vice President Assistant Vice President), Lincoln National Life
Insurance Co.
- -------------------------------------------------------------------------------
PHILLIP A. HARTMAN Vice President, Lincoln National Life Insurance
Vice President Co. and Lincoln Financial Group, Inc.
- -------------------------------------------------------------------------------
J. MICHAEL HEMP Senior Vice President, Lincoln National Life
Senior Vice President Insurance Co. and President, LNC Equity Sales
Corporation. Formerly: Regional Chief Executive
Officer, Lincoln Dallas RMO.
- -------------------------------------------------------------------------------
MATTHEW P. HENDERSON Vice President, Lincoln National Life Insurance
Vice President Co. (formerly Vice President), Lincoln National
Corp.
- -------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Appendix C
APPENDIX C CONTINUED
Executive officers and directors
Lincoln National Life Insurance Co.
<TABLE>
<CAPTION>
Name, address and position(s)
with registrant Principal occupations last five years
- -------------------------------------------------------------------------------
<C> <S>
DAVID A. HOPPER Senior Vice President (formerly Vice President),
Senior Vice President Lincoln National Life Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -------------------------------------------------------------------------------
JACK D. HUNTER Executive Vice President and General Counsel,
Executive Vice President, Lincoln National Corp. and The Lincoln National
General Counsel and Director Life Insurance Co.
200 East Berry Street
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
DONALD E. KELLER Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
LAWRENCE T. KISSKO Vice President (formerly Senior Vice President),
Vice President Lincoln Investment Management Inc.
- -------------------------------------------------------------------------------
MICHAEL C. LA FRENAIS Vice President, Lincoln National Life Insurance
Vice President Co. Formerly: Assistant Vice President, Aurora
Life Assurance Co.
- -------------------------------------------------------------------------------
STEPHEN H. LEWIS Senior Vice President, Lincoln National Life
Senior Vice President Insurance Co. Formerly: President, First Penn-
Pacific Life Insurance Co.
- -------------------------------------------------------------------------------
H. THOMAS MCMEEKIN President (formerly Executive Vice President,
Director Senior Vice President), Lincoln Investment
200 East Berry Street Management Inc.; Executive Vice President
Fort Wayne, Ind. 46802 (formerly Senior Vice President), Lincoln
National Corp.
- -------------------------------------------------------------------------------
REED P. MILLER Vice President (formerly Senior Vice President),
Vice President Lincoln National Life Insurance Co. Formerly:
Senior Vice President; Vice President, Lincoln
National Corp.
- -------------------------------------------------------------------------------
OLIVER H. G. NICHOLS Vice President, Lincoln Investment Management
Vice President Inc. Formerly Vice President, Aetna Life &
200 East Berry Street Casualty Co.
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
DAVID M. ONGMAN Vice President, Lincoln National Life Insurance
Vice President Co. Formerly: Consultant, Computer Horizons
Group; Vice President, The Associated Group;
Consulting Center Manager, James Martin & Co.
- -------------------------------------------------------------------------------
ARTHUR L. PAGE Vice President, Lincoln National Life Insurance
Vice President Co.
- -------------------------------------------------------------------------------
RAYMOND L. PROSSER Vice President and Associate General Counsel,
Vice President and Lincoln National Life Insurance Co. (formerly
Associate General Counsel Second Vice President and Director of Claims),
One Reinsurance Place Lincoln National Life Insurance Co.; Associate
1700 Magnavox Way General Counsel, Lincoln National Corp. and
Fort Wayne, Ind. 46804 Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Appendix C
APPENDIX C CONTINUED
Executive officers and directors
Lincoln National Life Insurance Co.
<TABLE>
<CAPTION>
Name, address and position(s)
with registrant Principal occupations last five years
- -------------------------------------------------------------------------------
<C> <S>
STEPHEN E. RAHN Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
IAN M. ROLLAND Chairman and Chief Executive Officer, Lincoln
Director National Corp. (formerly Chairman and Chief
200 East Berry Street Executive Officer, President), Lincoln National
Fort Wayne, Ind. 46802 Life Insurance Co.
- -------------------------------------------------------------------------------
ARTHUR S. ROSS Vice President, Lincoln National Life Insurance
Vice President Co. and Lincoln Financial Group Inc. Formerly:
Director of PR, Guthrie Group; President and
COO, Quorum Comm.
- -------------------------------------------------------------------------------
LAWRENCE T. ROWLAND Executive Vice President (formerly Senior Vice
Executive Vice President President and Vice President), Lincoln National
and Director Life Insurance Co.
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -------------------------------------------------------------------------------
KEITH J. RYAN Vice President, Chief Financial Officer and
Vice President, Chief Assistant Treasurer (formerly Controller,
Financial Officer and Business Controls Director), Lincoln National
Assistant Treasurer Life Insurance Co.
- -------------------------------------------------------------------------------
CASEY J. TRUMBLE Vice President, Lincoln National Corp. Formerly:
Vice President tax partner, KPMG Peat Marwick.
200 East Berry Street
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
WILLIAM K. TYLER Senior Vice President, Lincoln National Life
Senior Vice President Insurance Co.
and Assistant Treasurer
One Reinsurance Place
1700 Magnavox Way
Fort Wayne, Ind. 46804
- -------------------------------------------------------------------------------
RICHARD C. VAUGHAN Executive Vice President, (formerly Senior Vice
Director President) and Chief Financial Officer, Lincoln
200 East Berry Street National Corp.
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
MICHAEL R. WALKER Vice President, Lincoln National Life Insurance
Vice President Co. Formerly: Vice President, Employers Health
Insurance Co; Vice President/HR, Baker Hughes,
Inc.
- -------------------------------------------------------------------------------
ROY V. WASHINGTON Vice President, (formerly, Associate Counsel)
Vice President Lincoln National Life Insurance Co. Formerly:
Director of Compliance, Lincoln National
Investment, Inc.; Compliance Consultant, Lincoln
National Corp.
- -------------------------------------------------------------------------------
JANET C. WHITNEY Vice President and Treasurer, Lincoln National
Vice President and Life Insurance Co. (formerly Vice President and
Treasurer General Auditor), Lincoln National Corp. and
200 East Berry Street Lincoln National Life Insurance Co.
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
C. SUZANNE WOMACK Secretary and Assistant Vice President, Lincoln
Secretary and National Corp. and Lincoln National Life
Assistant Vice President Insurance Co.
200 East Berry Street
Fort Wayne, Ind. 46802
- -------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Appendix C
APPENDIX C CONTINUED
Executive officers and directors
Lincoln National Life Insurance Co.
<TABLE>
<CAPTION>
Name, address and position(s)
with registrant Principal occupations last five years
- -------------------------------------------------------------------------------
<C> <S>
O. DOUGLAS WORTHINGTON Vice President, Controller and Assistant
Vice President, Controller Treasurer, Lincoln National Life Insurance Co.
and Assistant Treasurer (formerly Vice President), Lincoln Investment
Management Inc.
- -------------------------------------------------------------------------------
MICHAEL L. WRIGHT Senior Vice President, Lincoln National Life
Senior Vice President Insurance Co. Formerly: Executive Vice President
& COO; The Associated Group.
- -------------------------------------------------------------------------------
KATHERINE K. WYSS Vice President (formerly Second Vice President),
Vice President Lincoln National Life Insurance Co.
- -------------------------------------------------------------------------------
</TABLE>
* The principal business address of each person listed, unless otherwise indi-
cated, is 1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Ind. 46801.
30
<PAGE>
Appendix D
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 a different classification was used or if the returns averaged 0%, 6%,
and 12% but fluctuated over and under those averages throughout the years.
The death benefits and net cash surrender values shown on pages using current
charges are approximately those likely to be provided under the policy for the
investment returns indicated, assuming that the current Cost of Insurance
Charges are deducted and that the current Mortality and Expense Risk Charge is
deducted. Although the contract allows for maximum Cost of Insurance Charges
specified in the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker
tables and for a Maximum Mortality and Expense Risk Charge of .90%, Lincoln
Life expects that it will continue to charge the current Cost of Insurance
Charges and the illustrated 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 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 Cost
of Insurance Charges and lower current Mortality and Expense Risk Charge.
In each of the illustrations an assumed gross investment result is indicated.
The gross investment results used in the illustrations are then reduced by the
asset management charge (current average .49%), the mortality and expense risk
charge (.80% current and .90% guaranteed), and other expenses incurred by the
funds including printing, mailing, Directors' fees, etc. (current average .03%)
so that the actual numbers in the illustrations are net of expenses.
31
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 35
Standard nonsmoker
$100,000 specified amount
$1,325 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross annual gross annual gross annual
accumulated investment return of investment return of investment return of
End of at 5%
policy interest -----------------------------------------------------------------------------------
year per year 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,391 $100,000 $100,000 $100,000 $ 994 $ 1,060 $ 1,127 $ 603 $ 669 $ 736
2 2,852 100,000 100,000 100,000 1,965 2,159 2,362 1,183 1,377 1,580
3 4,386 100,000 100,000 100,000 2,925 3,311 3,729 2,143 2,529 2,947
4 5,996 100,000 100,000 100,000 3,851 4,494 5,219 3,069 3,712 4,437
5 7,688 100,000 100,000 100,000 4,756 5,724 6,858 3,974 4,942 6,076
- -------------------------------------------------------------------------------------------------------
6 9,463 100,000 100,000 100,000 5,640 7,001 8,662 4,897 6,258 7,919
7 11,328 100,000 100,000 100,000 6,491 8,317 10,637 5,788 7,613 9,933
8 13,285 100,000 100,000 100,000 7,323 9,687 12,815 6,659 9,022 12,150
9 15,341 100,000 100,000 100,000 8,125 11,101 15,206 7,499 10,476 14,581
10 17,499 100,000 100,000 100,000 8,896 12,564 17,837 8,349 12,017 17,289
- -------------------------------------------------------------------------------------------------------
15 30,021 100,000 100,000 100,000 12,266 20,649 35,579 12,110 20,493 35,422
20 46,003 100,000 100,000 101,827 14,754 30,253 64,858 14,754 30,253 64,858
25 66,400 100,000 100,000 151,550 16,028 41,657 113,097 16,028 41,657 113,097
30 92,433 100,000 100,000 233,689 15,526 55,339 191,548 15,526 55,339 191,548
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual investment returns aver-
aged 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 .49% asset management charge, a .80% current
mortality and expense risk charge and other expenses estimated at .03%. Values
illustrated are also net of any other applicable contract charges.
32
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35
Standard nonsmoker
$100,000 specified amount
$1,325 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross annual gross annual gross annual
accumulated investment return of investment return of investment return of
End of at 5%
policy interest -----------------------------------------------------------------------------------
year per year 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,391 $100,000 $100,000 $100,000 $ 988 $ 1,054 $ 1,120 $ 597 $ 663 $ 729
2 2,852 100,000 100,000 100,000 1,955 2,149 2,350 1,173 1,367 1,568
3 4,386 100,000 100,000 100,000 2,899 3,283 3,698 2,117 2,501 2,916
4 5,996 100,000 100,000 100,000 3,818 4,458 5,177 3,036 3,676 4,395
5 7,688 100,000 100,000 100,000 4,714 5,674 6,799 3,932 4,892 6,017
- -------------------------------------------------------------------------------------------------------
6 9,463 100,000 100,000 100,000 5,583 6,933 8,578 4,840 6,190 7,835
7 11,328 100,000 100,000 100,000 6,425 8,234 10,530 5,721 7,531 9,826
8 13,285 100,000 100,000 100,000 7,240 9,580 12,673 6,575 8,916 12,008
9 15,341 100,000 100,000 100,000 8,026 10,972 15,027 7,401 10,346 14,401
10 17,499 100,000 100,000 100,000 8,783 12,410 17,614 8,236 11,862 17,067
- -------------------------------------------------------------------------------------------------------
15 30,021 100,000 100,000 100,000 12,072 20,327 35,003 11,915 20,171 34,847
20 46,003 100,000 100,000 100,000 14,295 29,507 63,427 14,295 29,507 63,427
25 66,400 100,000 100,000 147,258 14,846 39,923 109,894 14,846 39,923 109,894
30 92,433 100,000 100,000 225,188 12,671 51,631 184,580 12,671 51,631 184,580
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefit and cash value for a contract would be dif-
ferent from those shown if the actual gross annual investment returns averaged
0.00%, and 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 National 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 .49% asset management charge, a .90%
guaranteed maximum mortality and expense risk charge and other expenses esti-
mated at .03%. Values illustrated are also net of any other applicable contract
charges.
33
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35
Standard smoker
$100,000 specified amount
$1,705 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
gross annual gross annual gross annual
Premiums investment return of investment return of investment return of
accumulated
End of at 5% -----------------------------------------------------------------------------------
policy interest 0% gross
year per year 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,790 $100,000 $100,000 $100,000 $ 1,277 $ 1,362 $ 1,448 $ 808 $ 893 $ 979
2 3,670 100,000 100,000 100,000 2,517 2,767 3,027 1,579 1,829 2,089
3 5,644 100,000 100,000 100,000 3,722 4,217 4,753 2,784 3,279 3,815
4 7,716 100,000 100,000 100,000 4,902 5,726 6,655 3,964 4,788 5,717
5 9,892 100,000 100,000 100,000 6,037 7,276 8,728 5,099 6,338 7,790
- -------------------------------------------------------------------------------------------------------
6 12,177 100,000 100,000 100,000 7,140 8,880 11,005 6,249 7,989 10,114
7 14,576 100,000 100,000 100,000 8,199 10,531 13,498 7,354 9,687 12,654
8 17,095 100,000 100,000 100,000 9,216 12,233 16,232 8,418 11,435 15,435
9 19,740 100,000 100,000 100,000 10,192 13,989 19,236 9,441 13,239 18,486
10 22,518 100,000 100,000 100,000 11,128 15,804 22,542 10,471 15,147 21,886
- -------------------------------------------------------------------------------------------------------
15 38,631 100,000 100,000 100,000 15,124 25,795 44,916 14,936 25,608 44,729
20 59,196 100,000 100,000 128,581 17,900 37,697 81,899 17,900 37,697 81,899
25 85,443 100,000 100,000 189,968 18,951 52,003 141,767 18,951 52,003 141,767
30 118,942 100,000 100,000 290,940 17,502 69,785 238,475 17,502 69,785 238,475
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual investment returns aver-
aged 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 .49% asset management charge, a .80% current
mortality and expense risk charge and other expenses estimated at .03%. Values
illustrated are also net of any other applicable contract charges.
34
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 35
Standard smoker
$100,000 specified amount
$1,705 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
gross annual gross annual gross annual
Premiums investment return of investment return of investment return of
accumulated
End of at 5% -----------------------------------------------------------------------------------
policy interest 0% gross
year per year 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,790 $100,000 $100,000 $100,000 $ 1,244 $ 1,329 $ 1,413 $ 775 $ 860 $ 944
2 3,670 100,000 100,000 100,000 2,455 2,701 2,957 1,517 1,763 2,019
3 5,644 100,000 100,000 100,000 3,629 4,115 4,641 2,691 3,177 3,703
4 7,716 100,000 100,000 100,000 4,763 5,570 6,480 3,825 4,632 5,542
5 9,892 100,000 100,000 100,000 5,855 7,066 8,486 4,917 6,128 7,548
- -------------------------------------------------------------------------------------------------------
6 12,177 100,000 100,000 100,000 6,902 8,601 10,674 6,011 7,710 9,783
7 14,576 100,000 100,000 100,000 7,903 10,175 13,064 7,058 9,331 12,220
8 17,095 100,000 100,000 100,000 8,854 11,788 15,675 8,056 10,991 14,878
9 19,740 100,000 100,000 100,000 9,753 13,439 18,532 9,003 12,689 17,781
10 22,518 100,000 100,000 100,000 10,598 15,128 21,658 9,941 14,472 21,002
- -------------------------------------------------------------------------------------------------------
15 38,631 100,000 100,000 100,000 13,949 24,188 42,599 13,761 24,000 42,411
20 59,196 100,000 100,000 120,653 15,415 34,239 76,849 15,415 34,239 76,849
25 85,443 100,000 100,000 176,239 13,993 45,212 131,522 13,993 45,212 131,522
30 118,942 100,000 100,000 266,276 7,998 57,417 218,259 7,998 57,417 218,259
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual investment returns aver-
aged 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 .49% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge and other expenses estimated at .03%.
Values illustrated are also net of any other applicable contract charges.
35
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 55
Standard nonsmoker
$100,000 specified amount
$3,348 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross annual gross annual gross annual
accumulated investment return of investment return of investment return of
End of at 5%
policy interest -----------------------------------------------------------------------------------
year per year 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,515 $100,000 $100,000 $100,000 $ 2,343 $ 2,506 $ 2,669 $ 1,020 $ 1,183 $ 1,346
2 7,207 100,000 100,000 100,000 4,616 5,088 5,580 1,970 2,442 2,934
3 11,082 100,000 100,000 100,000 6,822 7,754 8,765 4,176 5,108 6,119
4 15,152 100,000 100,000 100,000 8,952 10,500 12,249 6,306 7,854 9,603
5 19,425 100,000 100,000 100,000 11,010 13,335 16,070 8,364 10,689 13,424
- -------------------------------------------------------------------------------------------------------
6 23,911 100,000 100,000 100,000 12,989 16,259 20,264 10,476 13,745 17,750
7 28,622 100,000 100,000 100,000 14,893 19,280 24,882 12,512 16,899 22,501
8 33,569 100,000 100,000 100,000 16,705 22,391 29,964 14,456 20,142 27,715
9 38,763 100,000 100,000 100,000 18,420 25,596 35,570 16,303 23,479 33,453
10 44,216 100,000 100,000 100,000 20,041 28,907 41,775 18,189 27,054 39,923
- -------------------------------------------------------------------------------------------------------
15 75,857 100,000 100,000 100,000 26,598 47,402 85,313 26,069 46,872 84,784
20 116,240 100,000 100,000 170,635 29,964 70,695 159,472 29,964 70,695 159,472
25 167,780 100,000 108,030 295,213 27,675 102,886 281,155 27,675 102,886 281,155
30 233,559 100,000 151,477 500,906 14,829 144,264 477,053 14,829 144,264 477,053
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown, the death benefit and cash value for a contract would be dif-
ferent from those shown if the actual gross annual investment returns averaged
0.00%, and 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 .49% asset management charge, a .80% current
mortality and expense risk charge and other expenses estimated at .03%. Values
illustrated are also net of any other applicable contract charges.
36
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 55
Standard nonsmoker
$100,000 specified amount
$3,348 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
gross annual gross annual gross annual
Premiums investment return of investment return of investment return of
accumulated
End of at 5% -----------------------------------------------------------------------------------
policy interest 0% gross 0% gross 0% gross
year per year 6% gross 12% gross 6% gross 12% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,515 $100,000 $100,000 $100,000 $ 2,242 $ 2,402 $ 2,561 $ 919 $ 1,079 $ 1,238
2 7,207 100,000 100,000 100,000 4,392 4,851 5,329 1,746 2,205 2,683
3 11,082 100,000 100,000 100,000 6,448 7,349 8,326 3,802 4,703 5,680
4 15,152 100,000 100,000 100,000 8,406 9,895 11,577 5,760 7,249 8,931
5 19,425 100,000 100,000 100,000 10,259 12,485 15,105 7,613 9,839 12,459
- -------------------------------------------------------------------------------------------------------
6 23,911 100,000 100,000 100,000 12,000 15,118 18,941 9,486 12,604 16,427
7 28,622 100,000 100,000 100,000 13,622 17,789 23,120 11,241 15,408 20,738
8 33,569 100,000 100,000 100,000 15,112 20,492 27,679 12,863 18,243 25,430
9 38,763 100,000 100,000 100,000 16,456 23,222 32,666 14,339 21,105 30,549
10 44,216 100,000 100,000 100,000 17,643 25,974 38,138 15,790 24,122 36,286
- -------------------------------------------------------------------------------------------------------
15 75,857 100,000 100,000 100,000 20,790 40,106 76,022 20,260 39,577 75,493
20 116,240 100,000 100,000 152,221 16,739 54,847 142,263 16,739 54,847 142,263
25 167,780 0 100,000 262,633 0 71,223 250,127 0 71,223 250,127
30 233,559 0 100,000 440,786 0 96,190 419,796 0 96,190 419,796
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual investment returns aver-
aged 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 .49% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge and other expenses estimated at .03%.
Values illustrated are also net of any other applicable contract charges.
37
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 55
Standard smoker
$100,000 specified amount
$4,358 annual premium using current charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross annual gross annual gross annual
accumulated investment return of investment return of investment return of
End of at 5%
policy interest -----------------------------------------------------------------------------------
year per year 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,576 $100,000 $100,000 $100,000 $ 2,897 $ 3,104 $ 3,311 $ 822 $ 1,029 $ 1,236
2 9,381 100,000 100,000 100,000 5,699 6,296 6,919 1,549 2,146 2,769
3 14,426 100,000 100,000 100,000 8,401 9,576 10,853 4,251 5,426 6,703
4 19,723 100,000 100,000 100,000 11,018 12,968 15,174 6,868 8,818 11,024
5 25,285 100,000 100,000 100,000 13,547 16,476 19,927 9,397 12,326 15,777
- -------------------------------------------------------------------------------------------------------
6 31,125 100,000 100,000 100,000 15,982 20,103 25,165 12,039 16,160 21,222
7 37,257 100,000 100,000 100,000 18,319 23,858 30,953 14,584 20,123 27,218
8 43,696 100,000 100,000 100,000 20,554 27,750 37,369 17,026 24,222 33,842
9 50,456 100,000 100,000 100,000 22,675 31,783 44,497 19,355 28,463 41,177
10 57,555 100,000 100,000 100,000 24,679 35,972 52,448 21,774 33,067 49,543
- -------------------------------------------------------------------------------------------------------
15 98,741 100,000 100,000 126,854 33,050 60,240 109,357 32,220 59,410 108,527
20 151,306 100,000 100,344 218,117 38,413 93,779 203,848 38,413 93,779 203,848
25 218,394 100,000 145,768 377,011 39,120 138,827 359,058 39,120 138,827 359,058
30 304,018 100,000 203,250 639,097 32,659 193,571 608,664 32,659 193,571 608,664
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual investment returns aver-
aged 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 .49% asset management charge, a .80% current
mortality and expense risk charge and other expenses estimated at .03%. Values
illustrated are also net of any other applicable contract charges.
38
<PAGE>
Appendix D
VUL III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male issue age 55
Standard smoker
$100,000 specified amount
$4,358 annual premium using guaranteed charges
<TABLE>
<CAPTION>
Death benefit Policy value Net cash surrender value
-----------------------------------------------------------------------------------
assuming hypothetical assuming hypothetical assuming hypothetical
Premiums gross annual gross annual gross annual
accumulated investment return of investment return of investment return of
End of at 5%
policy interest -----------------------------------------------------------------------------------
year per year 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross 0% gross 6% gross 12% gross
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,576 $100,000 $100,000 $100,000 $ 2,451 $ 2,645 $ 2,838 $ 376 $ 570 $ 763
2 9,381 100,000 100,000 100,000 4,769 5,311 5,877 619 1,161 1,727
3 14,426 100,000 100,000 100,000 6,952 8,000 9,142 2,802 3,850 4,992
4 19,723 100,000 100,000 100,000 8,997 10,716 12,665 4,847 6,566 8,515
5 25,285 100,000 100,000 100,000 10,902 13,456 16,480 6,752 9,306 12,330
- -------------------------------------------------------------------------------------------------------
6 31,125 100,000 100,000 100,000 12,654 16,219 20,623 8,712 12,276 16,680
7 37,257 100,000 100,000 100,000 14,237 18,993 25,133 10,502 15,258 21,398
8 43,696 100,000 100,000 100,000 15,634 21,771 30,060 12,106 18,243 26,533
9 50,456 100,000 100,000 100,000 16,823 24,544 35,467 13,503 21,224 32,147
10 57,555 100,000 100,000 100,000 17,787 27,308 41,435 14,882 24,403 38,530
- -------------------------------------------------------------------------------------------------------
15 98,741 100,000 100,000 100,000 18,726 41,245 84,626 17,896 40,415 83,796
20 151,306 100,000 100,000 172,212 9,575 55,959 160,946 9,575 55,959 160,946
25 218,394 0 100,000 299,130 0 73,870 284,886 0 73,870 284,886
30 304,018 0 111,158 502,511 0 105,865 478,582 0 105,865 478,582
</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 fu-
ture investment rates of return. Actual rates of return may be more or less
than those shown. The death benefit and cash value for a contract would be dif-
ferent from those shown if the actual gross annual investment returns averaged
0.00%, 6.00% and 12.00% over a period of years, but also fluctuated above or
below those averages for individual contract years. No representations can be
made by Lincoln Life or any of the funds that these hypothetical rates of re-
turn can be achieved for any one year or sustained over any period of time.
Values illustrated are net of a .49% asset management charge, a .90% guaranteed
maximum mortality and expense risk charge and other expenses estimated at .03%.
Values illustrated are also net of any other applicable contract charges.
39
<PAGE>
Appendix E
APPENDIX E
Definitions for Separate Account G
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 im-
posed under the policy and deducted upon lapse or surrender of the policy. 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 lapse or surrender of the policy. The contingent de-
ferred sales charge is part of the total surrender charge.
Death benefit guarantee -- The guarantee that, provided the death benefit guar-
antee monthly premium requirements are met, the policy will not lapse during
the first two 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 two policy years. Fail-
ure to pay this premium when required will result in the policy lapsing at the
end of the Grace Period.
Free look period -- The period of time in which the owner may cancel the policy
and receive a refund. The owner may cancel the policy within 10 days of re-
ceipt, or 45 days after Part 1 of the application is signed, or within 10 days
after mailing or personal delivery of the Notice of Withdrawal Right.
Fund -- Any of the funds in which the Separate Account may invest; currently
available are the American Variable Insurance Series, the Lincoln National Spe-
cial
Opportunities Fund, Inc. and the Lincoln National Growth and Income Fund, Inc.
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 as-
set management charges and any miscellaneous fund expenses, and minus the mor-
tality 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 subse-
quently 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 Lin-
coln Life and described in this prospectus.
Policy date -- The date set forth in the policy that is used to determine pol-
icy years and policy months. Policy anniversaries are measured from the policy
date. The policy date is ordinarily the earlier of the date the full initial
premium is received from the owner or the date on which the policy is approved
for issue.
Policy value -- The sum of all values in the Separate Account and in the Gen-
eral Account at any time, irrespective of outstanding loans or surrender
charge.
40
<PAGE>
Appendix E
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 differ-
ent on each of these events.
Record date -- The date the policy is recorded on the books of Lincoln Life as
an in-force policy. Ordinarily, the policy will be recorded as in-force within
three business days after the later of the date we receive the last outstanding
requirement or the date of underwriting approval. The record date controls the
timing of the transfer of initial assets from the General Account to the vari-
ous subaccounts.
Separate Account -- The Lincoln National Flexible Premium Variable Life Account
G, a Separate Account established by Lincoln Life to receive and invest net
premiums paid under the policy.
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 un-
earned 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 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.
Unit -- An accounting unit of measure used to calculate the value of an invest-
ment in a specified subaccount.
Unit Value -- The dollar value of a unit in a specified subaccount on a speci-
fied valuation date.
41
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Lincoln Lincoln
National National
Percent Growth and Special
of Net Income Opportunities
Assets Combined Account Account
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
. Lincoln National Growth and
Income Fund, Inc.
592,373 shares at $33.11 per
share
(cost-$15,395,761) 9.4% $ 19,613,186 $19,613,186
-------------------------------
. Lincoln National Special
Opportunities Fund, Inc.
646,409 shares at $29.42 per
share
(cost-$15,937,526) 9.1 19,018,644 $19,018,644
-------------------------------
American Variable Insurance
Series:
. Bond Fund
17,226 shares at $10.17 per
share
(cost-$174,928) 0.1 175,184
-------------------------------
. Cash Management Fund
218,939 shares at $11.03 per
share
(cost-$2,425,536) 1.2 2,414,898
-------------------------------
. High-Yield Bond Fund
735,687 shares at $14.39 per
share
(cost-$10,269,832) 5.1 10,586,530
-------------------------------
. Growth-Income Fund
1,311,315 shares at $32.66
per share
(cost-$36,289,729) 20.6 42,827,548
-------------------------------
. Growth Fund
1,751,250 shares at $39.63
per share
(cost-$59,522,015) 33.3 69,402,050
-------------------------------
. U.S. Government/AAA-Rated
Securities Fund
420,007 shares at $10.96 per
share
(cost-$4,739,672) 2.2 4,603,277
-------------------------------
. International Fund
1,984,647 shares at $15.09
per share
(cost-$26,479,868) 14.4 29,948,325
-------------------------------
. Asset Allocation Fund
652,964 shares at $13.93 per
share
(cost-$8,194,868) 4.4 9,095,792
- -------------------------------- ----- ------------ ----------- -----------
TOTAL INVESTMENTS (Cost-
$179,429,735) 99.8 207,685,434 19,613,186 19,018,644
- --------------------------------
Dividends Receivable 0.3 670,274 350,382 319,892
- -------------------------------- ----- ------------ ----------- -----------
TOTAL ASSETS 100.1 208,355,708 19,963,568 19,338,536
- --------------------------------
LIABILITY--
Payable to Lincoln National Life
Insurance Company 0.1 140,759 13,482 12,987
- -------------------------------- ----- ------------ ----------- -----------
NET ASSETS 100.0% $208,214,949 $19,950,086 $19,325,549
- -------------------------------- ===== ============ =========== ===========
UNITS OUTSTANDING 6,981,498 6,116,916
- -------------------------------- =========== ===========
NET ASSET VALUE PER UNIT $ 2.858 $ 3.159
- -------------------------------- =========== ===========
</TABLE>
See accompanying notes.
42
<PAGE>
Account G
<TABLE>
<CAPTION>
U.S.
Government/
Cash High-Yield Growth- AAA-Rated Asset
Bond Management Bond Income Growth Securities International Allocation
Account Account Account Account Account Account Account Account
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <S>
$175,184
$2,414,898
$10,586,530
$42,827,548
$69,402,050
$4,603,277
$29,948,325
$9,095,792
-------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
175,184 2,414,898 10,586,530 42,827,548 69,402,050 4,603,277 29,948,325 9,095,792
-- -- -- -- -- -- -- --
-------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
175,184 2,414,898 10,586,530 42,827,548 69,402,050 4,603,277 29,948,325 9,095,792
115 1,623 7,121 28,884 47,529 3,200 19,668 6,150
-------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
$175,069 $2,413,275 $10,579,409 $42,798,664 $69,354,521 $4,600,077 $29,928,657 $9,089,642
======== ========== =========== =========== =========== ========== =========== ==========
162,453 1,687,626 4,604,228 15,547,718 23,131,987 2,574,212 16,391,707 4,800,933
======== ========== =========== =========== =========== ========== =========== ==========
$ 1.078 $ 1.430 $ 2.298 $ 2.753 $ 2.998 $ 1.787 $ 1.826 $ 1.893
======== ========== =========== =========== =========== ========== =========== ==========
</TABLE>
43
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Lincoln Lincoln
National National
Growth and Special
Income Opportunities
Combined Account Account
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net investment income:
. Dividends from investment income $ 2,123,919 $ 182,903 $ 153,345
---------------------------------------
. Dividends from net realized gain on
investments 2,496,895 238,348 302,294
---------------------------------------
. Mortality and expense risk charge (504,690) (42,433) (40,510)
- ---------------------------------------- ----------- ---------- ----------
NET INVESTMENT INCOME 4,116,124 378,818 415,129
- ----------------------------------------
Net realized and unrealized gain (loss)
on investments:
. Net realized gain (loss) on
investments 105,030 21,490 (7,969)
---------------------------------------
. Net change in unrealized appreciation
or depreciation on investments (4,549,791) (357,078) (499,377)
- ---------------------------------------- ----------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS (4,444,761) (335,588) (507,346)
- ---------------------------------------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (328,637) $ 43,230 $ (92,217)
- ---------------------------------------- =========== ========== ==========
YEAR ENDED DECEMBER 31, 1995
Net investment income:
. Dividends from investment income $ 3,416,387 $ 263,792 $ 259,481
---------------------------------------
. Dividends from net realized gain on
investments 6,961,490 441,950 366,209
---------------------------------------
. Mortality and expense risk charge (999,845) (81,402) (87,554)
- ---------------------------------------- ----------- ---------- ----------
NET INVESTMENT INCOME 9,378,032 624,340 538,136
- ----------------------------------------
Net realized and unrealized gain (loss)
on investments:
. Net realized gain (loss) on
investments 465,563 96,088 39,621
---------------------------------------
. Net change in unrealized appreciation
or depreciation on investments 18,836,942 2,388,516 2,168,369
- ---------------------------------------- ----------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS 19,302,505 2,484,604 2,207,990
- ---------------------------------------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $28,680,537 $3,108,944 $2,746,126
- ---------------------------------------- =========== ========== ==========
YEAR ENDED DECEMBER 31, 1996
Net investment income:
. Dividends from investment income $ 3,986,811 $ 350,382 $ 319,892
---------------------------------------
. Dividends from net realized gain on
investments 11,496,725 762,829 992,611
---------------------------------------
. Mortality and expense risk charge (1,427,887) (126,693) (129,298)
- ---------------------------------------- ----------- ---------- ----------
NET INVESTMENT INCOME 14,055,649 986,518 1,183,205
- ----------------------------------------
Net realized and unrealized gain (loss)
on investments:
. Net realized gain (loss) on
investments 1,351,611 108,147 125,457
---------------------------------------
. Net change in unrealized appreciation
or depreciation on investments 9,399,986 1,683,401 1,141,306
- ---------------------------------------- ----------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS 10,751,597 1,791,548 1,266,763
- ---------------------------------------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $24,807,246 $2,778,066 $2,449,968
- ---------------------------------------- =========== ========== ==========
</TABLE>
See accompanying notes.
44
<PAGE>
Account G
<TABLE>
<CAPTION>
U.S.
Government
Cash High-Yield AAA-Rated Asset
Bond Management Bond Growth-Income Growth Securities International Allocation
Account Account Account Account Account Account Account Account
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- $ 95,168 $ 500,849 $ 384,881 $ 203,462 $ 225,814 $ 215,235 $ 162,262
-- -- -- 682,929 778,654 -- 431,859 62,811
-- (17,501) (33,848) (90,514) (166,217) (20,648) (70,424) (22,595)
------ -------- ---------- ---------- ----------- --------- ---------- ----------
-- 77,667 467,001 977,296 815,899 205,166 576,670 202,478
-- 3,427 (38,146) 16,712 88,549 (54,569) 72,243 3,293
-- 6,109 (820,737) (803,225) (881,926) (288,387) (679,321) (225,849)
------ -------- ---------- ---------- ----------- --------- ---------- ----------
-- 9,536 (858,883) (786,513) (793,377) (342,956) (607,078) (222,556)
------ -------- ---------- ---------- ----------- --------- ---------- ----------
-- $ 87,203 $ (391,882) $ 190,783 $ 22,522 $(137,790) $ (30,408) $ (20,078)
====== ======== ========== ========== =========== ========= ========== ==========
-- $161,750 $ 742,252 $ 627,712 $ 380,441 $ 318,526 $ 442,407 $ 220,026
-- -- -- 1,190,400 4,324,940 -- 410,806 227,185
-- (23,660) (59,172) (188,811) (346,717) (34,488) (134,546) (43,495)
------ -------- ---------- ---------- ----------- --------- ---------- ----------
-- 138,090 683,080 1,629,301 4,358,664 284,038 718,667 403,716
-- 12,432 (13,634) 18,101 281,629 (15,426) 6,616 40,136
-- (14,338) 682,155 4,686,122 6,556,216 314,461 1,156,906 898,535
------ -------- ---------- ---------- ----------- --------- ---------- ----------
-- (1,906) 668,521 4,704,223 6,837,845 299,035 1,163,522 938,671
------ -------- ---------- ---------- ----------- --------- ---------- ----------
-- $136,184 $1,351,601 $6,333,524 $11,196,509 $ 583,073 $1,882,189 $1,342,387
====== ======== ========== ========== =========== ========= ========== ==========
$2,639 $126,289 $ 875,112 $ 812,649 $ 370,838 $ 347,263 $ 485,790 $ 295,957
-- -- -- 3,079,086 4,902,531 -- 1,173,494 586,174
(201) (22,622) (77,097) (288,921) (485,077) (37,510) (198,903) (61,565)
------ -------- ---------- ---------- ----------- --------- ---------- ----------
2,438 103,667 798,015 3,602,814 4,788,292 309,753 1,460,381 820,566
57 11,983 17,725 332,471 618,889 (14,584) 79,109 72,357
256 2,026 318,611 2,054,284 1,901,460 (196,401) 2,298,121 196,922
------ -------- ---------- ---------- ----------- --------- ---------- ----------
313 14,009 336,336 2,386,755 2,520,349 (210,985) 2,377,230 269,279
------ -------- ---------- ---------- ----------- --------- ---------- ----------
$2,751 $117,676 $1,134,351 $5,989,569 $ 7,308,641 $ 98,768 $3,837,611 $1,089,845
====== ======== ========== ========== =========== ========= ========== ==========
</TABLE>
45
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Lincoln Lincoln
National National
Growth and Special
Income Opportunities Bond
Combined Account Account Account
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS AT JANUARY 1,
1994 $ 58,676,153 $ 5,545,111 $ 4,556,178 --
Changes from operations:
. Net investment income 4,116,124 378,818 415,129 --
- -------------------------------------
. Net realized gain
(loss) on investments 105,030 21,490 (7,969) --
- -------------------------------------
. Net change in
unrealized
appreciation or
depreciation on
investments (4,549,791) (357,078) (499,377) --
------------- ------------ ------------ ---------
- -------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS (328,637) 43,230 (92,217) --
- -------------------------------------
Net increase from unit
transactions 36,498,987 1,897,318 3,345,217 --
------------- ------------ ------------ ---------
- -------------------------------------
TOTAL INCREASE IN NET
ASSETS 36,170,350 1,940,548 3,253,000 --
------------- ------------ ------------ ---------
- -------------------------------------
NET ASSETS AT DECEMBER
31, 1994 94,846,503 7,485,659 7,809,178 --
- -------------------------------------
Changes from operations:
- -------------------------------------
. Net investment income 9,378,032 624,340 538,136 --
- -------------------------------------
. Net realized gain
(loss) on investments 465,563 96,088 39,621 --
- -------------------------------------
. Net change in
unrealized
appreciation or
depreciation on
investments 18,836,942 2,388,516 2,168,369 --
------------- ------------ ------------ ---------
- -------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS 28,680,537 3,108,944 2,746,126 --
- -------------------------------------
Net increase (decrease)
from unit transactions 28,358,892 1,977,166 2,810,990 --
------------- ------------ ------------ ---------
- -------------------------------------
TOTAL INCREASE
(DECREASE) IN NET ASSETS 57,039,429 5,086,110 5,557,116 --
------------- ------------ ------------ ---------
- -------------------------------------
NET ASSETS AT DECEMBER
31, 1995 151,885,932 12,571,769 13,366,294 --
------------- ------------ ------------ ---------
- -------------------------------------
Changes from operations:
. Net investment income 14,055,649 986,518 1,183,205 $ 2,438
- -------------------------------------
. Net realized gain
(loss) on investments 1,351,611 108,147 125,457 57
- -------------------------------------
. Net change in
unrealized
appreciation or
depreciation on
investments 9,399,986 1,683,401 1,141,306 256
------------- ------------ ------------ ---------
- -------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS 24,807,246 2,778,066 2,449,968 2,751
- -------------------------------------
Net increase (decrease)
from unit transactions 31,521,771 4,600,251 3,509,287 172,318
------------- ------------ ------------ ---------
- -------------------------------------
Total increase
(decrease) in net
assets 56,329,017 7,378,317 5,959,255 175,069
------------- ------------ ------------ ---------
- -------------------------------------
NET ASSETS AT DECEMBER
31, 1996 $208,214,949 $19,950,086 $19,325,549 $175,069
============= ============ ============ =========
- -------------------------------------
</TABLE>
See accompanying notes.
46
<PAGE>
Account G
<TABLE>
<CAPTION>
U.S.
Government
Cash High-Yield AAA-Rated Asset
Management Bond Growth-Income Growth Securities International Allocation
Account Account Account Account Account Account Account
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2,030,850 $ 4,322,563 $10,845,211 $19,745,630 $2,637,766 $ 6,323,159 $2,669,685
77,667 467,001 977,296 815,899 205,166 576,670 202,478
3,427 (38,146) 16,712 88,549 (54,569) 72,243 3,293
6,109 (820,737) (803,225) (881,926) (288,387) (679,321) (225,849)
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
87,203 (391,882) 190,783 22,522 (137,790) (30,408) (20,078)
1,408,670 1,673,595 5,983,601 11,641,523 1,259,215 7,710,823 1,579,025
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
1,495,873 1,281,713 6,174,384 11,664,045 1,121,425 7,680,415 1,558,947
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
3,526,723 5,604,276 17,019,595 31,409,675 3,759,191 14,003,574 4,228,632
138,090 683,080 1,629,301 4,358,664 284,038 718,667 403,716
12,432 (13,634) 18,101 281,629 (15,426) 6,616 40,136
(14,338) 682,155 4,686,122 6,556,216 314,461 1,156,906 898,535
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
136,184 1,351,601 6,333,524 11,196,509 583,073 1,882,189 1,342,387
(926,639) 1,849,002 6,722,920 10,147,186 660,433 4,032,586 1,085,248
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
(790,455) 3,200,603 13,056,444 21,343,695 1,243,506 5,914,775 2,427,635
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
2,736,268 8,804,879 30,076,039 52,753,370 5,002,697 19,918,349 6,656,267
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
103,667 798,015 3,602,814 4,788,292 309,753 1,460,381 820,566
11,983 17,725 332,471 618,889 (14,584) 79,109 72,357
2,026 318,611 2,054,284 1,901,460 (196,401) 2,298,121 196,922
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
117,676 1,134,351 5,989,569 7,308,641 98,768 3,837,611 1,089,845
(440,669) 640,179 6,733,056 9,292,510 (501,388) 6,172,697 1,343,530
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
(322,993) 1,774,530 12,722,625 16,601,151 (402,620) 10,010,308 2,433,375
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
$2,413,275 $10,579,409 $42,798,664 $69,354,521 $4,600,077 $29,928,657 $9,089,642
========== =========== =========== =========== ========== =========== ==========
</TABLE>
47
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The Separate Account: Lincoln Life Flexible Premium Variable Life Account G
(Separate Account) was established as a segregated investment account of Lin-
coln National Life Insurance Company (the Company) on May 25, 1988. The Sepa-
rate Account was registered on January 4, 1989 under the Investment Company Act
of 1940, as amended, as a unit investment trust, and commenced investment ac-
tivity on January 23, 1989.
Investments: The Separate Account invests in Lincoln National Growth and Income
Fund, Inc., Lincoln National Special Opportunities Fund, Inc., and the American
Variable Insurance Series (AVIS), which consists of eight funds: Bond Fund,
Cash Management Fund, High-Yield Fund, Growth-Income Fund, Growth Fund, U.S.
Government/AAA-Rated Securities Fund, International Fund, and Asset Allocation
Fund (Funds). Investments in the Funds are stated at the closing net asset val-
ues per share on December 31, 1996. The Funds are registered as open-end man-
agement 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 de-
termined by the average-cost method.
Dividends: Dividends paid to the Separate Account are automatically reinvested
in shares of the Funds on the payable date.
Federal Income Taxes: Operations of the Separate Account form a part of and are
taxed with operations of the Company, which is taxed as a "life insurance com-
pany" 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
5.95% of the premium. Amounts retained during 1996, 1995 and 1994 by the Com-
pany for such charges were $1,613,213, $1,915,276 and $1,207,522, respectively.
Separate Account Charges: Amounts are charged daily to the Separate Account by
the Company for a mortality and expense risk charge at an annual rate of .80%
of the average daily net asset value of the Separate Account. These charges are
made in return for the Company's assumption of risks associated with mortality
experience and administrative expenses in connection with policies issued.
Other Charges: Other charges, which are paid to the Company by redeeming Sepa-
rate Account units are for monthly administrative charges, the cost of insur-
ance, transfer and withdrawal charges, and contingent surrender charges. These
other charges for 1996, 1995 and 1994 amounted to $15,234,260, $12,594,208 and
$9,483,647, respectively.
The monthly administrative charge amounts to $6 for each policy in force and is
intended to compensate the Company for continuing administration of the poli-
cies, premium billings, overhead expenses, and other miscellaneous expenses.
The Company assumes the responsibility for providing the insurance benefits in-
cluded 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 insur-
ance 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 authorizes a trans-
fer of funds between accounts; however, the transfer charge is currently being
waived for all transfers. The withdrawal charge amounts to $10 for each with-
drawal from the policy value by the policyowner.
Surrender charges are deducted if the policy is surrendered during the first
sixteen policy years. Surrender charges range from approximately 60% of the re-
quired base minimum annual premium for surrenders in the first year to approxi-
mately 120% in years two through five. 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.
48
<PAGE>
Account G
This page was intentionally left blank.
49
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
NOTES TO FINANCIAL STATEMENTS CONTINUED
3. NET ASSETS
Net Assets at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
Lincoln Lincoln
National National
Growth and Special
Income Opportunities Bond
Combined Account Account Account
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions $146,424,994 $13,194,106 $13,594,175 $172,318
- --------------------------------------------
Accumulated net Investment
Income 30,902,814 2,281,790 2,471,953 2,438
- --------------------------------------------
Accumulated net realized gain
(loss) on investments 2,631,442 256,765 178,303 57
- --------------------------------------------
Net unrealized appreciation
(depreciation) on Investments 28,255,699 4,217,425 3,081,118 256
- ------------------------------ ------------ ----------- ----------- --------
$208,214,949 $19,950,086 $19,325,549 $175,069
============ =========== =========== ========
</TABLE>
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
Units Amount Units Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lincoln National Growth and
Income Account:
Purchases 3,030,491 $ 7,940,162 2,055,226 $ 4,331,249
- ---------------------------
Redemptions (1,271,214) (3,339,911) (1,102,761) (2,354,083)
- --------------------------- ---------- ----------- ---------- -----------
1,759,277 4,600,251 952,465 1,977,166
Lincoln National Special
Opportunities Account:
Purchases 2,750,822 7,958,079 2,396,296 5,864,717
- ---------------------------
Redemptions (1,540,629) (4,448,792) (1,241,173) (3,053,727)
- --------------------------- ---------- ----------- ---------- -----------
1,210,193 3,509,287 1,155,123 2,810,990
Bond Account:
Purchases 166,407 176,558 -- --
- ---------------------------
Redemptions (3,954) (4,240) -- --
- --------------------------- ---------- ----------- ---------- -----------
162,453 172,318 -- --
Cash Management Account:
Purchases 3,949,692 5,524,308 3,356,421 4,498,830
- ---------------------------
Redemptions (4,256,897) (5,964,977) (4,053,880) (5,425,469)
- --------------------------- ---------- ----------- ---------- -----------
(307,205) (440,669) (697,459) (926,639)
High-Yield Bond Account:
Purchases 1,715,492 3,668,219 2,080,267 3,889,306
- ---------------------------
Redemptions (1,415,031) (3,028,040) (1,085,893) (2,040,304)
- --------------------------- ---------- ----------- ---------- -----------
300,461 640,179 994,374 1,849,002
Growth-Income Account:
Purchases 5,809,738 14,658,398 5,265,828 10,851,653
- ---------------------------
Redemptions (3,131,511) (7,925,342) (2,006,028) (4,128,733)
- --------------------------- ---------- ----------- ---------- -----------
2,678,227 6,733,056 3,259,800 6,722,920
</TABLE>
50
<PAGE>
Account G
<TABLE>
<CAPTION>
U.S.
Government/
Cash High-Yield AAA-Rated Asset
Management Bond Growth-Income Growth Securities International Allocation
Account Account Account Account Account Account Account
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,938,560 $ 7,856,085 $28,860,578 $47,171,140 $3,785,475 $23,382,084 $6,470,473
466,370 2,409,790 6,967,614 10,816,579 1,006,096 2,897,261 1,582,923
18,983 (3,164) 432,653 1,486,767 (55,099) 180,855 135,322
(10,638) 316,698 6,537,819 9,880,035 (136,395) 3,468,457 900,924
- ---------- ----------- ----------- ----------- ---------- ----------- ----------
$2,413,275 $10,579,409 $42,798,664 $69,354,521 $4,600,077 $29,928,657 $9,089,642
========== =========== =========== =========== ========== =========== ==========
<CAPTION>
Year Ended
December 31, 1994
Units Amount
<S> <C> <C> <C> <C> <C> <C>
- ------------------------
2,363,849 $ 4,124,354
(1,276,064) (2,227,036)
- ---------- -----------
1,087,785 1,897,318
3,181,262 6,671,048
(1,583,387) (3,325,831)
- ---------- -----------
1,597,875 3,345,217
-- --
-- --
- ---------- -----------
-- --
3,573,898 4,590,748
(2,481,661) (3,182,078)
- ---------- -----------
1,092,237 1,408,670
2,488,490 4,390,664
(1,549,279) (2,717,069)
- ---------- -----------
939,211 1,673,595
6,165,430 10,846,237
(2,766,328) (4,862,636)
- ---------- -----------
3,399,102 5,983,601
</TABLE>
51
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
Units Amount Units Amount
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Account:
Purchases 8,719,238 24,218,575 8,484,519 20,440,139
- -------------------------
Redemptions (5,375,805) (14,926,065) (4,275,912) (10,292,953)
- ------------------------- ---------- ----------- ---------- -----------
3,343,433 9,292,510 4,208,607 10,147,186
U.S. Government/AAA-Rated
Securities Account:
Purchases 893,153 1,547,206 1,461,561 2,394,107
- -------------------------
Redemptions (1,182,502) (2,048,594) (1,061,214) (1,733,674)
- ------------------------- ---------- ----------- ---------- -----------
(289,349) (501,388) 400,347 660,433
International Account:
Purchases 6,868,046 11,569,758 6,377,390 9,357,221
- -------------------------
Redemptions (3,197,051) (5,397,061) (3,654,124) (5,324,635)
- ------------------------- ---------- ----------- ---------- -----------
3,670,995 6,172,697 2,723,266 4,032,586
Asset Allocation Account:
Purchases 1,814,432 3,180,500 1,807,361 2,658,932
- -------------------------
Redemptions (1,051,982) (1,836,970) (1,066,852) (1,573,684)
- ------------------------- ---------- ----------- ---------- -----------
762,450 1,343,530 740,509 1,085,248
----------- -----------
NET INCREASE FROM UNIT
TRANSACTIONS $31,521,771 $28,358,892
=========== ===========
</TABLE>
52
<PAGE>
Account G
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
Units Amount
<S> <C>
- ------------------------
10,533,077 21,114,850
(4,732,662) (9,473,327)
- ----------- -----------
5,800,415 11,641,523
2,168,155 3,331,963
(1,347,672) (2,072,748)
- ----------- -----------
820,483 1,259,215
8,775,984 12,464,394
(3,350,051) (4,753,571)
- ----------- -----------
5,425,933 7,710,823
2,593,878 3,328,921
(1,358,778) (1,749,896)
- ----------- -----------
1,235,100 1,579,025
-----------
$36,498,987
===========
</TABLE>
53
<PAGE>
Account G
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
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 1996.
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
- -----------------------------------------------------------------------
Lincoln National Growth and Income Account $ 6,063,970 $ 558,880
- ----------------------------------------------
Lincoln National Special Opportunities Account 5,823,890 1,187,839
- ----------------------------------------------
Bond Account 179,025 4,154
- ----------------------------------------------
Cash Management Account 4,649,013 4,985,916
- ----------------------------------------------
High-Yield Bond Account 2,605,583 1,166,166
- ----------------------------------------------
Growth-Income Account 12,118,285 1,773,732
- ----------------------------------------------
Growth Account 17,939,366 3,846,451
- ----------------------------------------------
U.S. Government/AAA-Rated Securities Account 1,061,339 1,253,132
- ----------------------------------------------
International Account 8,324,906 685,428
- ----------------------------------------------
Asset Allocation Account 2,711,152 545,347
- ---------------------------------------------- ----------- -----------
$61,476,529 $16,007,045
=========== ===========
</TABLE>
6. NEW INVESTMENT FUND
Effective January 1, 1996, the AVIS Bond Fund became available as an investment
option for Separate Account contract owners.
7. DAILY VALUATION CALCULATIONS
Effective October 1996, the daily unit value calculation process was
transferred from the Company to the Delaware Group, an affiliate of the
Company. Costs associated with the calculation of the unit value are paid by
the Company.
54
<PAGE>
Account G
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS
Board of Directors of The Lincoln National
Life Insurance Company
and
Policyowners of Lincoln Life Flexible
Premium Variable Life Account G
We have audited the accompanying statement
of assets and liability of Lincoln Life
Flexible Premium Variable Life Account G
(Separate Account) as of December 31, 1996,
and the related statements of operations and
changes in net assets for each of the three
years in the period then ended. These finan-
cial statements are the responsibility of
the Separate Account's management. Our re-
sponsibility is to express an opinion on
these financial statements based on our au-
dits.
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 in-
cludes examining, on a test basis, evidence
supporting the amounts and disclosures in
the financial statements. Our procedures in-
cluded confirmation of securities owned as
of December 31, 1996, by correspondence with
the custodian. An audit also includes as-
sessing 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 re-
ferred to above present fairly, in all mate-
rial respects, the financial position of
Lincoln Life Flexible Premium Variable Life
Account G at December 31, 1996, and the re-
sults of its operations and the changes in
its net assets for each of the three years
in the period then ended in conformity with
generally accepted accounting principles.
Fort Wayne, Indiana
March 27, 1997
55
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
AUDITED FINANCIAL STATEMENTS
Prior to 1996, management of The Lincoln National Life Insurance Company
(Company) prepared annual financial statements of the Company using two
different types of accounting principles. Pursuant to insurance regulatory
requirements in several states, management prepared financial statements in
accordance with statutory accounting principles (STAP), which were subject to
audit by the Company's independent auditors. Additionally, solely for purposes
of inclusion in the registration statements of separate account products
requiring registration and periodic reporting to the Securities and Exchange
Commission (SEC), management also prepared financial statements of the Company
in accordance with generally accepted accounting principles (GAAP), which were
also subject to audit. In an attempt to reduce costs associated with the
preparation and audits of both GAAP and STAP-bases financial statements,
commencing with the registrations in 1997, management will prepare and have
audited only STAP-basis financial statements.
The STAP-basis financial statements included in this registration statement
have been prepared in conformity with accounting practices prescribed or
permitted by the Indiana Department of Insurance, which is an "other
comprehensive basis of accounting" as that term is defined by the American
Institute of Certified Public Accountants (see notes 1 and 2 to the enclosed
audited STAP-basis financial statements for information on such prescribed and
permitted practices).
Because 1996 is the initial year for which STAP-basis financial statements are
used for purposes of these separate account product filings with the SEC,
management has included the following financial statements of the Company to
allow for comparability between years:
. Section 1 contains the STAP-basis balance sheets of the Company as of Decem-
ber 31, 1996 and 1995 and the related STAP-basis statements of income,
changes in capital and surplus, and cash flows for the three years in the pe-
riod ended December 31, 1996.
. Section 2 contains the GAAP-basis balance sheets of the Company as of Decem-
ber 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 pe-
riod ended December 31, 1995.
G-1
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1995 1994
----------- -----------
(000's omitted)
-----------------------
ASSETS
<S> <C> <C>
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
- ---------------------------------------------------- =========== ===========
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 Corp.) 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.
G-2
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
---------------------------------
(000's omitted)
---------------------------------
REVENUE
<S> <C> <C> <C>
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.
G-3
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
CONSOLIDATED STATEMENTS OF
SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------------------------------
(000's omitted)
----------------------------------
<S> <C> <C> <C>
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 Corp. 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 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
- -----------------------------------------
========== ========== ==========
</TABLE>
See accompanying notes.
G-4
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
----------- ----------- ----------
(000's omitted)
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
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)
- ----------------------------------------
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 Corp. 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
- ---------------------------------------- ----------- ----------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
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
- ------------------------------- ======== ======== ========
</TABLE>
See accompanying notes.
G-5
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1995
1.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements include Lincoln National
Life Insurance Co. ("Lincoln Life") and its majority owned subsidiaries.
Lincoln Life and its subsidiaries operate multiple insurance businesses.
Operations are divided into two business segments (see Note 9). These con-
solidated financial statements have been prepared in conformity with gener-
ally 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 finan-
cial statements and accompanying notes. Actual results could differ from
those estimates.
Investments
Lincoln Life classifies its fixed maturity securities and equity securities
(common and non-redeemable preferred stocks) as available-for-sale and, ac-
cordingly, such securities are carried at fair value. The cost of fixed ma-
turity 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, Lincoln Life recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the se-
curities. When estimates of prepayments change, the effective yield is re-
calculated to reflect actual payments to date and anticipated future pay-
ments. The net investment in the securities is adjusted to the amount that
would have existed had the new effective yield been applied since the ac-
quisition 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 re-
corded at fair value on the settlement date which establishes a new cost
basis. If 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, includ-
ing participation in a short-term investment pool administered by Lincoln
National Corp. (LNC), the Lincoln Life's parent.
Realized gain (loss) on investments is recognized in net income, net of re-
lated amortization of deferred acquisition costs, using the specific iden-
tification 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 se-
curities would have been sold at their fair value, and after deferred taxes
or credits to the extent deemed recoverable.
Derivatives
Lincoln Life hedges certain portions of its exposure to interest rate fluc-
tuations, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risk by entering into deriva-
tive transactions. A description of Lincoln Life's accounting for its hedge
of such risks is discussed in the following two paragraphs.
The premium paid for interest rate caps 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 in-
terest rate caps is recorded as investment income. Spread-lock agreements,
interest rate swaps and financial futures, which hedge fixed maturity secu-
rities 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 matu-
rity securities denominated in foreign currencies, are carried at fair
value with the
change in fair value reflected in earnings. Realized
G-6
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
gain (loss) from the settlement of such derivatives is also zreflected in
earnings.
Hedge accounting is applied as indicated above after Lincoln Life deter-
mines that the items to be hedged expose Lincoln Life 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 deriva-
tives is included in net income.
Property and equipment
Property and equipment owned for Lincoln Life use is carried at cost less
allowances for depreciation.
Premiums and fees
Revenue for universal life and other interest-sensitive life insurance pol-
icies consists of policy charges for cost of insurance, policy initiation
and administration, and surrender charges that have been assessed. Tradi-
tional individual life-health and annuity premiums are recognized as reve-
nue 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 Lincoln Life for the exclusive benefit of pension and variable
life and annuity contractholders. The fees received by Lincoln Life for ad-
ministrative and contractholder maintenance services performed for these
separate accounts are included in Lincoln Life's consolidated statements of
income.
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 produc-
tion of new business, have been deferred to the extent recoverable. Acqui-
sition costs for universal and variable universal life insurance policies
are being amortized over the lives of the policies in relation to the inci-
dence of estimated gross profits from surrender charges and investment,
mortality and expense margins, and actual realized gain (loss) on invest-
ments. That amortization is adjusted retrospectively when estimates of cur-
rent or future gross profits to be realized from a group of policies are
revised. The traditional life-health and annuity acquisition costs are am-
ortized over the premium-paying period of the related policies using as-
sumptions consistent with those used in computing policy reserves.
Expenses
Expenses for universal and variable universal life insurance policies in-
clude interest credited to policy account balances and benefit claims in-
curred during the period in excess of policy account balances. Interest
crediting rates associated with funds invested in Lincoln Life'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 ac-
quisitions. 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 bal-
ances that accrue to the benefit of the policyholders, excluding surrender
charges. The liabilities for future policy benefits and expenses for tradi-
tional life policies and immediate and deferred paid-up annuities are com-
puted using a net level premium method and assumptions for investment
yields, mortality and withdrawals based principally on Lincoln Life experi-
ence projected at the time of policy issue, with provision for possible ad-
verse deviations. Interest assumptions for traditional direct individual
life reserves for all policies range from 2.3% to 11.7% graded to 5.7% af-
ter 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 annui-
ties range from 4.5% to 8.0%.
With respect to its policy liabilities and accruals, Lincoln Life carries
on a continuing review of its 1) overall reserve position, 2) reserving
techniques
G-7
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
and 3) reinsurance arrangements, and as experience develops and new infor-
mation becomes known, liabilities are adjusted as deemed necessary. The ef-
fects of changes in estimates are included in the operating results for the
period in which such estimates occur.
Reinsurance
Lincoln Life enters into reinsurance agreements with other companies in the
normal course of their business. Lincoln Life 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 Lincoln Life use are computed principally on the
straight-line method over the estimated useful lives of the assets.
Postretirement medical and life insurance benefits
Lincoln Life accounts for its postretirement medical and life insurance
benefits using the full accrual method.
Income taxes
Lincoln Life 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, Lincoln Life and its eligible
subsidiaries provide for income taxes on a separate return filing basis.
The tax sharing agreement also provides that Lincoln Life and eligible sub-
sidiaries 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.
Lincoln Life uses the liability method of accounting for income taxes. De-
ferred 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. Lincoln Life 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, Lincoln Life changed its method of accounting
for postretirement medical and life insurance benefits for its eligible em-
ployees 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 cumu-
lative effect of accounting change by $5,100,000 ($0.51 per share). The im-
plementation 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.
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
Lincoln Life effective January 1, 1993. FAS 114 requires that if an im-
paired 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 ad-
ditions 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 In-
vestments in Debt and Equity Securities" ("FAS 115") issued in May 1993,
was adopted by Lincoln Life as of December 31, 1993. In accordance with the
rules, the
G-8
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2. CHANGES IN ACCOUNTING PRINCIPLESAND CHANGES IN ESTIMATES CONTINUED
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 hold-
er's intent. Lincoln Life 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 se-
curities 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 ac-
quisition 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 appli-
cable to Security-Connecticut Corp.) to reflect the net unrealized gain on
fixed maturity securities classified as available-for-sale previously car-
ried at amortized cost. Prior to the adoption of FAS 115, Lincoln Life car-
ried a portion of its fixed maturity securities at fair value with
unrealized gains and losses carried as a separate component of sharehold-
er's equity. The remainder of such securities were carried at amortized
cost.
Change in estimate for net investment income related to mortgage-backed
securities
At December 31, 1993, Lincoln Life had $5,942,100,000 invested in mortgage-
backed securities. As indicated in Note 1, Lincoln Life recognizes income
on these securities using a constant effective yield based on anticipated
prepayments. With the implementation of new investment software in December
1993, Lincoln Life was able to significantly refine its estimate of the ef-
fective yield on such securities to better reflect actual prepayments and
estimates of future prepayments. This resulted in an increase in the amor-
tization 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 ac-
counting 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 seg-
ment was identified as the result of management's assessment of current ex-
pectations for morbidity trends and the impact of lower investment income
due to lower interest rates.
During the fourth quarter of 1995, Lincoln Life completed an in-depth re-
view of the experience of its disability income business. As a result of
this study, and based on the assumption that recent experience will con-
tinue 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.
G-9
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
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)
------------------------------------------------ ------ ------- -------
$136.2 $(138.5) $ 92.2
====== ======= =======
</TABLE>
Provisions (credits) for write-downs and net changes in pro-
visions 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
-----------------------------
----- ----- ------
$17.5 $58.1 $219.7
===== ===== ======
</TABLE>
G-10
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3.INVESTMENTS CONTINUED
The change in unrealized appreciation (depreciation) on in-
vestments in fixed maturity and equity securities is as fol-
lows:
<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)
---------------------------------------------
-------- --------- --------
$2,141.8 $(1,929.7) $ 436.6
======== ========= ========
</TABLE>
The cost, gross unrealized gain and loss and fair value of
securities available-for-sale are as follows:
<TABLE>
<CAPTION>
Year ended 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 government 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
-------------------------------------
--------- -------- ------ ---------
$19,333.1 $1,725.6 $ 45.5 $21,013.2
========= ======== ====== =========
<CAPTION>
Year ended 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
-------------------------------------
--------- -------- ------ ---------
$18,610.2 $ 300.8 $762.5 $18,148.5
========= ======== ====== =========
</TABLE>
G-11
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
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
-------------------------------------- --------- ---------
13,961.2 15,230.0
Mortgage-backed securities 4,891.6 5,184.8
-------------------------------------- --------- ---------
$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 Par Cost Fair 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
-------- -------- -------- --------
$5,012.9 $4,891.6 $5,184.8
======== ======== ========
</TABLE>
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 Lincoln Life 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.
G-12
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3.INVESTMENTS CONTINUED
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.
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 re-
corded 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>
G-13
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
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 fol-
lows:
<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, Lincoln Life had restruc-
tured loans of $62,500,000 and $36,200,000, respectively.
Lincoln Life 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, Lincoln Life had no outstanding commit-
ments to lend funds on restructured loans.
As of December 31, 1995, the Company's investment commit-
ments 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.
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 fol-
lows:
<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 fol-
lows:
<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>
G-14
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3.INVESTMENTS CONTINUED
Adjustments to Deferred acquisition costs and amounts re-
quired to satisfy policyholder commitments are netted
against the Deferred acquisition costs asset account and in-
cluded with the Future policy benefits, claims and claims
expense liability on the balance sheet, respectively.
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)
-------- ------ ------ ------
$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>
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
-------- ------- ------
$(166.4) $134.5
======= ======
</TABLE>
G-15
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4.FEDERAL INCOME TAXES CONTINUED
Significant components of Lincoln Life'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>
Lincoln Life is required to establish a "valuation allow-
ance" 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 eq-
uity before considering a valuation allowance. For Federal
income tax purposes, capital losses may only be used to off-
set 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 secu-
rities available-for-sale were greater than the cost basis
resulting in unrealized capital gains. Accordingly, no valu-
ation allowance was established as of December 31, 1995
since management believes it is more likely than not that
Lincoln Life 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
G-16
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4.FEDERAL INCOME TAXES CONTINUED
to shareholder surplus and current income tax of $3,100,000
was paid. Under existing or foreseeable circumstances,
Lincoln Life 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 Lincoln Life 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.
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
------------------------------------------------
--------- ---------
$18,171.8 $17,028.6
========= =========
</TABLE>
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>
G-17
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
5.SUPPLEMENTAL FINANCIAL DATA CONTINUED
Fixed maturities of long-term debt are as follows (in mil-
lions):
1996 -- $ 1.31998 -- $18.42000 -- $ --
1997 -- 19.21999 -- --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>
The income statement caption, "Benefits and settlement ex-
penses," 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 de-
ferred 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 in-
vestments" 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.
Lincoln Life'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 se-
curities 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 curtail-
ment 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 con-
tribution 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 pen-
sion benefits in excess of limits imposed by federal tax
law. A salary continuation plan provides certain officers of
Lincoln Life defined pension benefits based on years of
service and final monthly salary upon death or retirement.
G-18
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
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>
The determination of the projected benefits obligation for
the defined benefit plans was based on the following assump-
tions:
<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>
G-19
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6.EMPLOYEE BENEFIT PLANS CONTINUED
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 Lincoln Life sponsor contributory defined contribu-
tion plans for eligible employees and agents. Lincoln Life's
contributions to the plans are equal to each participant's
pre-tax contribution, not to exceed 6% of base pay, multi-
plied by a percentage, ranging from 25% to 150%, which var-
ies 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.
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 Lincoln Life 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 bene-
fits, 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 retire-
ment. The life insurance benefits are noncontributory, al-
though participants can elect supplemental contributory ben-
efits.
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>
G-20
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6.EMPLOYEE BENEFIT PLANS CONTINUED
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>
The calculation of the accumulated postretirement benefit
obligation assumes a weighted-average annual rate of in-
crease in the per capita cost of covered benefits (i.e.,
health care cost trend rate) of 9.5% for 1996 gradually de-
creasing to 5.5% by 2004 and remaining at that level there-
after. The health care cost trend rate assumption has a sig-
nificant effect on the amounts reported. For example, in-
creasing 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 ag-
gregate of the estimated service and interest cost compo-
nents 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 De-
cember 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 Lincoln Life and its insurance subsidiaries in 1995, 1994 and 1993 was
$284,500,000, $366,700,000 and $237,000,000, respectively. Lincoln Life'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.
Lincoln Life is subject to certain insurance department regulatory restric-
tions as to the transfer of funds and payments of dividends to LNC. In
1996, Lincoln Life 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 de-
ferred acquisition costs. The bulk of the increase to this liability re-
lates 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, Lincoln Life 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 termi-
nation 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. Lincoln
Life 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 em-
ployers cannot demonstrate
compliance and the insurance company is held re-
sponsible due to its marketing efforts, Lincoln Life
and other insurers may be subject to potential liability. It is not possi-
ble 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 con-
tracts, which are no longer be-
G-21
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES CONTINUED
ing 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
Lincoln Life and certain of its subsidiaries lease their home office prop-
erties 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 Lincoln Life with the right of
first refusal to purchase the properties during the term of the lease, in-
cluding renewal periods, at a price as defined in the agreements. In addi-
tion, Lincoln Life 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 pe-
riods.
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>
<S> <C>
1996 $ 20.9
----------
1997 19.5
----------
1998 18.3
----------
1999 18.3
----------
2000 17.7
----------
Thereafter 172.4
---------- ------
$267.1
======
</TABLE>
Insurance ceded and assumed
Lincoln Life cedes insurance to other companies, including certain affili-
ates. That portion of risks exceeding each company's retention limit is re-
insured with other insurers. Lincoln Life 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, Lincoln Life acquires other insurance coverages with retentions
and limits which management believes are appropriate for the circumstances.
The accompanying financial statements reflect premiums, benefits and set-
tlement expenses and deferred acquisition costs, net of insurance ceded
(see Note 5). Lincoln Life and its subsidiaries remain liable if their re-
insurers are unable to meet their contractual obligations under the appli-
cable reinsurance agreements.
Lincoln Life assumes insurance from other companies, including certain af-
filiates. At December 31, 1995, Lincoln Life has provided $92,700,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receiv-
ables from the ceding company, which are secured by future profits on the
reinsured business. However, Lincoln Life is subject to the risk that the
ceding company may become insolvent and the right of offset would not be
permitted.
Vulnerability from concentrations
At December 31, 1995, Lincoln Life did not have
a material concentration of financial instruments in
a single investee, industry or geographic location. Also at December 31,
1995, Lincoln Life did not have a concentration of 1) business transactions
with a particular customer, lender or distributor, 2) revenues from a par-
ticular product or service, 3) sources of supply of labor or services used
in the
business or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a se-
vere impact to Lincoln Life's financial condition.
Other contingency matters
Lincoln Life 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 re-
lief. 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 Lin-
coln Life.
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 rehabili-
tated companies. Mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. Lincoln Life has accrued
for expected assessments net of estimated future premium tax deductions.
G-22
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7.RESTRICTIONS, COMMITMENTS AND CONTINGENCIES CONTINUED
Guarantees
Lincoln Life has guarantees with off-balance-sheet risks
whose contractual amounts represent credit exposure. Out-
standing 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
--------------------------------------- ----- -----
$66.9 $95.8
===== =====
</TABLE>
Lincoln Life 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 part-
ners to indemnify the mortgagor in the event a partner is
unable to pay its principal and interest payments. In addi-
tion, Lincoln Life has sold commercial mortgage loans
through grantor trusts which issued pass-through certifi-
cates. Lincoln Life has agreed to repurchase any mortgage
loans which remain delinquent for 90 days at a repurchase
price substantially equal to the outstanding principal bal-
ance plus accrued interest thereon to the date of repur-
chase. 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
Lincoln Life. Accordingly, both the carrying value and fair
value of these guarantees is zero at December 31, 1995 and
1994.
G-23
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7.RESTRICTIONS, COMMITMENTS AND CONTINGENCIES CONTINUED
Derivatives
Lincoln Life has derivatives with off-balance-sheet risks
whose notional or contract amounts exceed the credit expo-
sure. Lincoln Life 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, Lincoln Life 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. Outstand-
ing 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>
A reconciliation and discussion of the notional or contract
amounts for the significant programs using derivative agree-
ments 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>
G-24
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7.RESTRICTIONS, COMMITMENTS AND CONTINGENCIES CONTINUED
<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>
Interest rate caps
The interest rate cap agreements, which expire in 1997
through 2003, entitle Lincoln Life to receive payments from
the counterparties on specified future reset dates, contin-
gent 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 Lincoln
Life's interest rate cap agreement program is to protect its
annuity line of business from the effect of fluctuating in-
terest 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 amor-
tized 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 Lincoln Life 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 Lincoln Life's
spread-lock program is to protect a portion of its fixed ma-
turity securities against widening of spreads.
G-25
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Lincoln Life is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, spread-lock agreements, in-
terest rate swaps, foreign exchange forward contracts, foreign currency op-
tions and foreign currency swaps, but Lincoln Life does not anticipate non-
performance 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
Lincoln Life'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 Lincoln Life's financial instruments.
Considerable judgment is required to develop these fair values and, accord-
ingly, the estimates shown are not necessarily indicative of the amounts
that would be realized in a one time, current market exchange of all of
Lincoln Life's financial instruments.
Fixed maturity and equity securities
Fair values for fixed maturity securities are based on quoted market pric-
es, 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 discount-
ing 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 sim-
ilar characteristics. The rating for mortgages in good standing are based
on property type, location, market conditions, occupancy, debt service cov-
erage, 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 in-
terest rate, at the loan's market price or the fair value of the collateral
if the loan is collateral dependent.
7.RESTRICTIONS, COMMITMENTS AND
CONTINGENCIES CONTINUED
Financial futures
Lincoln Life uses exchange-traded financial futures contracts and options
on those financial futures to hedge against interest rate risks and to man-
age duration of a portion of its fixed maturity securities. Financial
futures contracts obligate Lincoln Life to buy or sell a financial instru-
ment 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 Lincoln Life the right, but not the obli-
gation, to assume a long or short position in the underlying futures at a
specified price during a specified time period.
Foreign currency derivatives
Lincoln Life uses a combination of foreign exchange forward contracts, for-
eign 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 Lincoln Life to deliver a specified
amount of currency at a future date at a specified exchange rate. Foreign
currency options give Lincoln Life the right, but not the obligation, to
buy or sell a foreign currency at a specific exchange rate during a speci-
fied time period. A foreign currency swap is a contractual agreement to ex-
change the currencies of two different countries pursuant to an agreement
to reexchange the two currencies at the same rate of exchange at a speci-
fied 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) op-
tions 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.
G-26
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Short-term and long-term debt
Fair values for long-term debt issues are estimated using discounted cash
flow analysis based on Lincoln Life's current incremental borrowing rate
for similar types of borrowing arrangements. For short-term debt, the car-
rying value approximates fair value.
Guarantees
Lincoln Life's guarantees include guarantees related to real estate part-
nerships 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.
Derivatives
Lincoln Life'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 cur-
rency 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 broker-
age quotes, which utilized pricing models or formulas using current assump-
tions, 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 es-
tate are based on the difference between the value of the committed invest-
ments 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.
8.FAIR VALUE OF FINANCIAL
INSTRUMENTS CONTINUED
Policy loans
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using Treasury interest rates consis-
tent 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 accom-
panying balance sheets approximates their fair value.
Investment type insurance contracts
The balance sheet captions, "Future policy benefits, claims and claims ex-
penses" and "Contractholder funds," include investment type insurance con-
tracts (i.e., deposit contracts and guaranteed interest contracts). The
fair values for the deposit contracts and certain guaranteed interest con-
tracts 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 remain-
ing 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 insur-
ance contracts. Fair value disclosures are not required for these insurance
contracts and have not been determined by Lincoln Life. It is Lincoln
Life'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 Lincoln Life's shareholder's equity
determined on a fair value basis if only the fair value of assets and lia-
bilities defined as financial instruments are disclosed. Lincoln Life and
other companies in the insurance industry are monitoring the related ac-
tions of the various rule-making bodies and attempting to determine an ap-
propriate methodology for estimating and disclosing the "fair value" of
their insurance contract liabilities.
G-27
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
8.FAIR VALUE OF FINANCIAL INSTRUMENTS CONTINUED
The carrying values and estimated fair values of Lincoln
Life'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 values 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 de-
ferred acquisition costs in order that they be comparable
with the fair value basis.
9.SEGMENT INFORMATION
Lincoln Life has two major business segments: Life Insurance
and Annuities and Reinsurance. The Life Insurance and Annui-
ties 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 Lincoln
Life. Reinsurance sells reinsurance products and services to
insurance companies, HMOs, self-funded employers and other
primary risk accepting organizations in the U.S. and econom-
ically attractive international markets. Effective in the
fourth quarter of 1995, operating results of the direct dis-
ability income business previously included in the Life In-
surance and Annuities segment is now included in the Rein-
surance segment. This direct disability income business,
which is no longer being sold, is now managed by the Rein-
surance 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 seg-
ment 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 cor-
porate debt and unallocated corporate overhead expenses).
G-28
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
9.SEGMENT INFORMATION CONTINUED
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)
--------------------------------------- --------- --------- ---------
$ 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)
--------------------------------------- --------- --------- ---------
$ 449.5 $ 260.2 $ 335.7
========= ========= =========
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
--------------------------------------- --------- --------- ---------
$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, Lincoln Life 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 of-
fering and Lincoln Life received cash and notes, net of re-
lated expenses, totaling $237,700,000. The loss on sale and
disposal expenses did not differ materially from the esti-
mate recorded in the fourth quarter of 1993. For the year
ended December 31, 1993, Security-Connecticut, which oper-
ated in the Life Insurance and Annuities segment, had reve-
nue of $274,500,000 and net income of $24,000,000.
In 1994, Lincoln Life completed the sale of 100% of the com-
mon 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.
G-29
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Lincoln Life 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.
Lincoln Life 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 unau-
thorized companies. To take a reserve credit for such reinsurance, Lincoln
Life holds assets from the reinsurer, including funds held under reinsur-
ance 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, Lincoln Life has a receivable (included in the foregoing amounts)
from affiliated insurance companies in the amount of $241,900,000 for stat-
utory surplus relief received under financial reinsurance ceded agreements.
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 af-
filiates. This purchase is expected to be completed in the form of a rein-
surance transaction with an initial ceding commission of approximately
$70,000,000. This ceding commission represents the present value of busi-
ness in-force and, accordingly, will be classified as other intangible as-
sets upon the close of this transaction. This transaction, which is ex-
pected 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 Lincoln Life under
which it sells Lincoln Life's products and provides the service that other-
wise would be provided by a home office marketing department and regional
offices. For providing these selling and marketing services, Lincoln Life
paid LFGI override commissions and operating expense allowances of
$81,900,000, $78,500,000 and $74,500,000 in 1995, 1994 and 1993, respec-
tively. 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 Lincoln Life, which Lincoln
Life is not required to reimburse.
Cash and invested cash at December 31, 1995 and 1994 include Lincoln Life'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, respective-
ly. Short-term debt at December 31, 1995 and 1994 includes $67,000,000 and
$68,600,000, respectively, borrowed from LNC. Lincoln Life paid interest to
LNC of $24,000, $8,000 and $137,000 in 1995, 1994 and 1993, respectively.
G-30
<PAGE>
FINANCIAL SCHEDULES
The following consolidated financial statement schedules of
Lincoln National Life Insurance Company and subsidiaries are
included on pages G-32 through G-36:
I. Summary of Investments--Other than Investments in Related
Parties -- December 31, 1995
III. Supplementary Insurance Information Years ended Decem-
ber 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 ap-
plicable accounting regulation of the Securities and Ex-
change Commission are not required under the related in-
structions, are inapplicable or the required information is
included in the consolidated financial statements, and
therefore have been omitted.
G-31
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO. AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------------------------------------------------------------------------
Amount at
which shown
in the
balance
Type of Investment Cost Value sheet
- ------------------------------------------------------------------------------
(000's omitted)
-----------------------------------
<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.
G-32
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO. AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
<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)
- --------------------------------------------------------------------------------------
(000's omitted)
------------------------------------------------------------
<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
----------------------
---------- ---------- ------- --- ----------
$ 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
----------------------
---------- ---------- ------- --- ----------
$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
----------------------
---------- ---------- ------- --- ----------
$1,297,913 $8,798,230 $59,660 $-- $2,397,713
========== ========== ======= === ==========
</TABLE>
(A) Includes insurance fees on universal life and other interest sensitive
products.
G-33
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO. AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION CONTINUED
<TABLE>
<CAPTION>
Column A Column G Column H Column I Column J Column K
- -------------------------------------------------------------------------------------------
Amortization
Benefits, claims of deferred Other
Net investment and claim acquisition operating Premium
Segment income (B) expenses costs expenses (B) written
- -------------------------------------------------------------------------------------------
(000's omitted)
------------------------------------------------------------------
<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 --
---------------------- ---------- ---------- -------- -------- -----
$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 --
---------------------- ---------- ---------- -------- -------- -----
$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) --
---------------------- ---------- ---------- -------- -------- -----
$1,823,459 $3,033,139 $240,989 $640,810 $ --
========== ========== ======== ======== =====
</TABLE>
(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.
G-34
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO. AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE (A)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- --------------------------------------------------------------------------------------
Percentage
Ceded Assumed of amount
Gross to other from other assumed to
Segment amount companies companies Net amount net
- --------------------------------------------------------------------------------------
(000's omitted)
-------------------------------------------------------------
<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
---------------------- ------------ ----------- ------------ ------------
$ 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
---------------------- ------------ ----------- ------------ ------------
$ 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
---------------------- ------------ ----------- ------------ ------------
$ 2,158,822 $ 568,612 $ 807,503 $ 2,397,713
============ =========== ============ ============
</TABLE>
(B) Includes insurance fees on universal life and other interest sensitive
products.
G-35
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE CO. AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------
Additions
-----------------------
(1) (2)
Charged to
Balance at Charged other Deductions- Balance
beginning to costs and accounts- describe at end of
Description of period expenses (A) describe (B) period
- ---------------------------------------------------------------------------------
(000's omitted)
--------------------------------------------------------
<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
-----------------------
</TABLE>
(A) Exclude charges for the direct write-off of assets. The negative amounts
represent improvements in the underlying assets for which valuation ac-
counts had previously been established.
(B) Deductions reflect sales or foreclosures of the underlying holdings.
G-36
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors
Lincoln National Life Insurance Company
We have audited the accompanying consolidated balance sheets
of Lincoln National Life Insurance Co., a wholly owned sub-
sidiary of Lincoln National Corp., 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 page G-
31. These financial statements and schedules are the respon-
sibility 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 ac-
cepted 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 fi-
nancial statements. An audit also includes assessing the ac-
counting 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 Lincoln National Life Insurance Co. at
December 31, 1995 and 1994, and the consolidated result 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 state-
ments, in 1993 the Company changed its method of accounting
for postretirement benefits other than pensions, accounting
for impairment of loans and accounting for certain invest-
ments in debt and equity securities.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
February 7, 1996
G-37
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
<TABLE>
<CAPTION>
December 31
1996 1995
--------- ---------
(in millions)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $19,389.6 $17,729.7
- -------------------------------------------------------------------------------------------------------
Preferred stocks 239.7 89.9
- -------------------------------------------------------------------------------------------------------
Unaffiliated common stocks 358.3 535.5
- -------------------------------------------------------------------------------------------------------
Affiliated common stocks 241.5 193.0
- -------------------------------------------------------------------------------------------------------
Mortgage loans on real estate 2,976.7 2,909.7
- -------------------------------------------------------------------------------------------------------
Real estate 621.3 655.2
- -------------------------------------------------------------------------------------------------------
Policy loans 626.5 515.8
- -------------------------------------------------------------------------------------------------------
Other investments 282.7 248.0
- -------------------------------------------------------------------------------------------------------
Cash and short-term investments 759.2 780.9
- ----------------------------------------------------------------------------------- --------- ---------
Total cash and investments 25,495.5 23,657.7
- -------------------------------------------------------------------------------------------------------
Premiums and fees in course of collection 60.9 17.1
- -------------------------------------------------------------------------------------------------------
Accrued investment income 343.6 342.5
- -------------------------------------------------------------------------------------------------------
Funds withheld by ceding companies 25.8 595.3
- -------------------------------------------------------------------------------------------------------
Other admitted assets 355.7 217.7
- -------------------------------------------------------------------------------------------------------
Separate account assets 23,735.1 18,461.6
- ----------------------------------------------------------------------------------- --------- ---------
Total admitted assets $50,016.6 $43,291.9
- ----------------------------------------------------------------------------------- ========= =========
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 5,954.0 $ 5,713.3
- -------------------------------------------------------------------------------------------------------
Other policyholder funds 17,262.4 15,598.5
- -------------------------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 250.2 499.3
- -------------------------------------------------------------------------------------------------------
Funds held under reinsurance treaties 564.6 1,053.5
- -------------------------------------------------------------------------------------------------------
Asset valuation reserve 375.5 270.0
- -------------------------------------------------------------------------------------------------------
Interest maintenance reserve 76.7 116.3
- -------------------------------------------------------------------------------------------------------
Other liabilities 490.9 391.3
- -------------------------------------------------------------------------------------------------------
Federal income taxes 4.3 3.2
- -------------------------------------------------------------------------------------------------------
Net transfers due from separate accounts (659.7) (548.0)
- -------------------------------------------------------------------------------------------------------
Separate account liabilities 23,735.1 18,461.6
- ----------------------------------------------------------------------------------- --------- ---------
Total liabilities 48,054.0 41,559.0
- -------------------------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares--10 million (owned by Lincoln National
Corporation) 25.0 25.0
- -------------------------------------------------------------------------------------------------------
Paid-in surplus 883.4 783.4
- -------------------------------------------------------------------------------------------------------
Unassigned surplus 1,054.2 924.5
- ----------------------------------------------------------------------------------- --------- ---------
Total capital and surplus 1,962.6 1,732.9
- ----------------------------------------------------------------------------------- --------- ---------
Total liabilities and capital and surplus $50,016.6 $43,291.9
- ----------------------------------------------------------------------------------- ========= =========
</TABLE>
See accompanying notes.
S-1
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF INCOME--STATUTORY BASIS
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
-----------------------
(in millions)
--------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $7,268.5 $4,899.1 $5,648.7
- -------------------------------------------------------------------------------
Net investment income 1,756.3 1,772.2 1,606.8
- -------------------------------------------------------------------------------
Amortization of interest maintenance reserve 27.2 34.0 9.8
- -------------------------------------------------------------------------------
Commissions and expense allowances on reinsurance
ceded 90.9 98.3 145.0
- -------------------------------------------------------------------------------
Expense charges on deposit funds 100.7 83.2 70.5
- -------------------------------------------------------------------------------
Other income 16.8 14.5 15.6
- --------------------------------------------------- -------- -------- --------
Total revenues 9,260.4 6,901.3 7,496.4
- -------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 5,989.9 4,184.0 5,071.6
- -------------------------------------------------------------------------------
Underwriting, acquisition, insurance and other
expenses 2,878.5 2,345.7 2,136.1
- --------------------------------------------------- -------- -------- --------
Total benefits and expenses 8,868.4 6,529.7 7,207.7
- --------------------------------------------------- -------- -------- --------
Gain from operations before dividends to
policyholders, income taxes and net realized gain
on investments 392.0 371.6 288.7
- -------------------------------------------------------------------------------
Dividends to policyholders 27.3 27.3 18.0
- --------------------------------------------------- -------- -------- --------
Gain from operations before federal income taxes
and net realized gain on investments 364.7 344.3 270.7
- -------------------------------------------------------------------------------
Federal income taxes 83.6 103.7 52.8
- --------------------------------------------------- -------- -------- --------
Gain from operations before net realized gain on
investments 281.1 240.6 217.9
- -------------------------------------------------------------------------------
Net realized gain on investments, net of income tax
expense (benefits) [1996--$28.5; 1995--$48.1;
1994--$(178.1)] and excluding net transfers to
(from) the interest maintenance reserve [1996--
$(12.4); 1995--$94.9; 1994--$(147.1)] 53.3 43.9 124.0
- --------------------------------------------------- -------- -------- --------
Net income $ 334.4 $ 284.5 $ 341.9
- --------------------------------------------------- ======== ======== ========
</TABLE>
See accompanying notes.
S-2
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
Year
ended
December
31
1996 1995 1994
-------- -------- --------
(in millions)
----------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $1,732.9 $1,679.6 $1,302.5
- ----------------------------------------------------------------
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income 334.4 284.5 341.9
- ----------------------------------------------------------------
Differences in cost and admitted investment amounts 38.6 143.2 (123.3)
- ----------------------------------------------------------------
Nonadmitted assets (3.0) 2.9 (3.2)
- ----------------------------------------------------------------
Regulatory liability for reinsurance 0.6 (2.0) (1.1)
- ----------------------------------------------------------------
Life policy reserve valuation basis (0.4) 2.9 (1.3)
- ----------------------------------------------------------------
Asset valuation reserve (105.5) (112.5) 83.8
- ----------------------------------------------------------------
Mortgage loan, real estate and other investment reserves -- 2.2 218.6
- ----------------------------------------------------------------
Paid-in surplus 100.0 15.1 --
- ----------------------------------------------------------------
Separate account receivable due to change in valuation -- 27.0 --
- ----------------------------------------------------------------
Accounting for separate account contracts -- -- (13.3)
- ----------------------------------------------------------------
Dividends to shareholder (135.0) (310.0) (125.0)
- ---------------------------------------------------------------- -------- -------- --------
Capital and surplus at end of year $1,962.6 $1,732.9 $1,679.6
- ---------------------------------------------------------------- ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
S-3
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
----------------------------------
(in millions)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 8,059.4 $ 5,430.9 $ 5,654.5
- -------------------------------------------------------------------------------------
Allowances and reserve adjustments received (paid) on
reinsurance ceded (767.5) (383.6) 137.1
- -------------------------------------------------------------------------------------
Investment income received 1,700.6 1,713.2 1,588.5
- -------------------------------------------------------------------------------------
Benefits paid (4,050.4) (3,239.6) (3,054.1)
- -------------------------------------------------------------------------------------
Insurance expenses paid (2,972.2) (2,513.5) (2,542.5)
- -------------------------------------------------------------------------------------
Federal income taxes recovered (paid) (72.3) 38.4 (191.8)
- -------------------------------------------------------------------------------------
Dividends to policyholders (27.7) (16.5) (18.4)
- -------------------------------------------------------------------------------------
Other income received and expenses paid, net 6.3 14.4 59.2
- -------------------------------------------------------------------------------------
---------- ---------- ----------
Net cash provided by operating activities 1,876.2 1,043.7 1,632.5
- -------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 12,542.0 13,183.9 11,877.0
- -------------------------------------------------------------------------------------
Purchase of investments (14,175.4) (14,049.6) (12,871.8)
- -------------------------------------------------------------------------------------
Other uses (266.5) (64.0) (123.4)
- -------------------------------------------------------------------------------------
---------- ---------- ----------
Net cash used in investing activities (1,899.9) (929.7) (1,118.2)
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in 100.0 15.1 --
- -------------------------------------------------------------------------------------
Proceeds from borrowings 100.0 63.0 63.0
- -------------------------------------------------------------------------------------
Repayment of borrowings (63.0) (63.0) (60.0)
- -------------------------------------------------------------------------------------
Dividends paid to shareholder (135.0) (310.0) (125.0)
- -------------------------------------------------------------------------------------
---------- ---------- ----------
Net cash provided by (used in) financing activities 2.0 (294.9) (122.0)
- -------------------------------------------------------------------------------------
---------- ---------- ----------
Net increase (decrease) in cash and short-term investments (21.7) (180.9) 392.3
- -------------------------------------------------------------------------------------
Cash and short-term investments at beginning of year 780.9 961.8 569.5
- -------------------------------------------------------------------------------------
---------- ---------- ----------
Cash and short-term investments at end of year $ 759.2 $ 780.9 $ 961.8
- -------------------------------------------------------------------------------------
========== ========== ==========
</TABLE>
See accompanying notes.
S-4
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company ("Company") is a wholly owned
subsidiary of Lincoln National Corporation ("LNC") and is domiciled in In-
diana. As of December 31, 1996, the Company owns 100% of the outstanding
common stock of four insurance company subsidiaries: First Penn-Pacific
Life Insurance Company, Lincoln National Health & Casualty Insurance Compa-
ny, Lincoln National Reassurance Company and Lincoln Life & Annuity Company
of New York.
The Company's principal business consist of underwriting annuities, depos-
it-type contracts, life and health insurance through multiple distribution
channels and the reinsurance of individual and group life and health busi-
ness. The Company is licensed and sells its products in 49 states, Canada
and several U.S. territories.
USE OF ESTIMATES
The preparation of financial statements requires management to make esti-
mates and assumptions that affect amounts reported in the financial state-
ments and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could impact the
amounts reported and disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from generally accepted accounting prin-
ciples ("GAAP"). The more significant variances from GAAP are as follows:
INVESTMENTS
Bonds are reported at cost or amortized cost or market value based on their
National Association of Insurance Commissioners ("NAIC") rating. For GAAP,
the Company's bonds are classified as available-for-sale and, accordingly,
are reported at fair value with changes in the fair values reported di-
rectly in shareholder's equity after adjustments for related amortization
of deferred acquisition costs, additional policyholder commitments and de-
ferred income taxes.
Investments in real estate are reported net of related obligation rather
than on a gross basis.
Changes between cost and admitted asset investment amounts are credited or
charged directly to unassigned surplus rather than to a separate surplus
account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the gen-
eral level of interest rates and amortizes those deferrals over the remain-
ing period to maturity of the individual security sold. The net deferral is
reported as the interest maintenance reserve in the accompanying balance
sheets. Realized capital gains and losses are reported in income net of
federal income tax and transfers to the interest maintenance reserve. The
asset valuation reserve is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, real-
ized capital gains and losses are reported in the income statement on a
pre-tax basis in the period that the asset giving rise to the gain or loss
is sold and valuation allowances are provided when there has been a decline
in value deemed other than temporary, in which case, the provision for such
declines are charged to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not consoli-
dated with the accounts and operations of the Company as would be required
by GAAP. Under statutory accounting principles, the Company's subsidiaries
are carried at their statutory-basis net equity.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For uni-
versal life insurance, annuity and other investment-type products, deferred
policy acquisition costs, to the extent recoverable from future gross prof-
its, are amortized generally in proportion to the present value of expected
gross profits from surrender charges and investment, mortality and expense
margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying bal-
ance sheets and are charged directly to unassigned surplus.
PREMIUMS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts are reported as premium revenues;
whereas, under GAAP, such premiums and deposits are treated as liabilities
and policy charges represent revenues.
S-5
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
Other significant accounting practices are as follows:
INVESTMENTS
The discount or premium on bonds is amortized using the interest method.
For mortgage-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic
life of the securities. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to reflect ac-
tual payments to date and anticipated future payments. The net investment
in the securities is adjusted to the amount that would have existed had the
new effective yield been applied since the acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Common stocks are reported at market value as determined by the Securities
Valuation Office of the NAIC and the related unrealized gains (losses) are
reported in unassigned surplus without adjustment for federal income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall lia-
bility-asset management program for certain investments and life insurance
and annuity products. The Company values all derivative instruments on a
basis consistent with that of the hedged item. Upon termination, gains and
losses on those instruments are included in the carrying values of the un-
derlying hedged items and are amortized over the remaining lives of the
hedged items as adjustments to investment income or benefits from the
hedged items. Any unamortized gains or losses are recognized when the un-
derlying hedged items are sold.
Mortgage loans on real estate are reported at unpaid balances, less allow-
ances for impairments. Real estate is reported at depreciated cost. As of
June 30, 1994, the Company changed its method of accounting for reserves on
impaired real estate and mortgage loans. The impaired investment is now
shown on a pre-tax basis as a nonadmitted asset. Previously, these reserves
were presented as a liability, net of related tax benefits, to approximate
the impact on surplus if losses were realized.
Realized investment gains and losses on investments sold are determined us-
ing the specific identification method. Changes in admitted asset carrying
amounts of
1.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required inter-
est and mortality assumptions rather than on estimated expected experience
or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other investment-
type contracts are reported as benefits and settlement expenses; in the ac-
companying statement of income, whereas, under GAAP, withdrawals are
treated as a reduction of the policy or contract liabilities and benefits
would represent the excess of benefits paid over the policy account value
and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not au-
thorized by the Indiana Department of Insurance to assume such business.
Changes to those amounts are credited or charged directly to unassigned
surplus. Under GAAP, an allowance for amounts deemed uncollectible is es-
tablished through a charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using tradi-
tional reinsurance accounting whereas such contracts would be accounted for
using deposit accounting under GAAP.
POSTRETIREMENT BENEFITS
For purposes of calculating the Company's postretirement benefit obliga-
tion, only vested employees and current retirees are included in the valua-
tion. Under GAAP, active employees not currently eligible would also be in-
cluded.
S-6
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations
and statistical analyses. Those estimates are subject to the effects of
trends in claim severity and frequency. Although considerable variability
is inherent in such estimates, management believes that the reserves for
claims and claim adjustment expenses are adequate. The estimates are con-
tinually reviewed and adjusted as necessary as experience develops or new
information becomes known; such adjustments are included in current opera-
tions.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums and claims and claim adjustment expenses are accounted
for on bases consistent with those used in accounting for the original pol-
icies issued and the terms of the reinsurance contracts. Certain business
is transacted on a funds withheld basis and investment income on funds
withheld are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans is sys-
tematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC. Pursuant to an intercompany
tax sharing agreement with LNC, the Company provides for income taxes on a
separate return filing basis. The tax sharing agreement also provides that
the Company will receive benefit for net operating losses, capital losses
and tax credits which are not usable on a separate return basis to the ex-
tent such items may be utilized in the consolidated income tax returns of
LNC.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of
the intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of LNC's common stock at the grant date, or other mea-
surement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
These assets and liabilities represent segregated funds administered and
invested by LNC's insurance subsidiaries for the exclusive benefit of pen-
sion and variable life and annuity contractholders. The fees received by
the Company for administrative and contractholder maintenance services per-
formed for these separate accounts are included in the Company's statements
of income.
1.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
bonds, mortgage loans and common and preferred stocks are credited or
charged directly in unassigned surplus.
DATA PROCESSING EQUIPMENT
Data processing equipment is reported at depreciated cost, with deprecia-
tion determined on a straight-line basis over five years.
GOODWILL
Goodwill, which represents the excess of the ceding commission over statu-
tory-basis net assets of business purchased under an assumption reinsurance
agreement, is amortized on a straight-line basis over ten years.
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due. Ac-
cident and health premiums are earned prorata over the contract term of the
policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by ac-
tuarial methods and are determined based on published tables using statuto-
rily specified interest rates and valuation methods that will provide, in
the aggregate, reserves that are greater than or equal to the minimum or
guaranteed policy cash values or the amounts required by the Indiana De-
partment of Insurance. The Company waives deduction of deferred fractional
premiums on the death of life and annuity policy insureds and returns any
premium beyond the date of death, except for policies issued prior to March
1977. Surrender values on policies do not exceed the corresponding benefit
reserves. Additional reserves are established when the results of cash flow
testing under various interest rate scenarios indicate the need for such
reserve. If net premiums exceed the gross premiums on any insurance in-
force, additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined us-
ing the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
S-7
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of the Company's net income and capital and surplus deter-
mined on a statutory accounting basis with amounts determined in accordance
with GAAP is as follows:
<TABLE>
<CAPTION>
Capital and Surplus Net Income
-------------------- -----------------------
Year ended December
December 31 31
1996 1995 1996 1995 1994
--------- --------- ------ ------ -------
(in millions)
<S> <C> <C> <C> <C> <C>
Amounts reported on a
statutory basis $ 1,962.6 $ 1,732.9 $334.4 $284.5 $ 341.9
----------------------------
GAAP adjustments:
----------------------------
Deferred policy acquisition
costs and present value of
future profits 1,119.1 850.2 66.7 (63.0) 191.1
----------------------------
Policy and contract
reserves (1,405.3) (1,562.2) (57.1) (55.3) (53.6)
----------------------------
Interest maintenance
reserve 76.7 116.3 (39.7) 60.9 (157.0)
----------------------------
Deferred income taxes (27.4) (122.5) 1.8 38.3 (138.3)
----------------------------
Policyholders' share of
earnings and surplus on
participating business (81.9) (91.9) (.3) .2 (3.0)
----------------------------
Asset valuation reserve 375.5 270.0 -- -- --
----------------------------
Net realized gain (loss) on
investments (72.0) (67.4) 78.7 30.0 47.1
----------------------------
Adjustment to unrealized
gain (loss) 825.2 1,494.0 -- -- --
----------------------------
Nonadmitted assets,
including nonadmitted
investments (7.1) 57.9 -- -- --
----------------------------
Net GAAP adjustments of
subsidiary companies 156.6 131.2 29.9 34.3 48.2
----------------------------
Other, net (99.0) (89.7) (82.6) (7.3) (58.6)
---------------------------- --------- --------- ------ ------ -------
Net increase (decrease) 860.4 985.9 (2.6) 38.1 (124.1)
---------------------------- --------- --------- ------ ------ -------
Amounts on a GAAP basis $ 2,823.0 $ 2,718.8 $331.8 $322.6 $ 217.8
---------------------------- ========= ========= ====== ====== =======
</TABLE>
S-8
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
2.PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accor-
dance with accounting practices prescribed or permitted by the Indiana De-
partment of Insurance (the "Department"). "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules,
as well as a variety of publications of the NAIC. "Permitted" statutory ac-
counting practices encompass all accounting practices that are not pre-
scribed; such practices may differ from state to state, may differ from
company to company within a state and may change in the future. The NAIC
currently is in the process of recodifying statutory accounting practices,
the result of which is expected to constitute the only source of "pre-
scribed" statutory accounting practices. Accordingly, that project, which
is expected to be completed in 1998, will likely change, to some extent,
prescribed statutory accounting practices, and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements.
In 1994, the Company received approval from the Department to change its
accounting for surrender charges applicable to separate account liabilities
for variable life and annuity products so that the surrender charges on
these products are recorded as a liability in the separate account finan-
cial statements payable to the Company's general account. In the accompany-
ing financial statements, a corresponding receivable is recorded with the
related income impact recorded in the accompanying statement of operations
as a change in reserves or change in premium and other deposit funds. The
cumulative effect of this change increased 1994 net income by $13,299,000.
The Company has approval from the Department to establish valuation allow-
ances on mortgage loans on real estate in accordance with GAAP, which are
in excess of that prescribed by the NAIC and the Department.
Prior to 1995, the Company has considered certain amounts under modified
coinsurance reinsurance contracts as adjustments to premiums. As such, pol-
icyholder dividends, cash surrender charges and reserve adjustments with
interest thereon and commissions on reinsurance assumed are classified as
premiums, rather than on expense lines, with no net effect on net income or
capital and surplus. On a net-of-ceded basis for the year ended December
31, 1994, this practice resulted in increases to both revenues and expenses
of approximately $600,000,000. In addition, reserve adjustments with inter-
est thereon and commissions on reinsurance ceded were also classified as
premiums, rather than in other revenue classifications. For the year ended
December 31, 1994, this intra-revenue grouping reduced premiums by approxi-
mately $50,000,000. Beginning in 1995, the Company reports modified coin-
surance agreements on a gross basis. This change was made as a result of
communications with the Department. This accounting change had no effect on
income or surplus and prior period amounts have not been restated.
S-9
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
3. INVESTMENTS
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
-----------------------------------------
(in millions)
--------------------------
<S> <C> <C> <C>
Income:
Bonds $1,442.2 $1,457.4 $1,266.7
--------------------------------------------------------------------------------
Preferred stocks 9.6 6.4 5.8
--------------------------------------------------------------------------------
Unaffiliated common stocks 6.5 5.2 4.4
--------------------------------------------------------------------------------
Affiliated common stocks 9.5 12.6 62.5
--------------------------------------------------------------------------------
Mortgage loans on real estate 269.3 252.0 255.2
--------------------------------------------------------------------------------
Real estate 114.4 110.0 97.4
--------------------------------------------------------------------------------
Policy loans 35.0 32.1 29.7
--------------------------------------------------------------------------------
Other investments 22.4 62.6 121.3
--------------------------------------------------------------------------------
Cash and short-term investments 48.9 53.2 43.3
--------------------------------------------------------------- -------- -------- --------
Total investment income 1,957.8 1,991.5 1,886.3
-----------------------------------------------------------------------------------
Expenses:
Depreciation 25.0 25.9 21.9
--------------------------------------------------------------------------------
Other 176.5 193.4 257.6
--------------------------------------------------------------- -------- -------- --------
Total investment expenses 201.5 219.3 279.5
---------------------------------------------------------------- -------- -------- --------
Net investment income $1,756.3 $1,772.2 $1,606.8
---------------------------------------------------------------- ======== ======== ========
</TABLE>
Nonadmitted accrued investment income at December 31, 1996
and 1995 amounted to $2,500,000 and $11,500,000, respective-
ly, consisting principally of interest on bonds in default
and mortgage loans.
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are summa-
rized as follows:
<TABLE>
<CAPTION>
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------
(in millions)
-----------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1996:
Corporate $12,548.1 $ 586.5 $ 66.6 $13,068.0
--------------------------------------------------------------
U.S. government 1,088.7 43.2 18.0 1,113.9
--------------------------------------------------------------
Foreign government 1,234.0 105.1 1.4 1,337.7
--------------------------------------------------------------
Mortgage-backed 4,478.4 183.3 27.4 4,634.3
--------------------------------------------------------------
State and municipal 40.4 .1 -- 40.5
-------------------- --------- -------- ------ ---------
$19,389.6 $ 918.2 $113.4 $20,194.4
========= ======== ====== =========
At December 31, 1995:
Corporate $11,642.0 $1,074.7 $ 41.4 $12,675.3
--------------------------------------------------------------
U.S. government 546.4 82.2 -- 628.6
--------------------------------------------------------------
Foreign government 908.0 68.0 .6 975.4
--------------------------------------------------------------
Mortgage-backed 4,628.3 283.2 11.2 4,900.3
--------------------------------------------------------------
State and municipal 5.0 .1 -- 5.1
-------------------- --------- -------- ------ ---------
$17,729.7 $1,508.2 $ 53.2 $19,184.7
========= ======== ====== =========
</TABLE>
S-10
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
3. INVESTMENTS CONTINUED
Fair values for bonds are based on quoted market prices,
where available. For bonds not actively traded, fair values
are estimated using values obtained from independent pricing
services or, in the case of private placements, are esti-
mated by discounting expected future cash flows using a cur-
rent market rate applicable to the coupon rate, credit qual-
ity and maturity of the investments.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1996, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
Cost or
Amortized Fair
Cost Value
------------------------------
(in millions)
-------------------
<S> <C> <C>
Maturity:
In 1997 $ 358.0 $ 360.1
----------------------------------------------------------------------------------------------
In 1998-2001 3,809.0 3,912.3
----------------------------------------------------------------------------------------------
In 2002-2006 4,760.9 4,917.3
----------------------------------------------------------------------------------------------
After 2006 5,983.3 6,370.4
----------------------------------------------------------------------------------------------
Mortgage-backed securities 4,478.4 4,634.3
--------------------------------------------------------------------------- --------- ---------
Total $19,389.6 $20,194.4
--------------------------------------------------------------------------- ========= =========
</TABLE>
The expected maturities may differ from the contractual ma-
turities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 1996, the Company did not have a material
concentration of financial instruments in a single investee,
industry or geographic location.
Proceeds from sales of investments in bonds during 1996,
1995 and 1994 were $10,996,900,000, $12,234,100,000 and
$9,668,300,000, respectively. Gross gains during 1996, 1995
and 1994 of $169,700,000, $225,600,000 and $62,600,000, re-
spectively, and gross losses of $177,000,000, $83,100,000
and $286,800,000, respectively, were realized on those
sales.
At December 31, 1996 and 1995, investments in bonds, with an
admitted asset value of $70,700,000 and $60,700,000, respec-
tively, were on deposit with state insurance departments to
satisfy regulatory requirements.
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in unaffiliated
common stocks and preferred stocks are as follows:
<TABLE>
<CAPTION>
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------
<S> <C> <C> <C> <C>
(in millions)
-------------------------------
At December 31, 1996:
Preferred stocks $239.7 $ 10.5 $ 1.7 $248.5
----------------------------------------------------------
Unaffiliated common stocks 289.9 84.6 16.2 358.3
----------------------------------------------------------
At December 31, 1995:
Preferred stocks 89.9 13.9 .2 103.6
----------------------------------------------------------
Unaffiliated common stocks 438.0 110.0 12.5 535.5
----------------------------------------------------------
</TABLE>
S-11
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
3. INVESTMENTS CONTINUED
The carrying value of affiliated common stocks, representing
their statutory-basis net equity, was $241,500,000 and
$193,000,000 at December 31, 1996 and 1995, respectively.
The cost basis of investments in subsidiaries as of December
31, 1996 and 1995 was $194,000,000 and $123,000,000, respec-
tively.
During 1996, the maximum and minimum lending rates for mort-
gage loans were 10.5% and 6.0%, respectively. At the issu-
ance of a loan, the percentage of loan to value on any one
loan does not exceed 75%. At December 31, 1996, the Company
did not hold any mortgages with interest overdue beyond one
year. At December 31, 1996, the Company's investments in
mortgage loans were subject to $59,700,000 of prior liens.
All properties covered by mortgage loans have fire insurance
at least equal to the excess of the loan over the maximum
loan that would be allowed on the land without the building.
4.FEDERAL INCOME TAXES
The effective federal income tax rate for financial report-
ing purposes differs from the prevailing statutory tax rate
principally due to tax-exempt investment income, dividends-
received tax deductions, differences in policy acquisition
costs and policy and contract liabilities for tax return and
financial statement purposes.
Federal income taxes incurred of $83,600,000, $103,700,000
and $52,800,000 in 1996, 1995 and 1994, respectively, would
be subject to recovery in the event that the Company incurs
net operating losses within three years of the years for
which such taxes were paid.
Prior to 1984, a portion of the Company's current income was
not subject to current income tax, but was accumulated for
income tax purposes in a memorandum account designated as
"policyholders' surplus." The Company's balance in the "pol-
icyholders' surplus" account at December 31, 1983 of
$187,000,000 was "frozen" by the Tax Reform Act of 1984 and,
accordingly, there have been no additions to the accounts
after that date. That portion of current income on which in-
come taxes have been paid will continue to be accumulated in
a memorandum account designated as "shareholder's surplus,"
and is available for dividends to the shareholder without
additional payment of tax by the Company. The December 31,
1996 memorandum account balance for "shareholder's surplus"
was $1,606,000,000. Should dividends to the shareholder ex-
ceed its respective "shareholder's surplus," amounts would
need to be transferred from the "policyholders' surplus" and
would be subject to federal income tax at that time. Under
existing or foreseeable circumstances, the Company neither
expects nor intends that distributions will be made that
will result in any such tax.
5.SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption, "Other Admitted Assets," includes
amounts recoverable from other insurers for claims paid by
the Company, and the balance sheet caption, "Future Policy
Benefits and Claims," has been reduced for insurance ceded
as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995 1994
----------------------------------------
(in millions)
----------------------------------------
<S> <C> <C> <C>
Insurance ceded $1,154.5 $1,634.0 $1,721.1
Amounts recoverable from other insurers 16.0 4.4 4.8
</TABLE>
S-12
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
5.SUPPLEMENTAL FINANCIAL DATA CONTINUED
Reinsurance transactions included in the income statement
caption, "Premiums and Deposits," are as follows:
<TABLE>
<CAPTION>
Year ended December
31
1996 1995 1994
--
(in millions)
--------------------
<S> <C> <C> <C>
Insurance assumed $241.3 $667.7 $607.3
-------------------------------
Insurance ceded 193.3 453.1 583.8
------------------------------- ------ ------ ------
Net amount included in premiums $ 48.0 $214.6 $ 23.5
------------------------------- ====== ====== ======
</TABLE>
The income statement caption, "Benefits and Settlement Ex-
penses," is net of reinsurance recoveries of $787,886,200,
$1,407,000,000 and $1,391,100,000 for 1996, 1995 and 1994,
respectively.
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption, "Pre-
miums and Fees in Course of Collection," are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------
Net of
Gross Loading Loading
(in millions)
-----------------------
<S> <C> <C> <C>
Ordinary new business $ 3.9 $1.9 $ 2.0
---------------------
Ordinary renewal 35.1 3.0 32.1
---------------------
Group life 9.4 (.1) 9.5
---------------------
Group annuity -- -- --
--------------------- ------ ---- ------
$ 48.4 $4.8 $ 43.6
====== ==== ======
<CAPTION>
December 31, 1995
-----------------------
Net of
Gross Loading Loading
(in millions)
-----------------------
<S> <C> <C> <C>
Ordinary new business $ 2.5 $1.1 $ 1.4
---------------------
Ordinary renewal (19.1) 2.8 (21.9)
---------------------
Group life 15.8 -- 15.8
---------------------
Group annuity .2 -- .2
--------------------- ------ ---- ------
$ (.6) $3.9 $ (4.5)
====== ==== ======
</TABLE>
The Company has entered into non-exclusive managing general
agent agreements with International Benefit Services Corp.,
HRM Claim Management, Inc. and Pediatrics Insurance Consul-
tants, Inc. to write group life and health business. Direct
premiums written amounted to $26,200,000 $3,800,000 and
$8,600,000 in 1996 and $33,100,000, $10,600,000 and
$8,800,000 in 1995, respectively. During 1996, LNC Adminis-
trative Services entered into a similar agreement with the
Company with direct premiums written amounting to
$6,200,000. Authority granted by the managing general agents
agreements include underwriting, claims adjustment and
claims payment services.
S-13
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
6.ANNUITY RESERVES
At December 31, 1996, the Company's annuity reserves and de-
posit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are sum-
marized as follows:
<TABLE>
<CAPTION>
Amount Percent
----------------
(in millions)
-------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,971.8 6.0%
------------------------------------------------------
At book value, less surrender charge 5,228.6 12.0
------------------------------------------------------
At market value 22,703.4 51.0
------------------------------------------------------ ---------- ------
30,903.8 69.0
Subject to discretionary withdrawal without adjustment
at book value with minimal or no charge or adjustment 10,986.4 25.0
------------------------------------------------------
Not subject to discretionary withdrawal 2,601.9 6.0
------------------------------------------------------
---------- ------
Total annuity reserves and deposit fund 44,492.1
liabilities--before reinsurance 100.0%
------------------------------------------------------
======
Less reinsurance 1,848.8
------------------------------------------------------ ----------
Net annuity reserves and deposit fund liabilities,
including separate accounts $42,643.3
------------------------------------------------------ ==========
</TABLE>
7.CAPITAL AND SURPLUS
Life insurance companies are subject to certain Risk-Based
Capital ("RBC") requirements as specified by the NAIC. Under
those requirements, the amount of capital and surplus main-
tained by a life insurance company is to be determined based
on the various risk factors related to it. At December 31,
1996, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and can-
not be made except from earned profits. The maximum amount
of dividends that may be paid by life insurance companies
without prior approval of the Indiana Insurance Commissioner
is subject to restrictions relating to statutory surplus and
net gain from operations. In 1997, the Company can pay divi-
dends of $281,100,000 without prior approval of the Indiana
Insurance Commissioner.
8.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 se-
curities, corporate obligations and government bonds.
All benefits applicable to the funded defined benefit plan
for agents were frozen as of December 31, 1994. The curtail-
ment 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
S-14
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
8.EMPLOYEE BENEFIT PLANS CONTINUED
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, non-qualified,
defined benefit plans for certain employees and agents. A
supplemental retirement plan provides employees and agents
defined benefit pension benefits in excess of limits imposed
by Federal tax law. A salary continuation plan provides cer-
tain officers of the Company defined pension benefits based
on years of service and final monthly salary upon death or
retirement.
The status of the funded defined benefit pension plans and
the amounts recognized in the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1996
------- 1995
(in millions)
----------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(156.9) $(146.1)
-------------------------------------------------------------------------
Nonvested benefits (6.0) (7.7)
-------------------------------------------------------------------------
------- -------
Accumulated benefit obligation (162.9) (153.8)
-------------------------------------------------------------------------
Effect of projected future compensation increases (27.9) (28.5)
-------------------------------------------------------------------------
------- -------
Projected benefit obligation (190.8) (182.3)
-------------------------------------------------------------------------
Plan assets at fair value 186.1 173.2
-------------------------------------------------------------------------
------- -------
Projected benefit obligation in excess of plan assets (4.7) (9.1)
-------------------------------------------------------------------------
Unrecognized net loss 4.9 9.3
-------------------------------------------------------------------------
Unrecognized prior service cost 1.4 1.5
-------------------------------------------------------------------------
------- -------
Prepaid pension costs included in other liabilities $ 1.6 $ 1.7
-------------------------------------------------------------------------
======= =======
</TABLE>
The status of the unfunded defined benefit pension plans and
the amounts recognized in the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1996
----- 1995
(in
millions)
------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(6.6) $(6.4)
-------------------------------------------------------------------
Nonvested benefits (.9) (1.1)
-------------------------------------------------------------------
----- -----
Accumulated benefit obligation (7.5) (7.5)
-------------------------------------------------------------------
Effect of projected future compensation increases (1.1) (1.7)
-------------------------------------------------------------------
----- -----
Projected benefit obligation (8.6) (9.2)
-------------------------------------------------------------------
Unrecognized net loss (gain) (.1) .9
-------------------------------------------------------------------
Unrecognized prior service cost .2 .3
-------------------------------------------------------------------
----- -----
Accrued pension costs included in other liabilities $(8.5) $(8.0)
-------------------------------------------------------------------
===== =====
</TABLE>
S-15
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
8.EMPLOYEE BENEFIT PLANS CONTINUED
The determination of the projected benefit obligation for
the defined benefit plans was based on the following assump-
tions:
<TABLE>
<CAPTION>
December 31
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 7.0% 8.0%
----------------------------------------------------------------------
Rate of increase in compensation:
----------------------------------------------------------------------
Salary continuation plan 5.5 6.0 6.5
----------------------------------------------------------------------
All other plans 4.5 5.0 5.0
----------------------------------------------------------------------
Expected long-term rate of return on plan assets 9.0 9.0 9.0
----------------------------------------------------------------------
The components of net pension cost for the defined benefit
pension plans are as follows:
<CAPTION>
Year ended
December 31
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Service cost--benefits earned during the year $ 5.2 $ 4.1 $ 7.9
------------------------------------------------------------------------
Interest cost on projected benefit obligation 12.9 11.9 11.6
------------------------------------------------------------------------
Actual return on plan assets (17.5) (32.0) 4.2
------------------------------------------------------------------------
Net amortization (deferral) 3.1 20.3 (16.7)
------------------------------------------------------------------------ ----- ----- -----
Net pension cost $ 3.7 $ 4.3 $ 7.0
------------------------------------------------------------------------ ===== ===== =====
</TABLE>
401K PLAN
LNC and the Company sponsor contributory defined contribu-
tion 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, multi-
plied 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 $9,300,000, $6,700,000 and $11,200,000 in 1996, 1995 and
1994, respectively.
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 par-
ticipants can elect supplemental contributory benefits.
The status of the postretirement medical and life insur-
ance benefit plans and the amounts recognized in the bal-
ance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
--------------------------
(in millions)
--------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(32.4) $(37.9)
------------------------------------------------------------------------
Fully eligible active plan participants (8.2) (8.7)
------------------------------------------------------------------------ ------ ------
Accumulated postretirement benefit obligation (40.6) (46.6)
------------------------------------------------------------------------
Unrecognized net loss (gain) (7.0) .8
------------------------------------------------------------------------ ------ ------
Accrued plan cost included in other liabilities $(47.6) $(45.8)
------------------------------------------------------------------------ ====== ======
</TABLE>
S-16
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
8.EMPLOYEE BENEFIT PLANS CONTINUED
The components of periodic postretirement benefit cost
are as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1996 1995 1994
---------------------------------
(in millions)
----------------
<S> <C> <C> <C>
Service cost $1.3 $1.1 $1.4
------------------------------------------------------------------------
Interest cost 2.7 3.0 3.1
------------------------------------------------------------------------
Amortized cost (credit) (.5) (.4) .1
------------------------------------------------------------------------ ---- ---- ----
Net periodic postretirement benefit cost $3.5 $3.7 $4.6
------------------------------------------------------------------------ ==== ==== ====
</TABLE>
The calculation of the accumulated postretirement benefit
obligation assumes a weighted-average annual rate of in-
crease in the per capita cost of covered benefits (i.e.,
health care cost trend rate) of 8.5% for 1997. It further
assumes the rate will gradually decrease to 5.0% by 2005 and
remain at that level. The health care cost trend rate as-
sumption 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
31, 1996 and 1995 by $1,900,000 and $2,100,000, respective-
ly. The aggregate of the estimated service and interest cost
components of net periodic postretirement benefit cost for
the year ended December 31, 1996 would increase by $184,000.
The calculation assumes a long-term rate of increase in com-
pensation of 4.5% and 5.0% at December 31, 1996 and 1995,
respectively. The weighted-average discount rate used in de-
termining the accumulated postretirement benefit obligation
was 7.0% for both December 31, 1996 and 1995.
9.RESTRICTIONS, COMMITMENTS AND
CONTINGENCIES
DISABILITY INCOME POLICIES
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1996 and 1995 is a net
liability of $572,000,000 and $503,800,000, respectively. This liability is
based on the assumption that the recent experience will continue in the fu-
ture. If incidence levels or claim termination rates vary significantly
from these assumptions, adjustments to reserves may be required in the fu-
ture. Accordingly, this liability may prove to be deficient or excessive.
However, it is management's opinion that such future development will not
materially affect the financial position of the Company. The Company con-
tinually reviews and updates the level of these reserves.
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, net income decreased by $15,200,000 as a result of strengthen-
ing the disability income reserve.
MARKETING AND COMPLIANCE ISSUES
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with poli-
cies that were less advantageous to the policyholder. The Company's manage-
ment continues to monitor the Company's sales materials and compliance pro-
cedures and is making an extensive effort to minimize any potential liabil-
ity. However, due to the uncertainty surrounding such matters, it is not
possible to provide a meaningful estimate of the range of potential out-
comes at this time.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity con-
tracts, which are no longer being sold by the Company, are supported by a
single portfolio of assets that attempts to match the duration of these li-
abilities. Due to the very long-term nature of group pension annuities and
the resulting inability to exactly match cash flows, a risk exists that fu-
ture cash flows from investments will not be reinvested at rates as high as
currently earned by the portfolio. Accordingly, these liabilities may prove
to be deficient or excessive. However, it is management's opinion that such
future development will
S-17
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain affili-
ates. The portion of risks exceeding the Company's retention limit is rein-
sured with other insurers. Industry regulations prescribe the maximum cov-
erage that the Company can retain on an individual insured. As of December
31, 1996, the Company's maximum retention on a single insured was
$3,000,000. To cover products other than life insurance, the Company ac-
quires other insurance coverages with retentions and limits that management
believes are appropriate for the circumstances. The accompanying financial
statements reflect premiums and benefits and settlement expenses, net of
insurance ceded. The Company remains liable if its reinsurers are unable to
meet their contractual obligations under the applicable reinsurance agree-
ments.
The Company assumes insurance from other companies, including certain af-
filiates. At December 31, 1996, the Company has provided $17,200,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receiv-
ables 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.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1996, the Company did not have a concentration of: 1) busi-
ness transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or service; 3) sources of supply of la-
bor or services used in the business; or 4) a market or geographic area in
which business is conducted that makes it vulnerable to an event that is at
least reasonably possible to occur in the near term and which could cause a
severe impact to the Company's financial condition.
9.RESTRICTIONS, COMMITMENTS AND
CONTINGENCIES CONTINUED
not materially affect the financial position of the Company.
LEASES
The Company leases its home office properties. 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 value as
defined in the agreements on the last day of the initial 25 year lease pe-
riod ending in 2009 or on the last day of any of the renewal periods.
Total rental expense on operating leases in 1996, 1995 and 1994 was
$26,400,000, $22,500,000 and $20,600,000, respectively. Future minimum
rental commitments are as follows (in millions):
<TABLE>
<S> <C>
1997 $ 17.5
1998 17.1
1999 17.4
2000 16.9
2001 17.2
Thereafter 151.6
------
$237.7
======
</TABLE>
S-18
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
9.RESTRICTIONS, COMMITMENTS AND
CONTINGENCIES CONTINUED
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. In some instances, these proceedings
include claims for unspecified or substantial punitive damages and similar
types of relief in addition to amounts for alleged contractual liability or
requests for equitable relief. After consultation with legal counsel and a
review of available facts, it is management's opinion that these proceed-
ings ultimately will be resolved without materially affecting the financial
position or results of operations 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 rehabili-
tated 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.
REINSURANCE
The regulatory required liability for unsecured reserves ceded to unautho-
rized reinsurers was $4,300,000 and $5,600,000 at December 31, 1996 and
1995, respectively.
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
-----------------
1996 1995
--------------------
(in millions)
-----------------
<S> <C> <C>
Mortgage loan pass-through certificates $ 50.3 $ 63.6
Real estate partnerships .5 3.3
-------- --------
$ 50.8 $ 66.9
======== ========
</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 addi-
tion, the Company has sold commercial mortgage loans through grantor trusts
which issued pass-through certificates. The Company has agreed to repur-
chase any mortgage loans which remain delinquent for 90 days at a repur-
chase 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, 1996 and 1995.
S-19
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
9.RESTRICTIONS, COMMITMENTS AND CONTINGENCIES CONTINUED
DERIVATIVES
The Company has derivatives with off-balance-sheet risks
whose notional or contract amounts exceed the credit ex-
posure. The Company has entered into derivative transac-
tions 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
1996 1995 1996 1996 1995 1995
---------------------------------------------
(in millions)
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate
derivatives:
Interest rate cap
agreements $5,500.0 $5,110.0 $20.8 $ 8.2 $22.7 $5.3
Spread-lock agreements -- 600.0 -- -- (.9) (.9)
Swaptions 672.0 -- 11.0 10.6 -- --
Financial futures
contracts 147.7 -- (2.4) (2.4) -- --
Interest rate swaps -- 5.0 -- -- .2 .2
-------- -------- ----- ----- ----- ----
6,319.7 5,715.0 29.4 16.4 22.0 4.6
Foreign currency
derivatives:
Foreign exchange forward
contracts 251.5 15.7 .2 (.2) (.6) (.6)
Foreign currency options 43.9 99.2 .6 .4 1.9 1.4
Foreign currency swaps 15.0 15.0 -- (2.1) .4 .4
-------- -------- ----- ----- ----- ----
310.4 129.9 .8 (1.9) 1.7 1.2
-------- -------- ----- ----- ----- ----
$6,630.1 $5,844.9 $30.2 $14.5 $23.7 $5.8
======== ======== ===== ===== ===== ====
</TABLE>
S-20
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
9.RESTRICTIONS, COMMITMENTS AND CONTINGENCIES CONTINUED
A reconciliation and discussion of the notional or contract
amounts for the significant programs using derivative agree-
ments and contracts at December 31 is as follows:
<TABLE>
<CAPTION>
Interest Rate Caps Spread Locks Swaptions
----------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------
(in millions)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year $ 5,110.0 $ 4,400.0 $ 600.0 $ 1,300.0 $ -- $ --
New contracts 390.0 710.0 15.0 800.0 672.0 --
Terminations and -- -- (615.0) (1,500.0) -- --
maturities --------- --------- --------- --------- --------- ---------
Balance at end of year $ 5,500.0 $ 5,110.0 $ -- $ 600.0 $ 672.0 $ --
========= ========= ========= ========= ========= =========
<CAPTION>
Financial Futures
------------------------------------------
Contracts Options Interest Rate Swaps
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year $ -- $ 382.5 $ -- $ -- $ 5.0 $ --
New contracts 7,918.8 810.5 -- 181.6 -- --
Terminations and (7,771.1) (1,193.0) -- (181.6) (5.0) --
maturities --------- --------- --------- --------- --------- ---------
Balance at end of year $ 147.7 $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= ========= =========
<CAPTION>
Foreign Currency Derivatives
----------------------------------------------------------------------
Foreign Exchange Foreign Currency Foreign
Forward Contracts Options Currency Swaps
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------
(in millions)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year $ 15.7 $ 21.2 $ 99.2 $ -- $ 15.0 $ --
New contracts 406.9 131.2 1,168.8 356.6 -- 15.0
Terminations and (171.1) (136.7) (1,224.1) (257.4) -- --
maturities --------- --------- --------- --------- --------- ---------
Balance at end of year $ 251.5 $ 15.7 $ 43.9 $ 99.2 $ 15.0 $ 15.0
========= ========= ========= ========= ========= =========
</TABLE>
S-21
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
9.RESTRICTIONS, COMMITMENTS AND
CONTINGENCIES CONTINUED
INTEREST RATE CAPS
The interest rate cap agreements, which expire in 1997 through 2003, enti-
tle 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 multiplied by the notional
amount divided by four. The purpose of the Company's interest rate cap
agreement program is to protect its annuity line of business from the ef-
fect of fluctuating interest rates. The premium paid for the interest rate
caps is included in other assets ($20,800,000 as of December 31, 1996) and
is being amortized over the terms of the agreements. This amortization is
included in net investment income.
SWAPTIONS
Swaptions, which expire in 2002, entitle the Company to receive settlement
payments from the counterparties on specified expiration dates, contingent
on future interest rates. For each swaption, the amount of such settlement
payments, if any, is determined by the present value of the difference be-
tween the fixed rate on a market rate swap and the strike rate multiplied
by the notional amount. The purpose of the Company's swaption program is to
protect the assets supporting its annuity line of business from the effect
of fluctuating interest rates. The premium paid for the swaptions is in-
cluded in other assets ($11,000,000 as of December 31, 1996) and is being
amortized over the terms of the agreements. This amortization is included
in net investment income.
SPREAD LOCKS
Spread-lock agreements provide for a lump sum payment to or by the Company,
depending on whether the spread between the swap rate and a specified 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. It is ex-
pressed 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. They may be settled in cash or
through delivery of the financial instrument. Cash settlements on the
change in market values of financial futures contracts are made daily. Op-
tions on financial futures give the Company the right, but not the obliga-
tion, to assume a long or short position in the underlying futures at a
specified price during a specified time period.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts, for-
eign currency options and foreign currency swaps, all of which are traded
over-the-counter, to hedge some of the foreign exchange risk of investments
in fixed maturity securities denominated in foreign currencies. The foreign
currency forward contracts obligate the Company to deliver a specified
amount of currency at a future date at a specified exchange rate. Foreign
currency options give the Company the right, but not the obligation, to buy
or sell a foreign currency at a specific exchange rate during a specified
time period. A foreign currency swap is a contractual agreement to exchange
the currencies of two different countries pursuant to an agreement to re-
exchange the two currencies at the same rate of exchange at a specified fu-
ture date.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$6,900,000 and $5,600,000 in 1996 and 1995, respectively. Deferred losses
of $37,600,000 as of December 31, 1996, were the result of: 1) terminated
and expired spread-lock agreements; and 2) financial futures contracts.
These losses are included with the related fixed maturity securities to
which the hedge applied and are being amortized over the life of such secu-
rities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, swaptions, spread-lock
agreements, interest rate swaps, foreign exchange forward contracts, for-
eign currency options and foreign currency swaps. However, the Company does
not anticipate nonperformance by any of these counterparties. The credit
risk associated with such agreements is minimized by purchasing such agree-
ments 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, 1996, the exposure
was $17,500,000.
10.FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values. Ac-
S-22
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
10.FAIR VALUE OF FINANCIAL INSTRUMENTS
CONTINUED
cordingly, the estimates shown are not necessarily indicative of the
amounts that would be realized in a one-time, current market exchange of
all of the Company's financial instruments.
BONDS
Fair values of bonds are based on quoted market prices, where available.
For bonds not actively traded, fair values are estimated using values ob-
tained from independent pricing services. In the case of private place-
ments, fair values are estimated by discounting expected future cash flows
using a current market rate applicable to the coupon rate, credit quality
and maturity of the investments. The fair values of affiliated common
stocks 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 sim-
ilar characteristics. The rating for mortgages in good standing are based
on property type, location, market conditions, occupancy, debt service cov-
erage, loan to value, caliber of tenancy, borrower and payment record. Fair
values for impaired mortgage loan are measured based on: 1) the present
value of expected future cash flows discounted at the loan's effective in-
terest rate; 2) the loan's market price; or 3) the fair value of the col-
lateral 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 consis-
tent 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 sheet approximates their fair
value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future Policy Benefits and Claims" and "Other
Policyholder Funds," include investment-type insurance contracts (i.e., de-
posit 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 guar-
anteed interest and similar contracts are based on their approximate sur-
render values. The fair values for the remaining guaranteed interest and
similar contracts are estimated using discounted cash flow calculations.
These calculations are based on interest rates currently offered on similar
contracts with maturities consistent with those remaining for the contracts
being valued.
The remainder of the balance sheet captions "Future Policy Benefits and
Claims" and "Other Policyholder Funds," that do not fit the definition of
"investment type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and
have not been determined by the Company. It is the Company's position that
the disclosure of the fair value of these insurance contracts is important
because readers of these financial statements could draw inappropriate con-
clusions about the Company's capital and surplus determined on a fair value
basis. It could be misleading if only the fair value of assets and liabili-
ties 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 insur-
ance contract liabilities.
SHORT-TERM DEBT
Fair values of short-term debt approximates carrying values.
GUARANTEES
The Company's guarantees include guarantees related to real estate partner-
ships and mortgage loan pass-through certificates. Based on historical per-
formance where repurchases have been negligible and the current status,
which indicates none of the loans are delinquent, the fair value liability
for the guarantees related to the mortgage loan pass-through certificates
is insignificant.
DERIVATIVES
The Company's derivatives include interest rate cap agreements, swaptions,
spread-lock agreements, foreign currency exchange contracts, financial
futures contracts, options on financial futures, interest rate swaps, call
options, foreign currency options and foreign currency swaps.
Fair values for derivative contracts are based on current settlement val-
ues. These values are based on: 1) quoted market prices for the foreign
currency exchange contracts, financial future contracts, and options on fi-
nancial futures; and 2) brokerage quotes that utilized pricing models or
formulas using current assumptions for all other swaps and agreements.
S-23
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
10.FAIR VALUE OF FINANCIAL INSTRUMENTS
CONTINUED
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real es-
tate are based on the difference between the value of the committed invest-
ments as of the date of the accompanying balance sheets and the commitment
date. These estimates would take into account changes in interest rates,
the counterparties' credit standing and the remaining terms of the commit-
ments.
S-24
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
10.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
----------------------------------------------
1996 1995
---------------------- ----------------------
Carrying Fair Carrying Fair
Assets (Liabilities) value value value value
---------------------------------------- ---------- ---------- ---------- ----------
(in millions)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 19,389.6 $ 20,194.4 $ 17,729.7 $ 19,184.7
----------------------------------------
Preferred stock 239.7 248.5 89.9 103.6
----------------------------------------
Unaffiliated common stock 358.3 358.3 535.5 535.5
----------------------------------------
Mortgage loans on real estate 2,976.7 3,070.9 2,909.7 3,081.9
----------------------------------------
Policy loans 626.5 612.7 515.8 504.0
----------------------------------------
Other investments 282.7 282.7 248.0 248.0
----------------------------------------
Cash and short-term investments 759.2 759.2 780.9 780.9
----------------------------------------
Investment type insurance contracts:
----------------------------------------
Deposit contracts and certain
guaranteed interest contracts (17,871.6) (17,333.0) (15,586.7) (15,046.0)
----------------------------------------
Remaining guaranteed interest and
similar contracts (1,799.7) (1,835.4) (2,261.1) (2,340.4)
----------------------------------------
Short-term debt (100.0) (100.0) (63.0) (63.0)
----------------------------------------
Derivatives 26.5 13.8 23.7 5.8
----------------------------------------
Investment commitments -- (.6) -- (.8)
----------------------------------------
</TABLE>
11.ACQUISITIONS AND SALES OF SUBSIDIARIES
The Company sold its 100% interest in two subsidiaries--Se-
curity Connecticut Life Insurance Company ("SCL") and Em-
ployers Health Insurance Company ("EHI"). SCL was sold
through a public offering of stock in January 1994. This
transaction resulted in a realized gain of $90,000,000 and a
direct increase in surplus of $24,000,000. Net of expenses,
the Company received cash of $172,000,000 and notes of
$65,000,000.
EHI was also sold through public offerings in March and
April 1994. LNC purchased 29% of the stock of the new pub-
licly traded holding company from LNL. Prior to the sale,
the Company received a $50,000,000 dividend in the form of a
note. The sale transaction resulted in a realized gain of
$133,000,000 and a direct reduction in surplus of
$21,000,000 due to release of unrealized gain amounts, for a
net surplus increase of $112,000,000. Net of expenses, the
Company received cash of $348,000,000.
In October 1996, the Company and its wholly owned subsidiary
purchased a block of group tax qualified annuity business
from UNUM Corporation. The transaction was completed in the
form of a reinsurance transaction, which resulted in a ced-
ing commission of $71,800,000. The ceding commission has
been recorded as admissible goodwill of $62,300,000, which
is to be amortized on a straight-line basis over 10 years.
The Company's subsidiary was required by the New York De-
partment of Insurance to expense its portion of the ceding
commission in 1996. Policy liabilities and related accruals
of the Company and its wholly owned subsidiary increased by
$3,200,000,000 as a result of this transaction.
In its previously-filed 1996 NAIC Annual Statement, the Com-
pany recorded the ceding commission as a nonadmitted asset,
which was charged directly to unassigned surplus. According-
ly, unassigned surplus was understated at December 31, 1996
by $62,300,000, net of amortization in 1996. In 1997, man-
agement will correct its opening balance of unassigned sur-
plus in its NAIC Annual Statement.
S-25
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
The balance sheets include reinsurance balances with affiliated companies
as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
-------- --------
(in millions)
-----------------
<S> <C> <C>
Future policy benefits and claims assumed $ 312.7 $ 344.8
Future policy benefits and claims ceded 891.8 1,344.5
Amounts recoverable on paid and unpaid losses 31.2 65.9
Reinsurance payable on paid losses 2.7 5.5
Funds held under reinsurance treaties--net liability 1,062.4 712.3
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with unau-
thorized companies. To take a reserve credit for such reinsurance, the Com-
pany holds assets from the reinsurer, including funds held under reinsur-
ance treaties, and is the beneficiary on letters of credit aggregating
$314,200,000 and $306,800,000 at December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, LNC had guaranteed $239,200,000 and
$241,400,000, respectively, of these letters of credit. At December 31,
1996, the Company has a receivable (included in the foregoing amounts) from
affiliated insurance companies in the amount of $135,700,000 for statutory
surplus relief received under financial reinsurance ceded agreements.
13. SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying bal-
ance sheets represent funds that are separately administered, principally
for annuity contracts, and for which the contractholder, rather than the
Company, bears the investment risk. Separate account contractholders have
no claim against the assets of the general account of the Company. Separate
account assets are reported at fair value and consist primarily of long-
term bonds, common stocks, short-term investments and mutual funds. The de-
tailed operations of the separate accounts are not included in the accompa-
nying financial statements. Fees charged on separate account policyholder
deposits are included in other income.
Separate account premiums, deposits and other considerations amounted to
$4,148,700,000, $3,068,200,000 and $2,694,700,000 in 1996, 1995 and 1994,
respectively. Reserves for separate accounts with assets at fair value were
$23,047,800,000 and $17,891,400,000 at December 31, 1996 and 1995, respec-
tively. All reserves are subject to discretionary withdrawal at market val-
ue. Substantially all of the Company's separate accounts are nonguaranteed.
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 of-
fices. For providing these selling and marketing services, the Company paid
LFGI override commissions and operating expense allowances of $56,300,000,
$43,300,000 and $41,200,000 in 1996, 1995 and 1994, respectively. LFGI in-
curred expenses of $15,700,000, $10,400,000 and $10,700,000 in 1996, 1995
and 1994, respectively, in excess of the override commissions and operating
expense allowances received from the Company, which the Company is not re-
quired to reimburse.
Cash and short-term investments at December 31, 1996 and 1995 include the
Company's participation in a short-term investment pool with LNC of
$175,100,000 and $324,000,000, respectively. Related investment income
amounted to $15,300,000, $21,100,000 and $16,100,000 in 1996, 1995 and
1994, respectively. Other liabilities at December 31, 1996 and 1995 include
$100,000,000 of notes payable to LNC.
The Company provides services to and receives services from affiliated com-
panies which resulted in a net payment of $34,100,000 and $24,900,000 in
1996 and 1995, respectively.
The Company both cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statement of income includes reinsurance
transactions with affiliated companies as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1996 1995 1994
------ ------ ------
(in millions)
--------------------
<S> <C> <C> <C>
Insurance assumed $ 17.9 $ 17.6 $ 19.8
Insurance ceded 302.8 214.4 481.3
</TABLE>
S-26
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS CONTINUED
13. SEPARATE ACCOUNTS CONTINUED
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1996 1995
----------------------------------------------------
(in millions)
---------------------
<S> <C> <C>
Transfers as reported in the Summary of
Operations of various Separate Accounts:
Transfers to separate accounts $ 4,149.6 $ 3,070.2
Transfers from separate accounts (2,058.5) (1,457.8)
--------- ---------
Net transfer to separate accounts as reported
in the Company's NAIC Annual Statement $ 2,091.1 $ 1,612.4
========= =========
</TABLE>
S-27
<PAGE>
OTHER FINANCIAL INFORMATION
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of The Lincoln
National Life Insurance Company (a wholly owned subsidiary of Lincoln National
Corporation) as of December 31, 1996 and 1995, and the related statutory-basis
statements of income, changes in capital and surplus and cash flows for each of
the three years in the period ended December 31, 1996. These financial state-
ments are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or per-
mitted by the Indiana Department of Insurance, which practices differ from gen-
erally accepted accounting principles. The variances between such practices and
generally accepted accounting principles and the effects on the accompanying
financial statements are also described in Note 1.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial posi-
tion of The Lincoln National Life Insurance Company at December 31, 1996 and
1995, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1996.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Lincoln Na-
tional Life Insurance Company at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with accounting practices prescribed or
permitted by the Indiana Department of Insurance.
As described in Note 2, in 1994 the Company changed its method of accounting
for separate account contracts.
/s/ Ernst & Young LLP
February 6, 1997
S-28
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
DECEMBER 31, 1996 (IN MILLIONS)
<TABLE>
<S> <C>
Investment income earned:
Government bonds $ 74.6
---------------------------------------------------------------------
Other bonds (unaffiliated) 1,367.6
---------------------------------------------------------------------
Preferred stocks (unaffiliated) 9.6
---------------------------------------------------------------------
Common stocks (unaffiliated) 6.5
---------------------------------------------------------------------
Common stocks of affiliates 9.5
---------------------------------------------------------------------
Mortgage loans 269.3
---------------------------------------------------------------------
Real estate 114.4
---------------------------------------------------------------------
Premium notes, policy loans and liens 35.0
---------------------------------------------------------------------
Cash on hand and on deposit 0.9
---------------------------------------------------------------------
Short-term investments 48.0
---------------------------------------------------------------------
Other invested assets 17.6
---------------------------------------------------------------------
Derivative instruments (6.3)
---------------------------------------------------------------------
Aggregate write-ins for investment income 11.1
----------------------------------------------------------- --------
Gross investment income $1,957.8
- ------------------------------------------------------------- ========
Real estate owned (cost, less encumbrances) $ 621.3
- ------------------------------------------------------------- ========
Mortgage loans (unpaid balance):
Farm mortgages $ 1.1
---------------------------------------------------------------------
Residential mortgages 3.7
---------------------------------------------------------------------
Commercial mortgages 2,971.9
----------------------------------------------------------- --------
Total mortgage loans $2,976.7
- ------------------------------------------------------------- ========
Mortgage loans by standing (unpaid balance):
Good standing $2,922.1
----------------------------------------------------------- ========
Good standing with restructured terms $ 39.6
----------------------------------------------------------- ========
Interest overdue more than three months, not in foreclosure $ --
----------------------------------------------------------- ========
Foreclosure in process $ 14.9
----------------------------------------------------------- ========
Other long-term assets (statement value) $ 248.1
- ------------------------------------------------------------- ========
</TABLE>
S-29
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA CONTINUED
DECEMBER 31, 1996 (IN MILLIONS)
<TABLE>
<S> <C>
Bonds and stocks of parent, subsidiaries and affiliates (cost):
Common stocks $ 194.0
------------------------------------------------------------- ==========
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less $ 1,618.0
-------------------------------------------------------------
Over 1 year through 5 years 5,928.1
-------------------------------------------------------------
Over 5 years through 10 years 6,025.9
-------------------------------------------------------------
Over 10 years through 20 years 3,670.6
-------------------------------------------------------------
Over 20 years 2,860.4
------------------------------------------------------------- ----------
Total by maturity $ 20,103.0
- --------------------------------------------------------------- ==========
Bonds by class (statement value):
Class 1 $ 14,013.7
-------------------------------------------------------------
Class 2 4,504.1
-------------------------------------------------------------
Class 3 807.6
-------------------------------------------------------------
Class 4 705.9
-------------------------------------------------------------
Class 5 71.4
-------------------------------------------------------------
Class 6 0.3
------------------------------------------------------------- ----------
Total by class $ 20,103.0
- --------------------------------------------------------------- ==========
Total bonds publicly traded $ 16,520.3
- --------------------------------------------------------------- ==========
Total bonds privately placed $ 3,582.7
- --------------------------------------------------------------- ==========
Preferred stocks (cost or amortized cost) $ 239.7
- --------------------------------------------------------------- ==========
Unaffiliated common stocks (market value) $ 358.3
- --------------------------------------------------------------- ==========
Short-term investments (cost or amortized cost) $ 713.4
- --------------------------------------------------------------- ==========
Financial options and caps owned (statement value) $ 32.2
- --------------------------------------------------------------- ==========
Financial options and caps written (statement value) $ 0.3
- --------------------------------------------------------------- ==========
Swap and forward agreements open (statement value) $ 0.2
- --------------------------------------------------------------- ==========
Futures contracts open (current value) $ 161.2
- --------------------------------------------------------------- ==========
Cash on deposit $ 45.8
- --------------------------------------------------------------- ==========
Life insurance in-force:
Ordinary $ 97.9
------------------------------------------------------------- ==========
Group life $ 31.4
------------------------------------------------------------- ==========
</TABLE>
S-30
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA CONTINUED
DECEMBER 31, 1996 (IN MILLIONS)
<TABLE>
<S> <C>
Amount of accidental death insurance in-force under ordinary policies $ 4.9
- ----------------------------------------------------------------------------------------------- =========
Life insurance policies with disability provisions in-force:
Ordinary $ 4.9
--------------------------------------------------------------------------------------------- =========
Group life $ 12.9
--------------------------------------------------------------------------------------------- =========
Supplementary contracts in-force:
Ordinary--not involving life contingencies:
Amount on deposit $ --
--------------------------------------------------------------------------------------------- =========
Income payable $ 3.2
--------------------------------------------------------------------------------------------- =========
Ordinary--involving life contingencies:
Income payable $ 0.9
--------------------------------------------------------------------------------------------- =========
Group--not involving life contingencies:
Income payable $ --
--------------------------------------------------------------------------------------------- =========
Group--involving life contingencies:
Income payable $ 0.9
--------------------------------------------------------------------------------------------- =========
Annuities:
Ordinary:
Immediate--amount of income payable $ 68.4
--------------------------------------------------------------------------------------------- =========
Deferred--fully paid account balance $ 0.6
--------------------------------------------------------------------------------------------- =========
Deferred--not fully paid account balance $ 326.6
--------------------------------------------------------------------------------------------- =========
Group:
Amount of income payable $ --
--------------------------------------------------------------------------------------------- =========
Fully paid account balance $ --
--------------------------------------------------------------------------------------------- =========
Not fully paid account balance $ 78.1
--------------------------------------------------------------------------------------------- =========
Accident and health insurance--premiums in-force:
Ordinary $ 180.6
--------------------------------------------------------------------------------------------- =========
Group $ 97.1
--------------------------------------------------------------------------------------------- =========
Deposit funds and dividend accumulations:
Deposit funds account balance $17,456.6
--------------------------------------------------------------------------------------------- =========
Dividend accumulations--account balance $ 114.7
--------------------------------------------------------------------------------------------- =========
</TABLE>
S-31
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA CONTINUED
DECEMBER 31, 1996 (IN MILLIONS)
Claim payments 1996:
Group Accident and Health:
<TABLE>
<S> <C>
1996 $ 9.4
=====
--------------
1995 $ 3.1
=====
--------------
1994 $ 0.1
=====
--------------
1993 $ --
=====
--------------
1992 $(0.1)
=====
--------------
Prior $ --
=====
--------------
</TABLE>
S-32
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED STATUTORY-BASIS FINANCIAL DATA
NOTE--BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis financial data as
of December 31, 1996 and for the year then ended for purposes of complying with
paragraph 9 of the Annual Audited Financial Reports in the General Section of
the National Association of Insurance Commissioners' Annual Statement Instruc-
tions and agrees to or is included in the amounts reported in The Lincoln Na-
tional Life Insurance Company's 1996 Statutory Annual Statement as filed with
the Indiana Department of Insurance.
S-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
OTHER FINANCIAL INFORMATION
Board of Directors
The Lincoln National Life Insurance Company
Our audits were conducted for the purpose of forming an
opinion on the statutory-basis financial statements taken as
a whole. The accompanying supplemental schedule of selected
statutory-basis financial data is presented to comply with
the National Association of Insurance Commissioners' Annual
Statement Instructions and is not a required part of the
statutory-basis financial statements. Such information has
been subjected to the auditing procedures applied in our au-
dit of the statutory-basis financial statements and, in our
opinion, is fairly stated in all material respects in rela-
tion to the statutory-basis financial statements taken as a
whole.
/s/ Ernst & Young LLP
February 6, 1997
S-34
<PAGE>
PREFACE TO THE MULTI FUND(R) PROSPECTUSES
THESE PAGES ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING FUNDS:
Lincoln National Growth and Income Fund, Inc. (GI)
Lincoln National Special Opportunities Fund, Inc. (SO)
Preface/Directory
Shares of all the funds are sold to Lincoln National Life Insurance Co.
(Lincoln Life) for allocation to its Variable Annuity Account C (the variable
annuity account [VAA]) to fund variable annuity contracts and for allocation to
its Variable Life Account K to fund variable life insurance contracts.
To fund its variable life contracts, Variable Life Account D buys shares of the
Bond, Growth and Income, Managed, Money Market and Special Opportunities Funds.
To fund its variable life contracts, Variable Life Account G buys shares of the
Growth and Income and Special Opportunities Funds.
Each of these Variable Life and Annuity Accounts may be referred to as a
variable account. For each fund listed above, see Description of the fund in
its Prospectus for a statement of that fund's investment objective. Each of
these funds is referred to individually as a fund; collectively, as the funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THESE PROSPECTUSES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
These Prospectuses set forth concisely the information about each fund that you
ought to know before investing. Please read and keep this Prospectus booklet
for future reference.
A separate Statement of Additional Information (SAI) for each fund has been
filed with the SEC. By this reference, each SAI, dated May 1, 1997, is
incorporated into the Prospectus of the fund with which it is registered. A
free copy will be provided upon request. Either write Lincoln National Life
Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-4LINCOLN
(454-6265).
The Financial Highlights table of each fund contains per-share data calculated
on the basis of a share outstanding throughout the period, together with
financial ratios and other supplemental data. The Financial Highlights table is
incorporated by reference to the fund's 1996 Annual Report. A copy of the
Annual Report will be provided on request and without charge. Either write
Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801
or call 1-800-4LINCOLN (454-6265).
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THESE
PROSPECTUSES, IN CONNECTION WITH THE OFFERS CONTAINED IN THEM. IF ANY ARE GIVEN
OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND(S) IN QUESTION. THESE PROSPECTUSES DO NOT
CONSTITUTE OFFERS BY THE FUNDS TO SELL, OR SOLICITATIONS OF ANY OFFERS TO BUY,
ANY OF THE SECURITIES OFFERED BY THEM IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL FOR THE FUNDS TO MAKE THOSE OFFERS.
Prospectuses dated May 1, 1997
F-1
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUSES
Preface/Directory
<TABLE>
<CAPTION>
Subject Page
- -------------------------------------------------------------
<S> <C>
PREFACE F-1
DESCRIPTION OF THE FUND
Growth and Income Fund F-3
Special Opportunities Fund F-5
- -------------------------------------------------------------
INVESTMENT POLICIES AND TECHNIQUES
Growth and Income Fund F-3
Special Opportunities Fund F-5
- -------------------------------------------------------------
INVESTMENT RESTRICTIONS
Growth and Income Fund F-3
Special Opportunities Fund F-6
- -------------------------------------------------------------
STRATEGIC PORTFOLIO TRANSACTIONS
Growth and Income Fund F-4
Special Opportunities Fund F-7
- -------------------------------------------------------------
APPENDIX - CONTAINS IMPORTANT INFORMATION FOR ALL FUNDS
Net asset value F-9
Management of the funds F-9
Purchase of securities being offered F-11
Sale and redemption of shares F-12
Distributions and federal income tax considerations F-12
Management discussion of fund performance F-12
Description of shares F-12
Strategic portfolio transactions-additional information F-13
Foreign investments F-15
General information F-16
Statement of Additional Information
Table of contents - 11 underlying funds F-18
</TABLE>
F-2
<PAGE>
This filing is made pursuant to Rule 6e-3(T)
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION PURSUANT TO SECTION 26(e) (2) (A)
OF THE INVESTMENT COMPANY ACT OF 1940
Lincoln National Life Insurance Company hereby represents that the fees and
charges deducted under the Policies registered by this registration statement,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Lincoln National Life
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
Reconciliation and Tie-in Sheet
The Prospectus consisting of 146 pages
The undertaking to file reports
The representations pursuant to Section 26(e) (2) (A) of the Investment Company
Act of 1940
The signatures
The written consents of the following persons:
John L. Steinkamp, Esquire
Denis G. Schwartz, FSA
Ernst & Young LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph
A of the instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of Lincoln National Life
Insurance Co. and related documents authorizing establishment
of the Account.*
(2) Not applicable.
(3) (a) Not applicable.
(b) Not applicable.
(c) Commission schedule.*
(4) Not applicable.
(5) Form of Policy.
(6) (a) Articles of Incorporation of The Lincoln National Life
Insurance Co.*
(b) Bylaws of Lincoln National Life Insurance Company.*
(7) Not applicable.
(8) Proposed form of Agreement to Purchase Shares.*
(9)(a) Proposed form of Indemnification Agreement related to
compliance with IRC Section 817(h) and the regulations
thereunder.*
(9)(b) Services Agreement between Lincoln National Life Insurance
Company, Delaware Management Holding Company, Inc. and Delaware
Services Company, Inc. dated Aug. 15, 1996.
(10) Application.*
<PAGE>
2. See Exhibit 1(5).
3. Opinion and consent of John L. Steinkamp, Vice President and
Associate General Counsel of Lincoln National Life Insurance
Company.*
4. Not applicable.
5. Not applicable.
6. Opinion and consent of Denis G. Schwartz, F.S.A.
7. Consent of Ernst & Young LLP, Independent Auditors.
8. Financial Data Schedule
* Previously filed as an exhibit to the registration statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Lincoln National Flexible Premium Variable Life Account G, certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this post-effective amendment to this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Fort Wayne, State of Indiana on this
23rd day of April 1997.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
on its own behalf as Depositor and on behalf of
LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
By: /s/ Stephen H. Lewis
---------------------------------------
Stephen H. Lewis, Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jon A. Boscia
- -------------------------- Chief Executive Officer, April 23, 1997
Jon A. Boscia President and Director
(Principal Executive Officer)
/s/ Keith J. Ryan
- -------------------------- Vice President, April 23, 1997
Keith J. Ryan Assistant Treasurer
and Chief Financial Officer
(Principal Financial Officer)
/s/ O. Douglas Worthington
- -------------------------- Vice President and Controller April 23, 1997
O. Douglas Worthington (Principal Accounting Officer)
/s/ Jack D. Hunter
- -------------------------- Executive Vice President, April 23, 1997
Jack D. Hunter General Counsel and Director
- -------------------------- Director ________, 1997
H. Thomas McMeekin
*
- -------------------------- Director April 23, 1997
Ian M. Rolland
- -------------------------- Director and ________, 1997
Lawrence T. Rowland Executive Vice President
/s/ Richard C. Vaughan
- -------------------------- Director April 23, 1997
Richard C. Vaughan
* /s/ John L. Steinkamp
- -------------------------- Pursuant to a Power of Attorney filed with
John L. Steinkamp Post-effective Amendment No. 2 to this Registration
Statement.
</TABLE>
<PAGE>
SPECIMEN COPY
[LOGO LINCOLN NATIONAL
LIFE INSURANCE CO.]
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY BE
FIXED OR MAY VARY DEPENDING ON THE INVESTMENT EXPERIENCE OF THIS POLICY AND ON
THE DEATH BENEFIT OPTION SELECTED AS DESCRIBED IN THE DEATH BENEFIT SECTION OF
THIS POLICY.
THE CASH SURRENDER VALUE MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
EXPERIENCE OF THIS POLICY. NO MINIMUM CASH SURRENDER VALUE IS GUARANTEED.
We agree to pay the Proceeds to the Beneficiary after receipt of due proof of
the death of the Insured while this Policy is in force and before the Maturity
Date.
We agree to pay the Proceeds to the Owner if the Insured is living on the
Maturity Date.
READ THIS POLICY CAREFULLY. This is a legal contract between the Owner and the
Lincoln National Life Insurance Company.
RIGHT TO RETURN THIS POLICY. This Policy may be returned to the agent through
whom it was purchased or to our Home Office by the latest of: (1) 10 days after
its receipt, or (2) 45 days after Part 1 of the application was signed, or (3)
10 days after we mail or deliver the Notice of Withdrawal Right. Upon
cancellation this Policy will be void from the beginning. The refund will be the
total of all premiums paid for this Policy.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ Jon A. Boscia /s/ C. Suzanne Womack
- ------------------------ ----------------------------
Jon A. Boscia, President C. Suzanne Womack, Secretary
Flexible Premium Variable Life Insurance Policy
Net Cash Surrender Value Payable at Maturity
Death Benefit Payable at Death Prior to Maturity Date
Adjustable Death Benefit
Flexible Premiums Payable During Lifetime
of Insured to Maturity Date
Nonparticipating - No Dividends
<PAGE>
Specimen Copy POLICY SCHEDULE
MATURITY DATE IS THE POLICY ANNIVERSARY FOLLOWING THE INSURED'S NINETY-NINTH
BIRTHDAY. COVERAGE MAY EXPIRE PRIOR TO THE MATURITY DATE IF NO PREMIUMS ARE
PAID AFTER THE INITIAL PREMIUM OR IF SUBSEQUENT PREMIUMS ARE INSUFFICIENT TO
CONTINUE COVERAGE TO SUCH DATE. COVERAGE MAY ALSO BE AFFECTED BY A CHANGE IN
CURRENT VALUES.
<TABLE>
<CAPTION>
<S> <C>
POLICY NUMBER: 20 123456 POLICY DATE: MAY 1, 1996
INSURED: ABRAHAM LINCOLN MATURITY DATE: MAY 1, 2060
INSURED'S SPECIFIED AMOUNT: MONTHLY ANNIVERSARY DAY: 01
$100,000.00
INCLUDES THE POLICY VALUE INITIAL PREMIUM: $1,000.00
MALE AGE: 35 PLANNED PERIODIC PREMIUM:
AMOUNT: $1,000.00
RATING CLASS: STANDARD-NONSMOKER FREQUENCY: ANNUALLY
MINIMUM SPECIFIED AMOUNT: $50,000 PERCENT OF PREMIUM CHARGE: 5.95%
OF ALL PREMIUMS
WITHDRAWAL CHARGE: $10.00 MONTHLY ADMINISTRATIVE CHARGE: $6.00
MINIMUM WITHDRAWAL AMOUNT: $500.00 POLICY LOAN RATE: 6% IN ADVANCE
MAXIMUM WITHDRAWAL PERCENT: 20% LOAN COLLATERAL RATE: 4%
CHARGE FOR TRANSFER: $10.00 GENERAL ACCOUNT GUARANTEED INTEREST
RATE: .32737% PER MONTH WHICH
DEATH BENEFIT GUARANTEE PERIOD: EQUALS 4% PER YEAR
24 MONTHS
DEATH BENEFIT FACTOR: 1.0032737
DEATH BENEFIT GUARANTEE MONTHLY
PREMIUM: $60.84 GUARANTEED MAXIMUM MORTALITY AND
EXPENSE RISK CHARGE RATE: .90%
</TABLE>
<PAGE>
POLICY SCHEDULE
POLICY NUMBER: 20 123456 POLICY DATE: MAY 1, 1996
INSURED: ABRAHAM LINCOLN
TABLE OF SURRENDER CHARGES
POLICY SURRENDER
YEAR CHARGE
1 $391
2 782
3 782
4 782
5 782
6 743
7 704
8 665
9 626
10 548
11 470
12 391
13 313
14 235
15 156
16 79
<PAGE>
POLICY SCHEDULE
LIST OF SUBACCOUNTS
POLICY NUMBER: 20 123456 POLICY DATE: MAY 01, 1996
INSURED: ABRAHAM LINCOLN
EACH SUBACCOUNT OF THE LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT G
INVESTS IN A SPECIFIC FUND. LISTED BELOW ARE THE SUBACCOUNTS, THE FUNDS, AND THE
INITIAL ALLOCATION OF NET PREMIUMS.
SUBACCOUNT FUND ALLOCATION
GROWTH AND INCOME LINCOLN NATIONAL GROWTH AND INCOME 50%
FUND, INC.
SPECIAL OPPORTUNITIES LINCOLN NATIONAL SPECIAL OPPORTUNITIES 50%
FUND, INC.
GROWTH AMERICAN VARIABLE INSURANCE SERIES 0%
INTERNATIONAL FUND
INTERNATIONAL AMERICAN VARIABLE INSURANCE SERIES, 0%
GROWTH FUND
GROWTH-INCOME AMERICAN VARIABLE INSURANCE SERIES, 0%
GROWTH-INCOME FUND
ASSET ALLOCATION AMERICAN VARIABLE INSURANCE SERIES, 0%
ASSET ALLOCATION FUND
HIGH-YIELD BOND AMERICAN VARIABLE INSURANCE SERIES, 0%
HIGH-YIELD BOND FUND
BOND AMERICAN VARIABLE INSURANCE SERIES, 0%
BOND FUND
U.S. GOVERNMENT GUARANTEED/ AMERICAN VARIABLE INSURANCE SERIES, 0%
AAA-RATED SECURITIES U.S. GOVERNMENT GUARANTEED/
AAA-RATED SECURITIES FUND
CASH MANAGEMENT AMERICAN VARIABLE INSURANCE SERIES, 0%
CASH MANAGEMENT FUND
IN ADDITION TO THE NET PREMIUM ALLOCATIONS ABOVE, THE INITIAL ALLOCATION OF NET
PREMIUMS TO THE GENERAL ACCOUNT IS INDICATED BELOW:
LINCOLN NATIONAL LIFE INSURANCE COMPANY GENERAL ACCOUNT 0%
<PAGE>
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
Guaranteed Maximum Cost of Insurance Rates per $1000
Standard Nonsmoker Rated Classification
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Monthly Cost of Monthly Cost of
Attained Insurance Rate Attained Insurance Rate
------------------ ----------------
Age Male Female Age Male Female
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0 .21833 .15667 50 .42750 .36167
1 .08583 .07000 51 .46667 .38917
2 .08167 .06667 52 .51167 .42083
3 .08000 .06500 53 .56333 .45583
4 .07667 .06333 54 .62083 .49167
5 .07333 .06167 55 .68500 .53000
6 .06917 .06000 56 .75500 .56833
7 .06500 .05917 57 .82917 .60583
8 .06250 .05750 58 .91167 .64333
9 .06083 .05667 59 1.00500 .68583
10 .06250 .05667 60 1.10833 .73583
11 .06750 .05833 61 1.22333 .79750
12 .07583 .06083 62 1.35667 .87417
13 .08917 .06417 63 1.50667 .96917
14 .10333 .06833 64 1.67417 1.07500
15 .11833 .07250 65 1.85750 1.18917
16 .12333 .07500 66 2.05583 1.30833
17 .13083 .07750 67 2.26833 1.42917
18 .13583 .08000 68 2.49917 1.55417
19 .13917 .08250 69 2.75583 1.69417
20 .14000 .08417 70 3.04583 1.85833
21 .13833 .08583 71 3.37667 2.05833
22 .13583 .08667 72 3.75917 2.30333
23 .13250 .08833 73 4.19333 2.59750
24 .12917 .09000 74 4.67000 2.93583
25 .12500 .09167 75 5.18000 3.31417
26 .12250 .09417 76 5.71917 3.72333
27 .12083 .09583 77 6.28333 4.16250
28 .12000 .09833 78 6.87583 4.63833
29 .12000 .10167 79 7.51583 5.16583
30 .12083 .10417 80 8.22333 5.76667
31 .12333 .10750 81 9.01750 6.45833
32 .12667 .11083 82 9.91500 7.25667
33 .13167 .11500 83 10.91250 8.15917
34 .13750 .12000 84 11.99000 9.15500
35 .14417 .12583 85 13.12417 10.23500
36 .15167 .13417 86 14.29917 11.39083
37 .16167 .14417 87 15.49917 12.62250
38 .17250 .15500 88 16.71833 13.93083
39 .18417 .16667 89 17.97417 15.32667
40 .19833 .18083 90 19.28500 16.82167
41 .21333 .19583 91 20.68167 18.45250
42 .22917 .21083 92 22.21750 20.28000
43 .24667 .22583 93 24.04333 22.43750
44 .26583 .24083 94 26.50333 25.22250
45 .28750 .25750 95 30.20667 29.24917
46 .31083 .27500 96 36.35750 35.72167
47 .33583 .29417 97 47.21167 46.86750
48 .36333 .31417 98 66.20667 66.09417
49 .39333 .33667
- -------------------------------------------------------------------------------
</TABLE>
The rates shown are for a standard nonsmoker rate class. If the Policy is based
on a rated class (other than standard nonsmoker or smoker), the maximum cost of
insurance rates will be adjusted using the rating factor shown on the Policy
Schedule for the rated class. If the rated class is a stated percentage
increase, the maximum cost of insurance rates will be determined by multiplying
the rates for a standard nonsmoker rate class shown above by the rating factor
shown on the Policy Schedule. The rates shown above are based on the 1980
Commissioners Standard Ordinary Mortality Table, Age Last Birthday for attained
ages under 16 and the 1980 Commissioners Standard Ordinary Nonsmoker Mortality
Table, Age Last Birthday for attained ages 16 and over.
<PAGE>
THE CONTRACT
THE CONTRACT. The entire contract consists of:
a. this Policy;
b. the application and any supplemental application;
c. any riders; and
d. any amendments.
This Policy is issued in consideration of the application and payment of the
Initial Premium.
A change in this Policy will be binding on us only if the change is in writing
and the change is made by our President, Vice President, Secretary, or Assistant
Secretary.
NONPARTICIPATION. This Policy is nonparticipating. It will not share in our
profits or surplus earnings.
REPRESENTATIONS AND CONTESTABILITY. All statements made in an application by,
or on behalf of, the Insured will, in the absence of fraud, be deemed
representations and not warranties. Statements may be used to contest a claim or
the validity of this Policy only if:
a. the statements are contained in the application for issue, reissue, or
reinstatement, or in any supplemental application; and
b. a copy of that application or supplemental application is attached to this
Policy.
This Policy will not be contestable after it has been in force for 2 years
during the lifetime of the Insured.
Any increase in coverage or any reinstatement will not be contestable after that
increase or reinstatement has been in force 2 years from its effective date
during the lifetime of the Insured. Any contest will then be based only on the
application for the increase or reinstatement and will be subject to "a" and "b"
above.
SUICIDE. If the Insured commits suicide, while sane or insane, within 2 years
from the Policy Date, our total liability under this Policy will be the premiums
paid, minus any policy loan, 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 2 years from the
effective date of any increase in insurance, our total liability with respect to
such increase will be its Cost of Insurance.
If the Insured commits suicide, while sane or insane, within 2 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.
POLICY DATE. The Policy Date is shown on the Policy Schedule. Policy
anniversaries occur annually on the same month and day as the Policy Date.
RECORD DATE. The Record Date is the date we record this Policy on our books as
an in-force policy.
EFFECTIVE DATE OF COVERAGE. The effective dates of coverage under this Policy
will be as follows:
1. For all coverage provided in the original application, the effective date
will be the Policy Date, provided this Policy has been delivered and the Initial
Premium has been paid prior to death of the Insured and prior to any change in
health or any other factor affecting insurability of the Insured as shown in the
application.
2. For any increase or addition to coverage, the effective date will be the
first Monthly Anniversary Day on or next following the day we approve the
application for the increase or addition.
3. For any insurance that has been reinstated, the effective date will be the
first Monthly Anniversary Day on or next following the day we approve the
application for reinstatement.
TERMINATION. All coverage under this Policy will terminate when any one of the
following occurs:
1. The grace period ends without payment of required premium and the Policy is
not being continued under the Death Benefit Guarantee provision.
2. This Policy is surrendered.
3. The Insured dies.
4. This Policy matures.
MATURITY DATE. The Maturity Date is the date this Policy matures. It is the last
date insurance coverage can remain in force and the date any remaining Net Cash
Surrender Value will be payable. The date is shown on the Policy Schedule.
Coverage will end prior to the Maturity Date if the premiums paid, plus interest
credited, plus Net Investment Results credited are not sufficient to continue
coverage to such date.
AGE. Age means the Insured's age last birthday on the Policy Date. Attained age
means age last birthday on the policy anniversary on or next preceding any
Monthly Anniversary Day.
INCORRECT AGE OR SEX. If there is an error in the age or sex of the Insured, the
excess of the Death Benefit over the Policy Value will be adjusted to that which
would be purchased by the most recent Cost of Insurance at the correct age and
sex. 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.
1
<PAGE>
Annual Report. We will send a report, without charge, to the Owner at least once
each year. It will show:
a. the current Policy Value;
b. the current Net Cash Surrender Value;
c. the amount of Policy Value;
d. the current Death Benefit;
e. any current policy loans; and
f. activity since the last report:
1) premium paid;
2) all charges; and,
3) any withdrawals,
The report will also include any other data that may be required where this
contract is delivered.
Projection of Benefits and Values. We will provide a report to the Owner which
shows projected future results. The request must be in writing on a form
suitable to us. The report will be based on assumptions in regard to:
a. the Death Benefit(s) as may be specified by the Owner;
b. planned premium payments as may be specified by the Owner; and
c. such other assumptions as are necessary and specified by us and/or the
Owner.
A reasonable fee may be charged for this report.
OWNERSHIP, BENEFICIARY, AND ASSIGNMENT
Owner. Owner means the Owner identified in the application or a successor. All
the rights of the Owner belong to the Owner while the insured is alive. The
rights pass to the estate of the Owner if the Owner dies before the Insured.
Change of Owner. The Owner may transfer all ownership rights and privileges to
a new owner. The request must be in writing on a form suitable to us. The change
will be effective when we receive it. We will not be responsible for any payment
or other action we have taken before having recorded the transfer. A change of
ownership will not, in and of itself, affect the interest of any Beneficiary.
Beneficiary. The Beneficiary:
a. will receive the Proceeds when the Insured dies;
b. is named in the application for this Policy; and
c. may be changed by the Owner. The change is subject to the terms shown in the
Change of Beneficiary provision. The request must be in writing on a form
suitable to us. We reserve the right to require this Policy for endorsement
of a change of Beneficiary designation.
If not otherwise provided:
1. The interest of any Beneficiary who dies before the Insured will pass to any
other Beneficiaries according to their interests.
2. If no Beneficiary survives the Insured, the Proceeds will be paid in one sum
to the Owner, if living. If the Owner is not living, the Proceeds will be
paid to the Owner's estate.
Change of Beneficiary. The Owner may change the Beneficiary designation:
a. while the Insured is alive; and
b. if the prior designation does not prohibit such a change.
A change will revoke any prior designation.
Assignment. An assignment of this Policy will not be binding on us unless:
a. it is in writing on a form suitable to us; and
b. it is received by us at our Home Office.
We will not be responsible for the validity of any assignment. We reserve the
right to require this Policy for endorsement of any assignment.
PREMIUM, GRACE PERIOD, DEATH BENEFIT GUARANTEE, CONTINUATION OF INSURANCE, AND
REINSTATEMENT
Payment of Premiums. The Initial Premium is due on the Policy Date. Additional
premium payments may be made at any time prior to the Maturity Date.
The amounts and frequency of Planned Periodic Premium payments are shown on the
Policy Schedule. Changes in frequency and increases or decreases in amount of
Planned Periodic Premium payments may be made by the Owner. Premiums may not be
paid after the Maturity Date shown on the Policy Schedule. All premiums are
payable in advance.
The Initial Premium will be credited to the Policy on the later of the Policy
Date or the date we receive the premium. Any other premiums will be credited on
the date we receive them. All premiums credited to this Policy prior to the
Record Date will be allocated to the General Account. When the value of the
assets is next determined after the Record Date, the Policy Value in the General
Account will be reallocated to the various Subaccounts and the General Account
in accord with the initial allocation.
2
<PAGE>
This Policy will not take effect until it has been delivered and the Initial
Premium has been paid prior to death of the Insured and prior to any change in
health or any other factor affecting insurability of the Insured as shown in the
application.
Premiums are payable at the Home Office or to any authorized agent. Receipts
will be furnished upon request.
We will send premium payment reminder notices to the Owner on written request.
The notices may be sent annually, semiannually, or quarterly.
During the Death Benefit Guarantee Period, (a) minus (b) must equal or exceed
(c) at all times where:
a) is the sum of the total premiums paid to date;
b) is the outstanding loan balance plus any withdrawals to date; and
c) is the Death Benefit Guarantee Monthly Premium, shown on the Policy schedule,
multiplied by the number of months since the Policy Date, including the
current month.
Section 101(a) of the Internal Revenue Code of 1954, as amended, provides for
the exclusion of death benefits from gross income for life insurance contracts.
Section 7702 of the Code defines the term "life insurance contract." It provides
a maximum limitation on premiums which may not be exceeded if the policy is to
qualify for the exclusion. Any portion of a premium payment received by us in
excess of that limitation will be refunded, within 7 days, to the Owner.
GRACE PERIOD. If the Net Cash Surrender Value on a Monthly Anniversary Day is
not sufficient to cover the Cost of Insurance and the Monthly Administrative
Charge for the month following such Monthly Anniversary Day and the Policy is
not being continued under the Death Benefit Guarantee provision described below,
a grace period will be allowed for the payment of a premium sufficient to keep
this Policy in force until the end of the grace period. The Net Cash Surrender
Value, Cost of Insurance, and the Monthly Administrative Charge are described in
the Policy Values section. Notice of such premium will be mailed to the last
known address of the Owner and any assignee of record. The grace period will end
61 days after the notice is mailed. If such premium is not paid within the grace
period, all coverage under this Policy will terminate with no value at the end
of the 61 day grace period. If a claim by death during the grace period becomes
payable under this Policy, any overdue Cost of Insurance and the Monthly
Administrative Charge will be deducted from the Proceeds.
DEATH BENEFIT GUARANTEE. This policy will not terminate during the Death Benefit
Guarantee Period, shown on the Policy Schedule, if (a) minus (b) equals or
exceeds (c) where:
a) is the sum of the total premiums paid to date;
b) is the outstanding loan balance plus any withdrawals to date; and
c) is the Death Benefit Guarantee Monthly Premium, shown on the Policy Schedule,
multiplied by the number of months since the Policy Date, including the
current month.
CONTINUATION OF INSURANCE. Insurance coverage under this Policy and any benefits
provided by rider will be continued in force until the Net Cash Surrender Value
is insufficient to cover the Cost of Insurance and the Monthly Administrative
Charge and the Policy is not being continued under the Death Benefit Guarantee
provision described above. This provision will not continue this Policy beyond
the Maturity Date nor continue any rider beyond the date for its termination, as
provided in the rider.
REINSTATEMENT. If this Policy terminates, as provided in the Grace Period
section, it may be reinstated at any time within 5 years after the date of
termination and prior to the Maturity Date. The reinstatement is subject to:
a. receipt of evidence of insurability satisfactory to us; and
b. payment of a premium sufficient to keep this Policy in force for a minimum of
2 months.
The effective date of a reinstatement will be the first Monthly Anniversary Day
on or next following the day we approve the application for reinstatement.
GENERAL ACCOUNT
GENERAL ACCOUNT. The General Account consists of all assets owned by us other
than those assets held in any separate accounts, including the Account.
ACCOUNT
ACCOUNT. Account, where used without qualification, refers to the separate
account called Lincoln National Flexible Premium Variable Life Account G. This
is a unit investment trust registered with the SEC under the Investment Company
Act of 1940. It was established under and is subject to the insurance laws of
Indiana. The assets of the Account are owned by us, but are kept separate from
the assets of our General Account.
SUBACCOUNTS. The Account has several Subaccounts. They are listed on the Policy
Schedule. Premium amounts designated for investment in the Account will be
allocated among the Subaccounts according to the percentages listed on the
Policy Schedule. No allocation may be less than 10%, nor may any allocation be
any fractional percent.
3
<PAGE>
The allocation of future premium amounts may be changed at any time if the
policy is not in default. The request for change must be in writing on a form
suitable to us. The change will take effect on the date the request is received
in our Home Office.
Funds. The Subaccounts invest in various underlying funds, as shown on the
Policy Schedule. Each of these Funds is registered with the SEC under the
Investment Company Act of 1940 and has its own investment goals. The investment
goals of each Fund are explained in the prospectus for the Account.
The assets of the Account will be valued once daily at the close of trading on
each day the New York Stock Exchange is open. If the value of an asset is needed
on a day that it has not been valued, the value of that asset when it was most
recently valued will be used.
The assets in the Account are used to support the Investment Amounts under
policies like this one. To the extent those assets do not exceed this amount,
they are used to support those policies; those assets are not used to support
any other business conducted. The excess over this amount may be used in any
other way.
A Fund might, in our judgment, become unsuitable for investment by a Subaccount.
This might happen because of a change in investment policy, or a change in the
laws or regulations, or because the shares are no longer available for
investment, or for some other reason. If that occurs, we have the right to
invest in a different fund.
Any change in investment policy or change of fund will follow approval by the
SEC and will be filed with and approved by the Insurance Commissioner of the
State of Indiana. If required, approval of such change will also be filed with
the Insurance Department of the state where this Policy is delivered.
INVESTMENT AMOUNT AND TRANSFERS
Investment Amount. The investment Amount for this Policy is the amount of the
Policy Value allocated to the Subaccounts. It is equal to the Policy Value minus
any outstanding loan and minus any amounts allocated to the General Account. The
amount of the Investment Amount and its allocation to the Subaccounts depend on
(1) how the Owner chooses to allocate Net Premiums; (2) whether or not there are
transfer amounts among Subaccounts; (3) the investment performance of the
Subaccounts to which amounts are allocated or transferred; (4) the amount and
timing of premium payments made; (5) the existence of any loan; and (6) the
existence of any partial withdrawals. The Investment Amount exists only if the
Policy is not in default past the Grace Period.
Transfers. Amounts may be transferred as follows:
1. Among Subaccounts, amounts may be transferred as often as twelve times
during a policy year, if the Policy is not in default.
2. To the General Account from any of the Subaccounts, amounts may be
transferred twelve times during a policy year, if the Policy is not in
default.
3. From the General Account to any of the Subaccounts, amounts may be
transferred only one time during any period of twelve consecutive months.
The amount of any such transfer may not exceed 20% of the unloaned amount
allocated to the General Account on the date of transfer, if the Policy is
not in default.
The request to transfer amounts must be in writing on a form suitable to us
unless the Owner has made arrangements with us to allow telephone transfers. The
transfer will take effect on the date it is received at our Home Office. The
Charge for Transfer is shown on the Policy Schedule and will be deducted from
the amount transferred.
POLICY VALUES
Net Premium. The "Net" Premium equals the premium paid less the Percent of
Premium Charge shown on the Policy Schedule.
Policy Value. On each Monthly Anniversary Day the Policy Value is equal to the
sum of the following:
a. the Policy Value on the preceding day;
b. any increase due to Net Investment Results in the value of the Subaccounts
to which the Investment Amount is allocated;
c. interest at not less than the General Account Guaranteed Interest Rate shown
on the Policy Schedule on amounts allocated to the General Account;
d. interest at not less than the Loan Collateral Rate shown on the Policy
Schedule on any outstanding loan;
e. any Net Premiums received.
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. the Cost of Insurance for the following month;
i. any amount charged against the Investment Amount for federal or other
governmental income taxes;
j. any charges for extra benefits;
k. the Monthly Administrative Charge.
VULN3 5/88 4
<PAGE>
On any day other than a Monthly Anniversary Day, the Policy Value is equal to
the sum of the following:
a. the Policy Value on the preceding day;
b. any increase due to Net Investment Results in the value of the Subaccounts
to which the Investment Amount is allocated;
c. interest at not less than 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 Loan Collateral Rate shown on the Policy
Schedule on any outstanding loan;
e. any Net Premiums received.
Minus the sum of the following:
f. any decrease due to Net Investment Results in the value of the Subaccounts
to which the Investment Amount is allocated;
g. any withdrawals;
h. any amount charged against the Investment Amount for federal or other
governmental income taxes.
The Policy Value on the Policy Date will be the initial Net Premium, minus the
sum of the following:
a. the Monthly Administrative Charge;
b. the Cost of Insurance for the first month;
c. any charges for extra benefits.
When the Monthly Administrative Charge, the Cost of Insurance, and any charges
for extra benefits are deducted, they will be deducted in proportion to the
values of the General Account and each of the Subaccounts, or by any other
method requested by the Owner and acceptable to us.
COST OF INSURANCE. The Cost of Insurance is determined on a monthly basis. It is
the cost for this Policy plus the cost for any riders. The cost for this Policy
is equal to:
a. the Death Benefit on the Monthly Anniversary Day; divided by
b. the Death Benefit Factor shown on the Policy Schedule; minus
c. the Policy Value on the Monthly Anniversary Day without regard to the Cost
of Insurance; divided by
d. 1,000; the result multiplied by
e. the cost of insurance rate per $1,000 as described below in the Cost of
Insurance Rates section.
If the Death Benefit coverage is Type 1, and there have been increases in the
Specified Amount, then the Policy Value will be first applied against the
initial Specified Amount up to an amount equal to the initial Specified Amount.
The excess, if any, of Policy Value over the initial Specified Amount will be
applied against additional Specified Amounts resulting from increases in the
order of the increases.
COST OF INSURANCE RATES. The monthly cost of insurance rate is based on the sex,
attained age, and rating class of the person insured. Monthly cost of insurance
rates may be changed by us from time to time. A change in the cost of insurance
rates will apply to all persons of the same attained age, sex, and rating class
and whose policies have been in effect for the same length of time. The cost of
insurance rates will not exceed those described in the Table of Guaranteed
Maximum Insurance Rates. These rates are based on the mortality table named on
the Table of Guaranteed Maximum Insurance Rates.
MORTALITY AND EXPENSE RISK CHARGE. A Mortality and Expense Risk Charge will be
deducted from the Gross Investment Results at a daily rate not to exceed the
daily rate equivalent to the Guaranteed Maximum Mortality and Expense Risk
Charge Rate shown on the Policy Schedule.
MONTHLY ADMINISTRATIVE CHARGE. A Monthly Administrative Charge will be deducted
each month from the Policy Value. The Monthly Administrative Charge is shown on
the Policy Schedule.
GROSS INVESTMENT RESULTS. The Gross Investment Results are equal to the change
in the market value of the assets of the Account from the previous valuation day
to the current day, plus the investment income on those assets during the same
period.
NET INVESTMENT RESULTS. The Net Investment Results are the Gross Investment
Results minus asset management charges, minus miscellaneous expenses incurred by
the Fund, and minus the Mortality and Expense Risk Charge.
CASH SURRENDER VALUE. The Cash Surrender Value as of any date is equal to:
a. the Policy Value; minus
b. any Surrender Charge shown on the Policy Schedule.
SURRENDER CHARGE. The Table of Surrender Charges is shown on the Policy
Schedule.
If we approve a requested increase in the Specified Amount, additional Surrender
Charges will apply to this Policy. We will send the new Table of Surrender
Charges to the Owner.
NET CASH SURRENDER VALUE. The Net Cash Surrender Value as of any date is equal
to:
a. the Cash Surrender Value; minus
b. any outstanding policy loan; plus
5
<PAGE>
c. any unearned loan interest.
INSUFFICIENT VALUE. If the Net Cash Surrender Value on any Monthly Anniversary
Day is not sufficient to cover the Cost of Insurance and the Monthly
Administrative Charge for the next month, this Policy will terminate subject to
the Grace Period section.
BASIS OF COMPUTATIONS. Guaranteed values are at least equal to those required by
law. Where required, a detailed statement of the method of computation of values
has been filed with the insurance department of the state in which this Policy
was delivered.
If the Net Investment Results credited to the Policy Value at all times from the
date of issue should equal 4% with premiums and benefits determined accordingly
under the terms of the Policy, then the resulting Cash Surrender Values will
never be less than the minimum cash surrender values calculated according to the
Standard Nonforfeiture Law using 4% and using:
a. the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday
for nonsmokers at attained ages 15 and below, and using the 1980
Commissioners Standard Ordinary Nonsmoker Mortality Table, Age Last Birthday
for nonsmokers at attained ages 16 and above; and
b. the 1980 Commissioners Standard Ordinary Smoker Mortality Table, Age Last
Birthday for smokers at attained ages 16 and above.
SURRENDER AND WITHDRAWALS
SURRENDER. The Owner may surrender this Policy for the Net Cash Surrender Value.
The request must be in writing on a form suitable to us. It may be surrendered
at any time prior to termination of the Policy as provided in the Termination
provision.
Ordinarily, the surrender will be processed within 7 days from the date the
request for surrender is received at our Home Office.
WITHDRAWALS. Cash withdrawals may be made at any time after the first policy
year and during the lifetime of the insured. Only one withdrawal is allowed
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 the Maximum
Withdrawal Percent, shown on the Policy Schedule, of the Net Cash Surrender
Value. 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. Any
partial withdrawal is subject to a Minimum Withdrawal Amount as shown on the
Policy Schedule. The request for a withdrawal must be from the Owner and in
writing on a form suitable to us.
An amount equal to the Withdrawal Charge shown on the Policy Schedule will be
deducted from each withdrawal amount and the balance paid to the Owner.
When a withdrawal is made, the Policy Value will be reduced by the amount of the
withdrawal. The reduction will be made in proportion to the values of the
General Account and each of the Subaccounts, or by any other method requested by
the Owner and acceptable to us. If the Death Benefit is Type 1, the Insured's
Specified Amount will also be reduced by the amount of the withdrawal. These
reductions will result in a reduction in the Death Benefit, which may be
determined from the Death Benefit section. No withdrawal will be allowed if the
resulting Insured's Specified Amount would be less than the Minimum Specified
Amount shown on the Policy Schedule.
Ordinarily, withdrawals will be processed within 7 days from the date the
request for a withdrawal is received at our Home Office.
LOANS
CASH LOANS. During the continuance of this Policy, we will grant a loan against
this Policy provided:
a. a written loan agreement is executed; and
b. this Policy is assigned to us.
This Policy will be the sole security for the loan. The amount of outstanding
loans with interest may not exceed the Cash Surrender Value as of the date of
the policy loan. Ordinarily, the loan will be processed within 7 days from the
date the request for a loan is received at our Home Office.
The loan will be made in proportion to the values of the General Account and
each of the Subaccounts, or by any other method requested by the Owner and
acceptable to us. The amount of the loan made against the Subaccounts will be
deducted from the Investment Amount, but will remain part of the Policy Value.
The loan amount will earn interest at not less than the Loan Collateral Rate
shown on the Policy Schedule.
If at any time the total policy loan plus loan interest equals or exceeds the
Cash Surrender Value, this Policy will become void, but not until 61 days after
notice has been mailed to the last known address of the Owner and any assignee
of record.
INTEREST ON POLICY LOANS. Interest on any loan will be at the Policy Loan Rate
shown on the Policy Schedule, payable annually in advance. Interest not paid
when due will be added to the loan and bear interest at the same Policy Loan
Rate.
LOAN REPAYMENTS. Loan repayments will be allocated to the subaccounts in accord
with the most recent
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<PAGE>
premium allocation or by any other method requested by the Owner and acceptable
to us.
DEATH BENEFIT
DEATH BENEFIT COVERAGES. Subject to the provisions of this Policy, the Insured's
Death Benefit at any time prior to the Maturity Date will be either Type 1 or
Type 2 as defined below.
Type 1. Basic Coverage. If the Insured's Specified Amount includes the Policy
Value, as shown on the Policy Schedule, the Insured's Death Benefit at
any time will equal the Insured's Specified Amount.
Type 2. Basic plus Policy Value Coverage. If the Insured's Specified Amount is
in addition to the Policy Value, as shown on the Policy Schedule, the
Insured's Death Benefit at any time will be equal to the Policy Value
plus the Insured's Specified Amount.
The Insured's Death Benefit, however, will never be less than the following
percentage of the Policy Value:
<TABLE>
<CAPTION>
In the case of an The applicable
Insured with an percentage will
attained age as of decrease by a
the beginning of the ratable portion
contract year of: for each full year:
More But Not
Than: More Than: From: To:
<S> <C> <C> <C>
0......................40 250%.....................250%
40......................45 250%.....................215%
45......................50 215%.....................185%
50......................55 185%.....................150%
55......................60 150%.....................130%
60......................65 130%.....................120%
65......................70 120%.....................115%
70......................75 115%.....................105%
75......................90 105%.....................105%
90......................95 105%.....................100%
95......................99 100%.....................100%
</TABLE>
CHANGES
CHANGES IN TYPE OF DEATH BENEFIT COVERAGE. The Owner may change the type of
coverage. The request must be in writing on a form suitable to us. The change
will be effective on the first Monthly Anniversary Day on or next following the
day we receive the request. No change in the type of death benefit will be
allowed if the resulting Insured's Specified Amount would be less then the
Minimum Specified Amount shown on the Policy Schedule. The Insured's Specified
Amount will be changed as follows:
1. If the change is from Type 1 to Type 2, the Insured's Specified Amount after
such change will be equal to:
a) the Insured's Specified Amount prior to such change; minus
b) the Policy Value on the date of change.
2. If the change is from Type 2 to Type 1, the Insured's Specified Amount after
such change will be equal to:
a) the Insured's Specified Amount prior to such change; plus
b) the Policy Value on the date of change.
CHANGES IN AMOUNT OF INSURANCE COVERAGE. The Insured's Specified Amount may be
increased or decreased at any time. The request for change must be from the
Owner and in writing on a form suitable to us. The change is subject to:
1. Any decrease will become effective on the first Monthly Anniversary Day on or
next following the day we receive the request. Any such decrease will reduce
insurance in the following order:
a) against insurance provided by the most recent increase;
7
<PAGE>
b) against the next most recent increases successively; and
c) against insurance provided under the original application.
2. The Insured's Specified Amount after any requested decrease may not be less
than the Minimum Specified Amount shown on the Policy Schedule.
3. Any request for an increase must be applied for on a supplemental
application.
Such increase will be subject to:
a. evidence of insurability satisfactory to us;
b. our issue rules and limits at the time of increase; and
c. the sufficiency of the Net Cash Surrender Value to cover the next Cost
of Insurance deduction, the Monthly Administrative Charge, plus the
additional Surrender Charges due to such increase.
Any increase will become effective on the effective date shown on a supplement
to the Policy Schedule.
APPLICATION FOR ADDITIONAL INSURANCE. 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
us. Additional insurance will also be subject to the sufficiency of the Net Cash
Surrender Value to cover the next Cost of Insurance deduction and the Monthly
Administrative Charge. The new insurance will be provided by rider and will
become effective on the Policy Date shown on a supplement to the Policy
Schedule.
PROCEEDS
PROCEEDS. Proceeds mean the amount payable on:
a. the Maturity Date; or
b. the surrender of this Policy; or
c. the death of the Insured.
The Proceeds to be paid on the death of the Insured will be:
a. the Death Benefit; minus
b. any outstanding policy loan; plus
c. any unearned loan interest.
The Proceeds to be paid on the surrender of this Policy or on the Maturity Date
will be the Net Cash Surrender Value.
The Proceeds to be paid on the death of any person insured by rider will be as
provided in the rider.
PAYMENT OF PROCEEDS. Any amount to be paid at the death of the Insured or on any
other termination of this Policy will be paid in one sum unless otherwise
provided. Interest will be paid on this amount from date of death or maturity to
date of payment at a specified rate, not less than that required by law. All or
part of the sum of this amount and such interest credited to date of payment may
be applied to any Payment Option.
CLAIMS OF CREDITORS. To the extent allowed by law, Proceeds will not be subject
to any claims of a Beneficiary's creditors.
PAYMENT OPTIONS
Upon written request, we will apply all or part of the Proceeds payable under
this Policy in accordance with any one of the options below. These options will
be available only with our consent if:
a. the Proceeds to be settled under any option are $2,500 or less; or
b. any installment or interest payment is $25 or less; or
c. any payee is a corporation, partnership, association, trustee, or assignee.
While the Insured is alive, the Owner may elect any Payment Option. The Owner
may change any election if that right has been reserved.
At the time Proceeds are payable, a Beneficiary may elect or change any Payment
Option if Proceeds are available to the Beneficiary in one sum.
The Option Date is any date this Policy terminates under the Termination
provision.
OPTION A: Payment for a Designated Number of Years. We will pay equal monthly
installments for the number of years elected. Payments will begin on the Option
Date. The amount of each installment will be determined from the Option A Table.
The Option A Table is based on a guaranteed interest rate of 4% per year
compounded yearly.
OPTION B: Payment of Life Income. We will pay equal monthly installments
beginning on the Option Date. Payments will continue while the payee is alive.
Payments are guaranteed for 10, 15, or 20 years, as elected, and for life
thereafter. The amount of payment will depend on the age and sex of the payee
and may be determined from the Option B Table. If the payee is not an
individual, the amount of payment will depend on the age and sex of a person
chosen by the payee and agreed to by us. Payments will continue while the chosen
person is alive. Payment will be subject to acceptable proof of age. We may
require proof that the person on whose life the payment is based is alive when
each payment is due.
8
<PAGE>
OPTION C: Proceeds Left at Interest. We will retain the Proceeds while the payee
is alive and will pay interest at a rate of not less than 4% per year. The
interest may be paid monthly, quarterly, semiannually, or annually, as elected,
or may be left with us to accumulate.
OPTION D: Payment of a Designated Amount. We will pay equal monthly, quarterly,
semiannual, or annual payments until the Proceeds with any interest are
exhausted. Payments will begin on the Option Date. The payment amount must be at
least $120 per year per $1,000 of Proceeds applied. Interest will be payable at
a rate of not less than 4% per year compounded yearly.
OPTION E: Payment of Proceeds under a Rider. Upon death of a person insured by
rider, the Proceeds payable due to that death, minus a charge of 2 1/2% of the
Proceeds, will be transferred to the Policy Value as a net premium. The Insured
must be alive and the Owner must be the Beneficiary of the rider on the date of
death of the person insured by rider.
ADDITIONAL OPTIONS. Any Proceeds payable under this Policy may also be settled
under any other method of settlement we offer on the Option Date.
ADDITIONAL INTEREST. Additional interest as we determine may be paid or credited
from time to time in addition to the payments guaranteed under a Payment Option.
PAYMENT CONTRACTS. When Proceeds become payable under a Payment Option, a
Payment Contract will be issued to the payee in exchange for this Policy. The
effective date of a Payment Contract will be the Option Date.
Payment Contracts may not be assigned.
A change in payment may be made only if it is provided for in the Payment
Contract.
WITHDRAWALS OF PROCEEDS UNDER PAYMENT CONTRACT. Proceeds may be withdrawn under
a Payment Option if provided in the Payment Contract. Under Payment for a
Designated Number of Years, the sum of the remaining guaranteed payments
discounted at an interest rate of 4% compounded annually may be withdrawn. Under
Payment of a Designated Amount and Proceeds Left at Interest, all or part of the
remaining proceeds and any interest earned but not paid may be withdrawn.
Proceeds may not be withdrawn from any of the Payment of Life Income Options. We
may postpone payment of any withdrawal for not more than 6 months from the date
we receive the written request.
DEATH OF PAYEE UNDER PAYMENT CONTRACT. If any payments remain to be paid under a
Payment Option when the payee dies, payment will be made according to the
Payment Contract.
9
<PAGE>
<TABLE>
<CAPTION>
Optional Methods of Settlement
Amount of Installment For Each $1,000 of Proceeds Applied
Option A Table ------------------ Option B Table -------------------
For Males For Females
- ------------------------- -----------------------------------------------------------------
Number of Amount of Settlement Age Number of Monthly Number of Monthly
Years Monthly of Payee Installments Installments
Payable Installment Last Birthday Certain Certain
- -------------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
120 180 240 120 180 240
-------------------------------------------
1 $84.84 10* $3.56 $3.55 $3.55 $3.49 $3.49 $3.49
2 43.25 11 3.57 3.56 3.56 3.50 3.50 3.50
3 29.40 12 3.58 3.58 3.57 3.51 3.51 3.51
4 22.47 13 3.59 3.59 3.58 3.52 3.52 3.52
5 18.32 14 3.60 3.60 3.60 3.53 3.53 3.53
6 15.56 15 3.62 3.61 3.61 3.54 3.54 3.54
7 13.59 16 3.63 3.63 3.62 3.55 3.55 3.55
8 12.12 17 3.65 3.64 3.64 3.56 3.56 3.56
9 10.97 18 3.66 3.66 3.65 3.57 3.57 3.57
10 10.06 19 3.68 3.67 3.67 3.59 3.59 3.58
11 9.31 20 3.70 3.69 3.69 3.60 3.60 3.60
12 8.69 21 3.71 3.71 3.70 3.62 3.61 3.61
13 8.17 22 3.73 3.73 3.72 3.63 3.63 3.62
14 7.72 23 3.75 3.75 3.74 3.64 3.64 3.64
15 7.34 24 3.77 3.77 3.76 3.66 3.66 3.65
16 7.00 25 3.79 3.79 3.78 3.68 3.67 3.67
17 6.71 26 3.82 3.81 3.80 3.70 3.69 3.69
18 6.44 27 3.84 3.83 3.82 3.71 3.71 3.71
19 6.21 28 3.86 3.86 3.85 3.73 3.73 3.72
20 6.00 29 3.89 3.88 3.87 3.75 3.75 3.74
21 5.81 30 3.92 3.91 3.90 3.77 3.77 3.76
22 5.64 31 3.94 3.94 3.92 3.80 3.79 3.78
23 5.49 32 3.97 3.97 3.95 3.82 3.81 3.81
24 5.35 33 4.01 4.00 3.98 3.84 3.84 3.83
25 5.22 34 4.04 4.03 4.01 3.87 3.86 3.85
35 4.07 4.06 4.04 3.89 3.89 3.88
36 4.11 4.10 4.07 3.92 3.92 3.91
37 4.15 4.13 4.11 3.95 3.94 3.93
38 4.19 4.17 4.14 3.98 3.97 3.96
39 4.23 4.21 4.18 4.02 4.01 3.99
40 4.27 4.25 4.22 4.05 4.04 4.02
41 4.32 4.92 4.26 4.09 4.07 4.06
42 4.37 4.34 4.30 4.12 4.11 4.09
43 4.42 4.39 4.34 4.16 4.15 4.13
44 4.47 4.43 4.38 4.20 4.19 4.17
45 4.53 4.48 4.43 4.25 4.23 4.20
46 4.58 4.54 4.47 4.29 4.27 4.25
47 4.64 4.59 4.52 4.34 4.32 4.29
48 4.71 4.65 4.57 4.39 4.37 4.33
49 4.77 4.71 4.63 4.45 4.42 4.38
</TABLE>
*Ages 10 and under.
<PAGE>
------------------- Option B Table -------------------
(Continued)
For Males For Females
------------------------------------------------------------------
Settlement Age Number of Monthly Number of Monthly
Of Payee Installments Installments
Last Birthday Certain Certain
------------------------------------------------------------------
<TABLE>
<CAPTION>
120 180 240 120 180 240
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $4.84 $4.77 $4.68 $4.50 $4.47 $4.43
51 4.91 4.84 4.73 4.56 4.53 4.48
52 4.99 4.91 4.79 4.62 4.59 4.53
53 5.07 4.98 4.85 4.69 4.65 4.58
54 5.15 5.05 4.91 4.76 4.71 4.64
55 5.24 5.13 4.97 4.83 4.78 4.70
56 5.33 5.21 5.03 4.91 4.85 4.76
57 5.43 5.29 5.09 4.99 4.92 4.82
58 5.54 5.37 5.15 5.08 5.00 4.88
59 5.65 5.46 5.21 5.17 5.08 4.95
60 5.76 5.55 5.27 5.27 5.16 5.01
61 5.88 5.64 5.34 5.37 5.25 5.08
62 6.01 5.74 5.40 5.48 5.34 5.15
63 6.14 5.84 5.45 5.59 5.44 5.22
64 6.28 5.93 5.51 5.71 5.53 5.29
65 6.43 6.03 5.57 5.84 5.63 5.35
66 6.58 6.13 5.62 5.97 5.74 5.42
67 6.73 6.23 5.67 6.11 5.84 5.48
68 6.89 6.32 5.71 6.26 5.95 5.54
69 7.05 6.42 5.75 6.42 6.06 5.60
70 7.22 6.51 5.79 6.58 6.17 5.66
71 7.39 6.60 5.82 6.75 6.28 5.71
72 7.57 6.68 5.85 6.93 6.38 5.76
73 7.74 6.76 5.88 7.12 6.49 5.80
74 7.91 6.83 5.90 7.31 6.59 5.83
75 8.08 6.90 5.92 7.50 6.68 5.87
76 8.25 6.96 5.94 7.70 6.77 5.89
77 8.42 7.02 5.95 7.89 6.86 5.92
78 8.58 7.07 5.97 8.09 6.93 5.94
79 8.73 7.12 5.97 8.28 7.00 5.95
80 8.88 7.16 5.98 8.47 7.06 5.96
81 9.02 7.19 5.99 8.65 7.11 5.97
82 9.15 7.22 5.99 8.82 7.15 5.98
83 9.26 7.24 6.00 8.98 7.19 5.99
84# 9.37 7.27 6.00 9.13 7.22 5.99
</TABLE>
#Ages 84 and over.
<PAGE>
Flexible Premium Variable Life Insurance Policy
Net Cash Surrender Value Payable at Maturity
Death Benefit Payable at Death Prior to Maturity Date
Adjustable Death Benefit
Flexible Premiums Payable During Lifetime of
Insured to Maturity Date
Nonparticipating - No Dividends
If you have any questions concerning this Policy or if
anyone suggests that you change or replace this Policy,
please contact your Lincoln National Life agent or the
Home Office of the Company.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 46801
[LOGO] LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
VUL3 5/88
<PAGE>
SERVICES AGREEMENT
------------------
(Exhibit B and Schedules Omitted)
THIS SERVICES AGREEMENT (the "Agreement") is made as of August 15, 1996, by
and among Delaware Management Holdings, Inc., a Delaware corporation
("Holdings"), Delaware Service Company, Inc., a Delaware corporation and a
wholly owned subsidiary of Holdings ("Delaware"), Lincoln National Life
Insurance Company, an Indiana insurance corporation ("Lincoln Life"), and each
of the investment companies listed in Exhibit A hereto, each a Maryland
corporation (together with any other investment company designated in accordance
with Section 5.1, the "Funds," or individually, a "Fund").
The parties hereto, in consideration of the mutual covenants hereinafter
expressed, agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Section 1.1 Definitions. The following terms shall have the respective
meanings set forth in this Section 1.1 for all purposes of this Agreement except
where the application of such definitions is limited by reference in this
Section 1.1 to a specific Article of this Agreement (such definitions to be
equally applicable to both the singular and plural forms of the terms herein
defined):
"Acceptance Test" means a test, reasonably acceptable to Lincoln Life,
Delaware and the Funds, of the performance of the Value Calculation Services for
the Accounts included in the respective Phases, to be conducted in accordance
with Article 4.
"Accounting Services" means the services listed in the Cutover Schedule
with respect to the Accounts.
"Accounts" means the Funds and the Separate Accounts, collectively.
"Affiliate" means, with respect to any entity, any other entity
controlling, controlled by or under common control with such entity.
"Business Day" means a day on which the New York Stock Exchange is open for
trading.
"Calculation Losses" means any losses suffered by a Contractowner, Third
Party Administrator, Fund or Separate Account directly caused by an error in a
Net Asset Value or Unit Value, or by the delivery to Lincoln Life or any Fund of
a Net Asset Value or Unit Value after the applicable deadline provided for in
Section 2.1; provided, however, that such losses shall not include any
consequential damages.
<PAGE>
"Contractowner" means the present or former owner of an insurance or
annuity contract supported by a Separate Account, or any beneficiary or
annuitant thereof.
"Cutover Date," with respect to any Phase, means the date, which shall be a
Business Day, on which Delaware actually commences providing the Accounting
Services with respect to such Phase in accordance with Section 4.2. The planned
Cutover Date for each Phase is set forth in the Cutover Schedule.
"Cutover Schedule" means Schedule 1.1(a) hereto, which sets forth the
accounting services to be rendered pursuant to this Agreement and the planned
Cutover Dates, as such Schedule may be amended from time to time pursuant to
Section 16.1.
"Delaware" has the meaning set forth in the preamble to this Agreement.
"Delaware Affiliate" means Holdings and any entity that is directly or
indirectly controlled by Holdings.
"Fee Schedule" means Schedule 6.1 hereto, as such Schedule may be amended
from time to time pursuant to Section 16.1.
"Fund" has the meaning set forth in the preamble to this Agreement.
"Holdings" has the meaning set forth in the preamble to this Agreement.
"Lincoln Affiliate" means any Affiliate of Lincoln Life other than a
Delaware Affiliate.
"Lincoln Life" has the meaning set forth in the preamble to this Agreement.
"Net Asset Value" means the daily net asset value per share of the
respective Funds for each Business Day, all determined in accordance with the
terms of the Cutover Schedule and with any applicable prospectus or regulatory
requirement.
"Phase" means a set of Accounts comprising the Phase I Accounts, the Phase
II Accounts or the Phase III Accounts.
"Phase I Account" means an Account designated as such on the Cutover
Schedule.
"Phase II Account" means an Account designated as such on the Cutover
Schedule.
"Phase III Account" means an Account designated as such on the Cutover
Schedule.
"Renewal Term" means each successive one-year term occurring
<PAGE>
after the expiration of the initial term of this Agreement as described in
Section 11.1.
"Separate Account" means a separate account of Lincoln Life identified as
such on the Cutover Schedule, and any additional separate account or sub-account
of Lincoln Life or any Lincoln Affiliate (or of any other person if Lincoln Life
or any Lincoln Affiliate has administrative responsibilities with respect to
such separate account or sub-account pursuant to any reinsurance agreement or
otherwise) designated in accordance with Section 5.1.
"Test Period" means, with respect to each Phase, a period of time prior to
the Cutover Date for such Phase, commencing on the date specified by Delaware
pursuant to Section 4.1 and having a duration of three weeks or such longer
period as may be determined pursuant to Section 4.1.
"Third Party Administrator" means an administrator of insurance or annuity
contracts acting on behalf of Contractowners.
"Unit Value" means the daily unit value per unit of the respective Separate
Accounts or sub-accounts thereof for each Business Day, all determined in
accordance with the terms of the Cutover Schedule and with any applicable
prospectus or regulatory requirement.
"Value Calculation Services" means those Accounting Services consisting of
or incidental to the calculation and communication of Unit Values and Net Asset
Values in accordance with the terms of this Agreement.
ARTICLE 2
SCOPE OF SERVICES; CUTOVER
--------------------------
Section 2.1 Scope of Services. Delaware shall provide the Accounting
Services to each of the Funds and to Lincoln Life with respect to each of the
Separate Accounts, all in accordance with the terms of this Agreement. Without
limiting the generality of the foregoing, from and after the Cutover Date for
each respective Phase, Delaware, no later than 6:00 p.m. (New York City time) on
each Business Day, shall in accordance with the terms of this Agreement provide
to Lincoln Life and to the Funds the Value Calculation Services for each of the
Accounts included in such Phase. In the event of any error in the Value
Calculation Services, the parties hereto will follow the procedures set forth in
Schedule 2.1, without prejudice to any other rights described in this Agreement.
Section 2.2 Cutover Schedule. Delaware, Lincoln Life and the Funds shall
use their respective best efforts to cause the Cutover Date to occur no later
than (a) August 15, 1996, with respect to the Phase I Accounts, (b) October 31,
1996, with
<PAGE>
respect to the Phase II Accounts and (c) January 1, 1997 with respect to the
Phase III Accounts.
ARTICLE 3
LINCOLN LIFE'S SUPPORT OBLIGATIONS
----------------------------------
Section 3.1 Provision of Data. Lincoln Life shall use its best efforts to
provide or cause to be provided to Delaware the data identified in Schedule 3.1
during the periods and in accordance with the procedures identified in such
Schedule, it being understood that Delaware shall not be responsible for any
Calculation Losses or other claims, suits, hearings, actions, damages,
liabilities, fines, penalties, costs, losses or expenses, including reasonable
attorney's fees, which any party may sustain or incur, directly or indirectly,
in each case to the extent caused by or arising from Lincoln Life's failure to
provide such data in accordance with such Schedule 3.1.
Section 3.2 Data to Be Provided by Third Parties. With respect to each of
the mutual funds identified in Schedule 3.2 as an available investment of one or
more of the Separate Accounts (other than mutual funds managed by Lincoln Life
or Delaware or their respective Affiliates) and each third party service
provider identified in such Schedule, Lincoln Life shall direct each of the
managers of such funds or such service provider, as the case may be, to provide
or cause to be provided to Delaware the data identified in Schedule 3.2 in
accordance with the procedures and time deadlines identified in such Schedule.
Section 3.3 Information for Periods Prior to Cutover Date. Lincoln Life
will provide appropriate financial and other information with respect to the
Accounts to Delaware, and will cooperate with Delaware, in connection with the
preparation of data for 1996 annual reports to Contractowner and other elements
of the Accounting Services that relate to periods prior to the Cutover Dates for
the respective Accounts. In addition, Lincoln Life will provide to Delaware
appropriate financial and other information regarding the Accounts for periods
prior to 1996 to the extent relevant to the performance of the Accounting
Services for 1996 and subsequent periods.
ARTICLE 4
ACCEPTANCE TEST; CUTOVER DATE
-----------------------------
Section 4.1 Acceptance Testing. Delaware shall notify Lincoln Life of the
date, which shall be a Business Day, on which the Value Calculation Services for
each respective Phase will be ready for the commencement of the Acceptance Test
for such Phase. During the Test Period for each Phase, Delaware, Lincoln Life
and the Funds shall cooperate in performing the Acceptance Test for such Phase,
and Delaware and Lincoln Life, respectively, shall use its best efforts to
remedy any failure in the performance of the Value Calculation Services caused
by such party. In the event that, during the Test Period with respect to any
Phase,
<PAGE>
performance of the Value Calculation Services is suspended for such Phase in
order to effect such remedy or for any other reason, the Test Period for such
Phase shall be extended by the number of days of such suspension. Further, if
at the date that would otherwise be the end of the Test Period for any Phase
Delaware is not performing the Value Calculation Services with respect to such
Phase to the reasonable satisfaction of Lincoln Life, and Lincoln Life shall so
notify Delaware, the Test Period shall be extended until the date on which
Lincoln Life notifies Delaware that the Value Calculation Services are being
performed to the reasonable satisfaction of Lincoln Life. All references in this
Section 4.1 to the performance of the Value Calculation Services shall refer to
the performance thereof in a test mode.
Section 4.2 Cutover Date. With respect to each Phase, upon the
termination of the Test Period, Lincoln Life, the Funds and Delaware shall
execute a written acknowledgment in the form of Exhibit B hereto confirming such
termination and specifying the Cutover Date, which shall be the Business Day
immediately following the date of such termination unless Lincoln Life, the
Funds and Delaware shall agree upon a different date.
ARTICLE 5
NEW ACCOUNTS; NEW INVESTMENT MANAGERS
-------------------------------------
Section 5.1 Additional Accounts. Lincoln Life may from time to time
designate (i) one or more additional investment companies or separate accounts
to constitute Funds or Separate Accounts, as the case may be, for all purposes
of this Agreement, or (ii) one or more newly established sub-accounts of any
Separate Account. Such designation shall be:
(a) subject to Delaware's consent, which shall not be unreasonably
withheld; provided, that such consent shall be considered to be
unreasonably withheld if Delaware does not make reasonable
efforts to accept such new investment companies, separate
accounts and sub-accounts, which efforts shall include, but not
be limited to, reasonable consideration of the expansion of
Delaware's infrastructure to handle such new investment
companies, separate accounts and sub-accounts; and
(b) evidenced by a writing executed by Lincoln Life, Delaware and, if
applicable, each such investment company, setting forth the name
of such investment company, separate account or new sub-account,
the applicable rate under the Fee Schedule that shall apply to
the Accounting Services for such investment company, separate
account or new sub-account, the effective date of the designation
thereof as a Fund, Separate Account or new sub-account, and any
other matters the parties wish to include.
<PAGE>
Notwithstanding clause (b) of the preceding sentence, if Delaware's performance
of the Accounting Services for such additional Funds, Separate Accounts, or sub-
accounts of such Separate Accounts would, in Delaware's reasonable opinion,
result in higher costs than the costs Delaware incurs for providing the
Accounting Services to the current Accounts, then the affected parties hereto
shall negotiate in good faith an addendum to the Fee Schedule for such
additional Funds, Separate Accounts and sub-accounts and Delaware shall not be
deemed to have unreason ably withheld its consent under clause (b) of this
Section 5.1 until such addendum has been agreed to. Except as otherwise
specified in such writing, from and after such effective date, Delaware shall
provide to such Fund, or to Lincoln Life with respect to a Separate Account or
new sub-account, the same Accounting Services as are specified in the Cutover
Schedule with respect to the other Funds, Separate Accounts or sub-account of a
Separate Account, as the case may be.
Section 5.2 New Investment Managers. If new investment managers are added
to provide investment advisory services to any of the Accounts, and Delaware's
performance of the Accounting Services is, as a result thereof, significantly
more costly to Delaware, the affected parties shall negotiate in good faith an
addendum to the Fee Schedule for such Accounts.
ARTICLE 6
FEES
----
Section 6.1 Accrual of Fees. From and after the Cutover Date with respect
to each Phase, Lincoln Life shall pay fees for the Accounting Services for each
of the Separate Accounts included in such Phase, and each Fund included in such
Phase shall pay fees for the Accounting Services for such Fund, in each case at
the respective rates per annum determined in accordance with the Fee Schedule.
Fees accrued pursuant to this Section 6.1 shall be payable in arrears on a
monthly basis.
Section 6.2 Payment of Fees by Lincoln Life. Delaware shall submit to
Lincoln Life an invoice for each month for all of the fees payable pursuant to
Section 6.1 with respect to each of the Separate Accounts, which invoice shall
be itemized to show the portion of such fees allocable to each of the Separate
Accounts in accordance with the Fee Schedule. Subject to the terms of this
Agreement, invoices for such fees shall be payable within 30 days of receipt.
Section 6.3 Payment of Fees by the Funds. Delaware shall submit to
each Fund, with a copy to Lincoln Life, an invoice for each month for all of the
fees payable pursuant to Section 6.1 with respect to such Fund. Subject to the
terms of this Agreement, invoices for such fees shall be payable within 30 days
of receipt.
<PAGE>
ARTICLE 7
STANDARD OF CARE; INDEMNIFICATION
---------------------------------
Section 7.1 Standard of Care. Delaware shall provide the Accounting
Services with a level of care equal to or greater than the level of care at
which it performs similar functions for mutual funds that are sponsored or
managed by any Delaware Affiliate, and in any event, Delaware shall always
exercise reasonable care in performing the Accounting Services.
Section 7.2 Indemnification
(a) Indemnification by Lincoln Life. Lincoln Life shall indemnify,
defend and hold harmless Delaware and any Delaware Affiliate, and the directors,
officers and employees of the fore going (each individually, a "Delaware
Indemnified Party"), against any and all claims, suits, hearings, actions,
damages, liabilities, fines, penalties, costs, losses or expenses, including
reasonable attorney's fees, which any Delaware Indemnified Party may sustain or
incur, directly or indirectly, in each case to the extent caused by or arising
from (i) the negligence, recklessness or intentional misconduct of Lincoln Life
or any Lincoln Affiliate, or any director, officer or employee thereof, in the
performance of this Agreement; or (ii) the failure of Lincoln Life to comply
with the terms of this Agreement.
(b) Indemnification by Delaware. Subject to Section 3.1, Delaware
shall indemnify, defend and hold harmless Lincoln Life, the Lincoln Affiliates
and the Funds, and the directors, officers and employees of the foregoing (each
individually, a "Lincoln Indemnified Party") against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs, losses
(including but not limited to (a) Calculation Losses reimbursed by Lincoln Life
and (b) any market fluctuation losses incurred by Lincoln Life in effecting such
reimbursement) or expenses, including reasonable attorney's fees, which any
Lincoln Indemnified Party may sustain or incur, directly or indirectly, in each
case to the extent caused by or arising from (i) the negligence, recklessness or
intentional misconduct of Delaware or any Delaware Affiliate, or any director,
officer or employee thereof, in the performance of this Agreement; or (ii) the
failure of Delaware to comply with the terms of this Agreement.
(c) Procedures. Subject to the provisions of Section 7.2(d), promptly
after receipt by a Delaware Indemnified Party or a Lincoln Indemnified Party
(each, an "Indemnified Party") of notice of the commencement of any action,
proceeding, investigation or claim by any Contractowner or other third party (a
"Proceeding"), the Indemnified Party shall, if a claim in respect thereof is to
be made pursuant to this Section 7.2 against another party to this Agreement
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
commencement thereof; but the failure so to notify the Indemnifying Party
<PAGE>
shall not relieve the Indemnifying Party from any liability under this Section
7.2, except to the extent that such failure to notify actually prejudices the
Indemnifying Party. In case any such Proceeding shall be brought against an
Indemnified Party, the Indemnifying Party shall be entitled to participate in
and to assume the defense thereof, with counsel satisfactory to the Indemnified
Party, and after notice from the Indemnifying Party to the Indemnified Party of
the Indemnifying Party's election to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if, in the reasonable judgment of the Indemnified Party, it is
advisable for the Indemnified Party to be represented by separate counsel other
than counsel for the Indemnifying Party, the Indemnified Party shall have the
right to employ a single counsel to represent the Indemnified Party, in which
event the reasonable fees and expenses of such separate single counsel shall be
borne by the Indemnifying Party, and (ii) in the case of any Proceeding brought
by any governmental authority, the Indemnifying Party shall have the right to
participate in, but not to assume the defense of, such Proceeding. The
Indemnifying Party shall not be obligated under any settlement agreement
relating to any Proceeding under this Section 7.2 to which it has not consented
in writing, which consent shall not be unreasonably withheld.
(d) Preserving Rights with Respect to Calculation Losses. Notwithstanding
Section 7.2(c), Lincoln Life may in its sole discretion elect to reimburse a
Contractowner, Third Party Administrator, Separate Account or Fund for
Calculation Losses out of Lincoln Life's own funds and such reimbursement shall
have no effect on the respective indemnification obligations of the parties
pursuant to Section 7.2(a) and (b).
(e) Overpayments. The parties agree that there may be circumstances in
which it would not be commercially reasonable for Lincoln Life and the Funds to
seek reimbursement from one or more Contractowners of overpayments made them,
taking into account relevant factors such as industry practice; the amount of
such overpayments; the number of Contractowners overpaid; the cost of seeking
reimbursement; and the implications for customer relations of seeking
reimbursement. In the event of any overpayment to a Contractowner for which
Lincoln Life or any Fund intends to seek indemnification from Delaware pursuant
to Section 7.2(b) without seeking reimbursement from the Contractowner, the
parties shall negotiate in good faith as to what effect, if any, the
determination not to seek such reimbursement should have under the circumstances
on the rights of Lincoln Life or the Funds to indemnification for the amounts
overpaid.
<PAGE>
ARTICLE 8
INSURANCE COVERAGE
------------------
Section 8.1 Insurance. Delaware and Holdings shall maintain
insurance coverage at a level at least equal to the insurance coverage held by
each of them at the time this Agreement becomes effective.
ARTICLE 9
FORCE MAJEURE AND DISASTER RECOVERY PLAN
----------------------------------------
Section 9.1 Force Majeure; Disaster Recovery Plan. No party shall be
liable to any other party for any damages caused by delays beyond its reasonable
control, including, without limitation, those delays occasioned by fire, strike,
labor dispute, acts of the other party, acts of any common carrier, pricing
service, corporate action service, or telephone network, acts of the power
supply company or its networks, restrictions by civil or military authorities,
acts of nature, or unforeseen transportation failures. In the event of any such
delay, the hindered party shall promptly notify the other parties and, upon the
giving of such notice, the period of time for performance of obligations
hereunder affected by such delays will be extended by the same number of days as
the delay. Notwithstanding the foregoing, Delaware shall maintain and implement
a customary disaster recovery plan and such plan shall be reasonably acceptable
to Lincoln Life and the Funds. This Article 9 shall not excuse any failure to
perform, or extend the time for performance of, any obligation of Delaware under
this Agreement to the extent that such failure or delay would have been avoided
by compliance with such disaster recovery plan, or by the use of reasonable,
readily available alternatives.
ARTICLE 10
EFFECTIVENESS
-------------
Section 10.1 Effectiveness.
(a) This Agreement shall become effective upon the later of:
(i) the date first set forth above; or
(ii) the date as of which Lincoln Life has complied with the
requirements of the Indiana insurance holding company laws
at Section 27-1-23-4 of the Indiana Code.
(b) Lincoln Life shall diligently and reasonably pursue the satisfaction
of the requirements of the Indiana insurance holding company laws at
Section 27-1-23-4 of the Indiana Code.
<PAGE>
ARTICLE 11
TERM AND TERMINATION
--------------------
Section 11.1 Term. The initial term of this Agreement shall end on
the fourth anniversary of the Cutover Date of Phase III, and this Agreement
shall be automatically renewed for subsequent Renewal Terms thereafter unless
sooner terminated under Section 11.2.
Section 11.2 Termination. Subject to the procedures set forth in
Article 12 and to Section 11.3, this Agreement may be terminated as follows:
(a) by Lincoln Life, Delaware, or any Fund, in each case upon notice
to each of the other parties at least 180 days prior to the
expiration of the initial term or any Renewal Term, with such
termination to become effective upon such expiration; and
(b) by Lincoln Life, Delaware or any Fund upon 30 days notice to each
of the other parties, for any material breach of this Agreement
unless such breach is cured within such notice period.
For the purpose of this Section 11.2(b) only, a "material breach" shall include,
but not be limited to, the failure by Delaware to provide Accounting Services
hereunder of a quality reasonably determined by Lincoln Life or any Fund to be
consistent with a superior level of service in the industry.
Section 11.3 Effect of Termination by a Fund. In the event one or
more Funds shall terminate this Agreement, this Agreement shall nonetheless
continue in full force and effect between and among those parties who have not
terminated this Agreement.
ARTICLE 12
PROCEDURES UPON TERMINATION
---------------------------
Section 12.1 Obligations Upon Termination. Upon termination of this
Agreement by any party under Article 11, each party shall be obligated to
cooperate with each other party to provide for the transfer of all
responsibilities, duties and obligations of this Agreement as may be necessary
to ensure the orderly, undisrupted business of each party. Such cooperation
shall include, but not be limited to, returning all papers, documents, materials
or equipment to the party owning such materials. In the event that this
Agreement is terminated by Lincoln Life or any Fund under Section 11.2(b),
Lincoln Life and the Funds shall have the right to require Delaware to continue
performing all or any part of its responsibilities, duties and obligations under
this Agreement until the earlier of (a) 210 days following the date notice of
such termination was given, or (b) the date that is 30 days after notice from
Lincoln Life or the Funds that
<PAGE>
Delaware shall cease such performance. For this purpose, (a) the terms of this
Agreement (including without limitation the obligation of Lincoln Life and the
Funds to pay Delaware's fees under Article 6, and the obligation of Delaware to
continue to exercise the standard of care required under Section 7.1 shall
remain in effect with respect to the period in which Delaware is obligated to
continue such performance, and (b) if any portion of Delaware's
responsibilities, duties and obligations during such period are not so extended
as required by Lincoln Life, the parties shall mutually agree in good faith on a
reduction of fees which reflects the termination of such responsibilities,
duties and obligations.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
------------------------------
Each party represents and warrants to the other parties as follows:
Section 13.1 Organization and Authority. Such party is duly organized,
validly existing and in good standing as a corporation under the laws of the
state indicated on the first page of this Agreement, with the requisite
authority and power, in conformity with applicable laws, rules and regulations,
to execute and deliver this Agreement and to perform its obligations hereunder.
Such party has taken all necessary action to authorize such execution, delivery
and performance.
Section 13.2 No Conflict with Laws. The execution, delivery and
performance of this Agreement by such party do not conflict with or violate any
laws applicable to such party, any provision of its constituent documents, any
order or judgment of any court or governmental agency applicable to it or any of
its assets or any contractual restriction binding on it or its assets.
Section 13.3 Obligation. This Agreement constitutes a legal, valid and
binding obligation of such party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to the enforcement of creditors' rights generally and
subject to principles of equity.
ARTICLE 14
PARENT GUARANTY
---------------
Section 14.1 Parent Guaranty. Holdings hereby unconditionally guarantees
the full and punctual performance of the covenants, agreements and obligations
of Delaware under this Agreement, including but not limited to the payment when
due of all amounts that may from time to time be payable by Delaware pursuant to
Section 7.2(b) (the "Guaranteed Obligations").
Section 14.2 Guaranty Unconditional. The obligations of
<PAGE>
Holdings hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released or discharged by:
(a) any extension, settlement, compromise, waiver or release in
respect of any obligation of Delaware under this Agreement;
(b) any modification or amendment of or supplement to this
Agreement;
(c) any change in the corporate existence, structure or ownership of
Delaware, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting Delaware or its assets; or
(d) any other act or omission to act or delay of any kind by
Delaware, Lincoln Life, any Fund or any other person which would, but for
the provisions of this paragraph (d), constitute a legal or equitable
discharge of Holding's obligations hereunder;
provided, however, that in the event of any extension, settlement, compromise,
waiver or release of any obligation of Delaware under this Agreement, or any
modification or amendment of or supplement to this Agreement, the guaranty
provided for in this Article 14 shall apply to the obligations of Delaware as so
extended, settled, compromised, waived, released, modified, amended or
supplemented.
Section 14.3 Discharge Only Upon Payment or Performance in Full;
Reinstatement in Certain Circumstances. Holding's obligations hereunder shall
remain in full force and effect until the Guaranteed Obligations shall have been
paid or performed in full. If at any time any payment of Guaranteed Obligations
by Delaware under this Agreement is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of Delaware or
otherwise, Holding's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
Section 14.4 Waiver by Holdings. Holdings irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any person
against Delaware or any other person.
Section 14.5 Subrogation. Upon making any payment with respect to
Delaware hereunder, Holdings shall be subrogated to the rights of the payee
against Delaware with respect to such payment; provided that Holdings shall not
enforce payment by way of subrogation until all Guaranteed Obligations have been
paid or performed in full.
<PAGE>
ARTICLE 15
DISPUTE RESOLUTION
------------------
Before commencing litigation of any dispute arising out of or relating to
this Agreement, the parties shall attempt in good faith to resolve the dispute
by the following means:
Section 15.1 Negotiation. The parties shall in good faith attempt to
resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy. A
party may give the other parties written notice of any dispute not resolved in
the normal course of business. Within 20 days after delivery of that notice,
executives of the affected parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of the
controversy or claim as provided in Section 15.2. If a negotiator intends to be
accompanied at a meeting by an attorney, the other negotiator shall be given at
least 3 Business Days' notice of that intention and may also be accompanied by
an attorney.
Section 15.2 Mediation. If the dispute has not been resolved by
negotiation as provided in Section 15.1, the parties shall endeavor for an
additional period of 60 days to settle the dispute by mediation under the then-
current Center for Public Resources (CPR) Model Procedure for Mediation of
Business Disputes. The neutral third party will be selected from the CPR Panel
of Neutrals. If the parties encounter difficulty in agreeing on a neutral, they
will seek the assistance of CPR in the selection process.
Section 15.3 Confidentiality. All activities under this Article 15 are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence.
ARTICLE 16
MISCELLANEOUS
-------------
Section 16.1 Amendment. This Agreement, including any Exhibits or
Schedules, may be amended, modified or supplemented only in writing signed by
Delaware, Lincoln Life and any Fund affected thereby. This Agreement shall be
binding upon all successors, assigns or transferees of the parties to this
Agreement.
Section 16.2 Assignment. This Agreement and the rights, duties and
obligations of the parties hereto shall not be assign able by any party, except
assignment to successors in the case of mergers, sales of all or substantially
all of the assets of such
<PAGE>
party or transfer of ownership by reorganization or similar restructuring to a
successor in interest to the business of such party, without the prior written
consent of the other parties, and any purported assignment in the absence of
such consent shall be void.
Section 16.3 Notices. All notices given or submitted pursuant to this
Agreement shall be made in writing and shall be deemed given when (a) deposited
with the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested; (b) deposited with a nationally recognized
overnight mail delivery service; (c) sent by facsimile with electronic
confirmation of delivery or with a copy sent by mail as described in (a) or (b)
above; or (d) delivered in person; all to the last address of record of each
party being notified.
Any notice under this Agreement to Lincoln Life shall be given to:
ATTN: O. Douglas Worthington
Vice President and Controller
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-3669
Facsimile: (219) 455-1939
Any notice under this Agreement to Delaware or Holdings
shall be given to:
ATTN: Michael J. Bishof
Vice President and Treasurer
Delaware Management Company
1818 Market Street; 7th Floor
Philadelphia, PA 19103
Phone: (215) 255-2852
Facsimile: (215) 255-1645
With a copy to:
Richard J. Flannery
Managing Director, Corporate
& Tax Affairs
Delaware Management Company
2005 Market Street
Philadelphia, PA 19103
Phone: (215) 255-1244
Facsimile: (215) 255-2822
<PAGE>
Any notice under this Agreement to any Fund shall be given
to:
ATTN: Kelly D. Clevenger
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-5119
Facsimile: (219) 455-1773
Any party may, by means of written notice in compliance with this Section
16.3, change the address or the identity of the person to whom any notice, or
copy thereof, is to be sent.
Section 16.4 Severability. If any provision of this Agreement, as applied
to any party or to any circumstances, shall be found by a court of competent
jurisdiction to be void, invalid or unenforceable, the same shall in no way
affect any other provision of this Agreement, the application of any such provi
sion in any other circumstances, or the validity or enforce ability of this
Agreement; provided, however, that nothing in this Section 16.4 shall adversely
affect the fundamental benefits received by the parties under this Agreement.
Section 16.5 Waiver. A waiver by any party of any of the terms and
conditions of this Agreement in any one instance shall not be deemed or
construed to be waiver of any such term or condition for the future, or of any
subsequent breach thereof, nor shall it be deemed a waiver of performance of any
other obligation hereunder. No waiver of any provision of this Agreement shall
be valid unless agreed to in writing by the party or parties against whom such
waiver is sought to be enforced.
Section 16.6 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter of this
Agreement and supersedes all prior and collateral agreements, understandings,
statements and negotiations of the parties.
Section 16.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without giving
effect to the conflict of law provisions thereof.
Section 16.8 Section and Paragraph Headings. The titles of the sections
and paragraphs of this Agreement are for convenience only and shall not in any
way affect the interpretation of any provision or condition of this Agreement.
Section 16.9 Counterparts. This Agreement may be executed in counterparts
which, taken together, shall constitute the whole of the Agreement as between
the parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
LINCOLN LIFE:
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: ____________________________
O. Douglas Worthington
Title: Vice President and
Controller
Date: __________________________
HOLDINGS:
DELAWARE MANAGEMENT HOLDINGS, INC.
By: ____________________________
Title: _________________________
Date: __________________________
DELAWARE:
DELAWARE SERVICE COMPANY, INC.
By: ____________________________
Title: _________________________
Date: __________________________
<PAGE>
FUNDS:
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.
By: ____________________________
Kelly D. Clevenger
In his capacity as President of each of
the above-named Funds.
Date: __________________________
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
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.
<PAGE>
EXHIBIT B
---------
FORM OF WRITTEN ACKNOWLEDGEMENT OF CUTOVER DATE
<PAGE>
SCHEDULE 1.1(a)
---------------
CUTOVER SCHEDULE
<PAGE>
SCHEDULE 2.1
------------
PROCEDURES FOR CORRECTING ERRORS
<PAGE>
SCHEDULE 3.1
------------
DATA PROVIDED BY LINCOLN LIFE
<PAGE>
SCHEDULE 3.2
------------
UNAFFILIATED MUTUAL FUNDS
AND
SERVICE PROVIDERS
<PAGE>
SCHEDULE 6.1
------------
FEE SCHEDULE
<PAGE>
Exhibit 6
[LINCOLN LIFE - LETTERHEAD]
April 15, 1997
Gentlemen:
This Opinion is furnished in connection with the filing of Post-Effective
Amendment #12 to Registration #33-22740 for the Lincoln National Flexible
Premium Variable Life Account G. In my capacity as Second Vice President -
Business Engineering, I am familiar with the Registration Statement, its
exhibits, and the policy forms associated with the Registration Statement. In
my opinion:
1. The fees and charges deducted under the contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by the Lincoln National Life Insurance
Company.
2. The illustrations of death benefits, policy values, and accumulated
premiums shown in Appendix D to the Prospectus contained in the
Registration Statement, based on the assumptions stated in the
illustrations, are consistent with the assumptions stated in the policies.
The rate structure of the policies has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear to be correspondingly more favorable to the prospective purchaser of
policies that are Standard Male Nonsmokers or Smokers Age 35 or Age 55 than
to prospective purchasers for policies that are Males or Females at other
ages or classifications.
3. The information contained in the illustrations in the section of the
Prospectus entitled "Policy Benefits", based on the assumptions stated in
the examples, is consistent with the provisions of the policies.
I hereby consent to the use of this opinion as an Exhibit to Post-Effective
Amendment # 12 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus contained in the Registration Statement.
Sincerely,
/s/ Denis G. Schwartz
Denis G. Schwartz, FSA
Second Vice President
Business Engineering
<PAGE>
Exhibit 7
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the Post-
Effective Amendment No. 12 to the Registration Statement (Form S-6 No. 33-22740)
and the related Prospectus appearing therein and pertaining to the Lincoln
National Flexible Premium Variable Life Account G, and to the use therein of our
reports dated (a) February 6, 1997 with respect to the statutory-basis financial
statements of The Lincoln National Life Insurance Company for each of the three
years in the period ended December 31, 1996; (b) February 7, 1996, with respect
to the consolidated financial statements of the Lincoln National Life Insurance
Company for each of the three years in the period ended December 31, 1995; and
(c) March 27, 1997 with respect to the financial statements of Lincoln
National Flexible Premium Variable Life Account G.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
Lincoln Life Flexible Premium Variable Life Account G plan financial statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 179,429,735
<INVESTMENTS-AT-VALUE> 207,685,434
<RECEIVABLES> 670,274
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 208,355,708
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 140,759
<TOTAL-LIABILITIES> 140,759
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 146,424,994
<SHARES-COMMON-STOCK> 81,999,278
<SHARES-COMMON-PRIOR> 68,708,343
<ACCUMULATED-NII-CURRENT> 30,902,814
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,631,442
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,255,699
<NET-ASSETS> 208,214,949
<DIVIDEND-INCOME> 15,483,536
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,427,887
<NET-INVESTMENT-INCOME> 14,055,649
<REALIZED-GAINS-CURRENT> 1,351,611
<APPREC-INCREASE-CURRENT> 9,399,986
<NET-CHANGE-FROM-OPS> 24,807,246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,717,511
<NUMBER-OF-SHARES-REDEEMED> 22,426,576
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 56,329,017
<ACCUMULATED-NII-PRIOR> 16,847,165
<ACCUMULATED-GAINS-PRIOR> 1,279,831
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,427,887
<AVERAGE-NET-ASSETS> 180,050,441
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
