<PAGE>
Registration No. 33-76434
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 7 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
(Exact name of Trust)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of depositor)
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
(Complete address of depositor's principal executive offices)
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Name and complete address
of agent for service: Copy to:
Carl L. Baker, Esquire Brian Burke, Esquire
Vice President & Counsel
Deputy General Counsel The Lincoln National
The Lincoln National Life Insurance Company
Life Insurance Company 1300 South Clinton Street
1300 South Clinton Street P.O. Box 1110
P.O. Box 1110 Fort Wayne, Indiana 46801
Fort Wayne, IN 46801
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- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a) (1)
[_] on (date) pursuant to paragraph (a) (1) of rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
Title of securities being registered: Flexible Premium Variable Life Insurance
Policies.
Approximate date of proposed public offering: As soon as practicable after April
30, 1998.
[_] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
================================================================================
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
FOR LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
<TABLE>
<CAPTION>
<S>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------------------------------
<C> <C>
1 Cover Page
2 Cover Page
3 Safekeeping of the Separate account's assets
4 Distribution of the policy
5 Lincoln Life, The General Account and The Separate Account
6 The Separate Account
7 Not applicable
8 Not applicable
9 Legal proceedings
10 Summary of the policy; The policy; The Separate Account;
Charges and deductions; Policy benefits;
Voting rights; General provisions
11 Summary of the policy
12 Summary of the policy
13 Summary of the policy; Charges and deductions
14 Summary of the policy; Requirements for issuance of a policy
15 Premium payment and allocation of premiums
16 Premium payment and allocation of premiums
17 Summary of the policy; The policy, Charges and deductions;
Policy benefits
18 Premium payment and allocation of premiums
19 General provisions; Voting rights
20 Not Applicable
21 Policy benefits; General provisions
22 Not applicable
23 Safekeeping of the Separate account's assets
24 General provisions
25 Lincoln Life
26 Charges and deductions
27 Lincoln Life
28 Executive Officers and Directors of the Lincoln National Life
Insurance Co.
29 Lincoln Life, The General Account and The Separate Account
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------------------------------
<C> <C>
34 Not applicable
35 Lincoln Life
36 Not applicable
37 Not applicable
38 Distribution of the policy
39 Distribution of the policy
40 Distribution of the policy
41 Distribution of the policy
42 Not applicable
43 Not applicable
44 Charges and deductions; The Separate Account; Policy benefits
45 Not applicable
46 Policy benefits
47 The Separate Account; The policy
48 Not applicable
49 Not applicable
50 The Separate Account
51 Cover Page; Summary of the policy; The policy; Charges and
deductions; Policy benefits
52 Addition, deletion or substitution of investments
53 Federal tax matters
54 Not applicable
55 Not applicable
56 Not applicable
57 Not applicable
58 Not applicable
59 Not applicable
</TABLE>
<PAGE>
LINCOLN LIFE -Registered Trademark-
AMERICAN LEGACY
VARIABLE LIFE
PROSPECTUS
Variable Annuity Account J
May 1, 1998
<PAGE>
AMERICAN LEGACY VARIABLE LIFE
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J INDIVIDUAL FLEXIBLE
PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY:
Lincoln National Life Insurance Co.
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Ind. 46801
800-4LINCOLN (800-454-6265)
The flexible premium variable life insurance policy (POLICY) offered by Lincoln
National Life Insurance Co. (Lincoln Life) and described in this prospectus is
designed to provide life insurance protection. A POLICY may be issued only to
persons age 80 or younger (ages 81-85 by exception only) and only for an initial
SPECIFIED AMOUNT of $50,000 or more. Subject to the payment of a minimum premium
for the first policy year, an OWNER may, subject to certain restrictions, vary
the frequency and amount of premium payments. The level of life insurance
benefits payable under the POLICY may also be increased or decreased subject to
certain restrictions.
An OWNER may choose to allocate amounts either to the GENERAL ACCOUNT of Lincoln
Life (GENERAL ACCOUNT) or to the Lincoln Life Flexible Premium Variable Life
Account J (SEPARATE ACCOUNT). Amounts allocated to the SEPARATE ACCOUNT may be
invested in the American Variable Insurance Series, which has ten FUNDS
available:
- - Global Small Capitalization Fund
- - Global Growth Fund
- - Growth Fund
- - International Fund
- - Growth-Income Fund
- - Asset Allocation Fund
- - High-Yield Bond Fund
- - Bond Fund
- - U.S. Government/AAA-Rated Securities Fund
- - Cash Management Fund
The amount of the death benefit may, and the POLICY VALUE will, reflect the
investment experience of the chosen SUBACCOUNTS of the SEPARATE ACCOUNT and
interest credited to the POLICY by the GENERAL ACCOUNT, as well as the frequency
and amount of premiums, and the charges assessed in connection with the POLICY.
As long as the POLICY remains in force, the death benefit will not be less than
the current SPECIFIED AMOUNT of the POLICY. The POLICY will remain in force so
long as NET CASH SURRENDER VALUE is sufficient to pay the monthly deductions
imposed in connection with the POLICY. The OWNER bears the entire investment
risk for all amounts allocated to the SEPARATE ACCOUNT; no minimum POLICY VALUE
or NET CASH SURRENDER VALUE is guaranteed.
The purchase and ownership of the POLICY involves various charges which are
explained under the heading Charges and deductions on page 8.
It may not be advantageous to purchase a POLICY:
(1) as a replacement for another type of life insurance; or,
(2) to obtain additional insurance protection if the purchaser already owns
another flexible premium variable life insurance policy.
This prospectus is valid only if accompanied or preceded by a prospectus for
American Variable Insurance Series.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE REGULATORY AGENCY, NOR HAS THE COMMISSION,
OR ANY STATE REGULATORY AGENCY, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and retain it for future reference.
The date of this prospectus is April 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
- -----------------------------------------------------
SUMMARY OF THE POLICY 1
- -----------------------------------------------------
LINCOLN LIFE, THE GENERAL ACCOUNT AND
THE SEPARATE ACCOUNT
Lincoln Life 3
The General Account 4
The Separate Account 4
The investment advisor 4
Addition, deletion, or substitution of
investments 4
- -----------------------------------------------------
THE POLICY
Requirements for issuance of a policy 5
Units and unit values 5
Premium payment and allocation of
premiums 6
Dollar cost averaging program 7
Effective date 7
Right to examine policy 7
Policy termination 7
- -----------------------------------------------------
CHARGES AND DEDUCTIONS
Percent of premium charge 8
Contingent deferred sales charge (CDSC) 8
Contingent deferred administrative
charge (CDAC) 8
Surrender charge 9
Monthly deductions 9
Cost of insurance charges 9
Monthly charge 9
Fund charges and expenses 9
Mortality and expense risk charge 10
Other charges 10
Reduction of charges 10
Exchange of Lincoln Life Universal Life
policies 10
Term conversion credits 11
- -----------------------------------------------------
POLICY BENEFITS
Death benefit and death benefit types 11
Death benefit guarantee 12
Policy changes 12
Policy value 12
Transfer between subaccounts 13
Transfer to and from the General Account 13
Loans 14
Withdrawals 14
<CAPTION>
PAGE
- -----------------------------------------------------
<S> <C>
Policy lapse and reinstatement 15
Surrender of the policy 15
Proceeds and payment options 15
- -----------------------------------------------------
GENERAL PROVISIONS
The contract 16
Suicide 16
Representations and contestability 16
Incorrect age or sex 16
Change of owner or beneficiary 16
Assignment 17
Reports and records 17
Projection of benefits and values 17
Postponement of payments 17
Riders 17
- -----------------------------------------------------
DISTRIBUTION OF THE POLICY 19
- -----------------------------------------------------
FEDERAL TAX MATTERS
Tax status of the policy 19
Tax treatment of policy benefits 20
Taxation of the Separate Account 22
- -----------------------------------------------------
VOTING RIGHTS 22
- -----------------------------------------------------
STATE REGULATION OF LINCOLN LIFE AND THE
SEPARATE ACCOUNT 22
- -----------------------------------------------------
SAFEKEEPING OF THE SEPARATE ACCOUNT'S
ASSETS 22
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LEGAL PROCEEDINGS 23
- -----------------------------------------------------
EXPERTS 23
- -----------------------------------------------------
PREPARING FOR YEAR 2000 23
- -----------------------------------------------------
ADDITIONAL INFORMATION 24
- -----------------------------------------------------
APPENDIX A: Table of base minimum
premiums 25
- -----------------------------------------------------
APPENDIX B: Table of surrender charges 27
- -----------------------------------------------------
APPENDIX C: Executive Officers &
Directors of Lincoln National Life
Insurance Co. 29
- -----------------------------------------------------
APPENDIX D: Illustrations of policy
values 31
- -----------------------------------------------------
APPENDIX E: Definitions for Separate
Account J 40
- -----------------------------------------------------
FINANCIAL STATEMENTS 42
</TABLE>
i
<PAGE>
SUMMARY OF THE POLICY
The following summary is intended to give you only a brief explanation of the
most important features of your POLICY. Therefore you should read the entire
Prospectus and Appendixes carefully before making a decision to purchase. For
the definition of terms used in this prospectus, see Appendix E, page 40.
Throughout this prospectus, in order to make the following documents more
understandable, we have italicized the special terms.
WHAT TYPE OF POLICY AM I PURCHASING?
Your POLICY is a flexible premium variable life insurance policy whose primary
purpose is to provide life insurance protection on the INSURED. As long as your
POLICY remains in force, the POLICY will provide for: (1) the payment of a death
benefit to a BENEFICIARY upon the INSURED'S death; (2) policy loan privileges,
withdrawal rights, and surrender privileges; and (3) the payment of the NET CASH
SURRENDER VALUE to the OWNER, if living, on the MATURITY DATE.
HOW DOES THE LIFE INSURANCE
PROTECTION WORK?
The POLICY provides for the payment of benefits upon the death of the INSURED.
The POLICY offers 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 under either option will be the current SPECIFIED
AMOUNT. Death benefit PROCEEDS are reduced by any outstanding loan and any due
and unpaid charges, and increased by any unearned loan interest. (See Death
benefit and death benefit types, page 11.)
You also have significant flexibility to adjust the death benefit prior to the
MATURITY DATE by increasing or decreasing the SPECIFIED AMOUNT of the POLICY.
Any increase in the SPECIFIED AMOUNT will require additional evidence of
insurability satisfactory to us and will result in additional charges. Any
voluntary decrease during the first 8 years of the POLICY or during the 8 years
following an increase in the SPECIFIED AMOUNT will result in partial SURRENDER
CHARGES.
HOW ARE THE PREMIUMS FLEXIBLE?
You have considerable flexibility concerning the amount and frequency of premium
payments. During the first three policy years, your POLICY will lapse unless
either the total of all premiums paid (minus any partial withdrawals and minus
any outstanding loans) is at all times at least equal to the DEATH BENEFIT
GUARANTEE MONTHLY PREMIUM times the number of months since the initial POLICY
DATE (including the current month) or the NET CASH SURRENDER VALUE of the POLICY
is greater than zero. In order to place your POLICY in force, you must pay at
least the first two DEATH BENEFIT GUARANTEE MONTHLY PREMIUMS. In addition, you
will be asked to determine a PLANNED PERIODIC PREMIUM schedule, although you
will not be required to adhere to that premium schedule. Instead, after the
first policy year, you may, subject to certain restrictions, make premium
payments in any amount and at any frequency. (See Premium payment and allocation
of premiums, page 5.)
WHAT MAKES MY POLICY VARIABLE?
Your POLICY is described as variable because the death benefit may, and the
POLICY VALUE will vary with the investment performance of amounts you have
allocated to the SUBACCOUNTS you have selected. While you bear the entire
investment risk on such amounts, you also enjoy the opportunity to obtain market
rates of return on those amounts.
WHAT FUNDS ARE AVAILABLE TO SELECT?
You have the option to allocate amounts to our GENERAL ACCOUNT and to one or
more SUBACCOUNTS of the SEPARATE ACCOUNT. Amounts allocated to the GENERAL
ACCOUNT earn a current declared interest rate, subject to the minimum guaranteed
rate shown on the Policy Schedule. The SUBACCOUNTS of the SEPARATE ACCOUNT
invest in the American Variable Insurance Series. Currently the American
Variable Insurance Series consists of ten funds available for investment by the
SUBACCOUNTS:
THE GLOBAL SMALL CAPITALIZATION FUND seeks long-term growth of capital by
investing primarily in equity securities of companies domiciled around the world
with relatively small market capitalizations (share price times the number of
equity securities outstanding). The FUND may also invest in securities
convertible into common stocks, straight debt securities, government securities
or nonconvertible preferred stocks. [PLEASE NOTE: AS OF THE DATE OF THIS
PROSPECTUS, THE GLOBAL SMALL CAPITALIZATION FUND IS NOT YET AVAILABLE IN ALL
STATES. PLEASE CONTACT YOUR INVESTMENT DEALER FOR CURRENT INFORMATION.
THE GLOBAL GROWTH FUND seeks long-term growth of capital by investing primarily
in common stocks or securities with common stock characteristics of issuers
domiciled around the world.
THE GROWTH FUND seeks growth of capital by investing primarily in common stocks
or securities with common stock characteristics, such as convertible preferred
stocks which demonstrate the potential for appreciation.
THE INTERNATIONAL FUND seeks long-term growth of capital by investing primarily
in securities of issuers domiciled outside the United States.
1
<PAGE>
THE GROWTH-INCOME FUND seeks growth of capital and income by investing primarily
in common stocks, or securities which demonstrate the potential for appreciation
and/or dividends.
THE ASSET ALLOCATION FUND seeks high total return (including income and capital
gains) consistent with preservation of capital over the long-term through a
diversified portfolio that can include common stocks and other equity-type
securities, bonds and other intermediate and long-term fixed-income securities
and money market instruments in any combination.
THE HIGH-YIELD BOND FUND seeks high current income and secondarily seeks capital
appreciation by investing primarily in intermediate and long term corporate
obligations, with emphasis on higher yielding, higher risk, lower rated or
unrated securities. IN ADDITION TO OTHER RISKS, HIGH-YIELD, HIGH-RISK BONDS
(ALSO KNOWN AS "JUNK BONDS") ARE SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND
RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN ARE
INVESTMENTS IN LOWER YIELDING, HIGHER RATED BONDS. FOR FURTHER INFORMATION ON
THE RISKS ASSOCIATED WITH SUCH SECURITIES, PLEASE REFER TO THE PROSPECTUS FOR
THE AMERICAN VARIABLE INSURANCE SERIES, WHICH MUST ACCOMPANY OR PRECEDE THIS
PROSPECTUS AND WHICH SHOULD BE READ CAREFULLY.
THE BOND FUND seeks a high level of current income as is consistent with the
preservation of capital by investing in a broad variety of fixed income
securities including: marketable corporate debt securities.
THE U.S. GOVERNMENT /AAA-RATED SECURITIES FUND seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the United
States Government and other debt securities rated AAA or Aaa.
THE CASH MANAGEMENT FUND seeks high current yield while preserving capital by
investing in a diversified selection of money market instruments.
HOW ARE PREMIUMS PROCESSED? You determine in the application what portions of
net premiums are to be allocated to the GENERAL ACCOUNT or the various
SUBACCOUNTS of the SEPARATE ACCOUNT. Prior to the RECORD DATE, net premiums are
automatically allocated to the GENERAL ACCOUNT. After the RECORD DATE, the
POLICY VALUE and all subsequent net premiums will automatically be invested in
the GENERAL ACCOUNT and the SUBACCOUNTS of the SEPARATE ACCOUNT in accordance
with your instructions in the application. You may change future allocations of
net premiums at any time without charge by notifying us in writing. Subject to
certain restrictions, you may transfer amounts among the GENERAL ACCOUNT and the
SUBACCOUNTS of the SEPARATE ACCOUNT.
WHEN DOES MY POLICY TERMINATE?
Your POLICY may terminate due to any one of the following: voluntary return or
surrender of the POLICY, lapse due to failure to pay required premiums or due to
insufficient NET CASH SURRENDER VALUE, payment of the death benefit, or
maturity. During the FREE LOOK PERIOD, you may return the policy for a refund of
all premiums paid. Anytime after the FREE LOOK PERIOD and before the second
policy anniversary, you may surrender the POLICY and receive its NET CASH
SURRENDER VALUE plus any excess sales load. (See Charges and deductions, page
8.) After the second policy anniversary, you may surrender the policy and
receive its NET CASH SURRENDER VALUE.
DO I HAVE ACCESS TO THE POLICY VALUES?
You may access the NET CASH SURRENDER VALUE through loans or withdrawals. You
may borrow the NET CASH SURRENDER VALUE at any time. In addition, subject to
some restrictions and charges, you may withdraw portions of the NET CASH
SURRENDER VALUE after the first policy year. Loans and withdrawals decrease both
the death benefit and future POLICY VALUES and may have federal income tax
consequences.
WHAT CHARGES AND DEDUCTIONS ARE MADE FROM MY POLICY?
Sales charges will be deducted from your POLICY in two forms (a percent of
premium charge and a CONTINGENT DEFERRED SALES CHARGE) as compensation for
distribution expenses we incur in the sales process. These distribution expenses
include sales commissions, the cost of printing the prospectus and sales
literature, and any advertising costs. To the extent that such distribution
expenses are not recovered through explicit sales charges, we will recover them
from our other assets or surplus, including income from MORTALITY AND EXPENSE
RISK CHARGES and COST OF INSURANCE CHARGES.
PERCENT OF PREMIUM CHARGE. A percent of premium charge is currently deducted
from each premium you pay. The total charge currently consists of the sum of the
following:
a. 3.25% for charges deemed to be sales loads as defined by the Investment
Company Act of 1940. This item is guaranteed not to exceed 3.25%.
b. 2.50% for premium taxes and other taxes not deemed to be sales loads as
defined by the Investment Company Act of 1940. This item is guaranteed not
to exceed 4.50%.
CONTINGENT DEFERRED SALES CHARGE (CDSC). During the first 8 policy years, the
POLICY VALUE is subject to a CONTINGENT DEFERRED SALES CHARGE which is deducted
if the policy lapses or is surrendered or if the SPECIFIED AMOUNT is voluntarily
reduced. During the first two policy years, the CDSC is no greater than 44% of
the required BASE
2
<PAGE>
MINIMUM PREMIUM for the POLICY. Upon actual surrender or voluntary reduction of
SPECIFIED AMOUNT in the first two years of the POLICY, the actual CDSC is
subject to certain maximum limits. (See Charges and deductions, page 8.) During
the third and subsequent policy years, the CDSC will equal the CDSC during the
first policy year times the percent indicated in the following table.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE (CDAC). During the first 8 policy
years, the POLICY VALUE is subject to a CONTINGENT DEFERRED ADMINISTRATIVE
CHARGE which is deducted if the POLICY lapses or is surrendered or if the
SPECIFIED AMOUNT is voluntarily reduced. The CDAC is no greater than 88% of the
required BASE MINIMUM PREMIUM for the POLICY. During the second and subsequent
policy years, the CDAC will equal the first year CDAC times the percent
indicated in the following table.
An additional CDAC will be imposed under the POLICY in the event of each
requested increase in SPECIFIED AMOUNT and applies during the 8 years following
such increase. If a requested increase in SPECIFIED AMOUNT occurs, additional
premium will be required if the current NET CASH SURRENDER VALUE is not
sufficient to cover the CDAC associated with the increase.
<TABLE>
<CAPTION>
DURING POLICY YEAR PERCENT OF CDSC AND CDAC
(OR AFTER AN INCREASE) TO BE DEDUCTED
<S> <C>
- --------------------------------------------------
2 100%
3 100%
4 100%
5 100%
6 75%
7 50%
8 25%
</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, page 9.)
OTHER CHARGES AND DEDUCTIONS. The POLICY VALUE will be reduced by certain
monthly deductions equal to the sum of a monthly COST OF INSURANCE CHARGE
(including the cost of any optional insurance benefits) and a monthly charge
equal to $7.50 per month. Currently, no charge is made for transfers of amounts
among the GENERAL ACCOUNT and the SUBACCOUNTS, although a maximum of $10 per
transfer may be charged. A withdrawal charge consisting of a processing fee and
a possible early withdrawal penalty is deducted from each withdrawal. The early
withdrawal penalty portion is applicable only at times when the SURRENDER CHARGE
is greater than zero. As a current practice, the withdrawal charge is equal to
3% of the withdrawn amount during the first eight policy years, and is equal to
$10 at all other times. This charge is guaranteed not to exceed the greater of
$25 or 5% of the withdrawn amount at times when the SURRENDER CHARGE is greater
than zero and is guaranteed not to exceed $25 at all other times.
The daily rate of .0022191% (which is equivalent to an annual rate of .81%) of
the value of the net assets of the SEPARATE ACCOUNT is currently charged for
Lincoln Life's assumption of certain mortality and expense risks. This charge is
guaranteed not to exceed .90%.
No charges are currently made from the SEPARATE ACCOUNT for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
Company reserves the right to make deductions from the POLICY to pay those
taxes.
In addition, because the SEPARATE ACCOUNT purchases shares of the FUNDS
involved, the value of the net assets of these SUBACCOUNTS of the SEPARATE
ACCOUNT will reflect the fees of the investment 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 .37% to .86%. See page 10 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 19-21. You should note
in particular that the taxation of loans, withdrawals and surrenders of a life
insurance policy that becomes a Modified Endowment Contract is generally less
favorable than distributions from a life insurance policy that is not a Modified
Endowment Contract. Your POLICY will be a Modified Endowment Contract if the
premiums you pay exceed certain limits referred to as the 7-pay limitation.
LINCOLN LIFE, THE GENERAL ACCOUNT AND THE SEPARATE ACCOUNT
LINCOLN LIFE
Lincoln Life is a stock life insurance company incorporated under the laws of
Indiana on June 12, 1905. Lincoln Life is principally engaged in offering
individual life insurance policies and annuity contracts, and ranks among the
largest United States stock life insurance companies in terms of assets and life
insurance in force. Lincoln Life is also one of the leading life reinsurers in
the United States. Lincoln Life is licensed in all states (except New York) the
District of Columbia, Guam, and the Commonwealth of the Northern Mariana
Islands.
3
<PAGE>
Lincoln Life is wholly owned by Lincoln National Corp., a publicly held
insurance holding company incorporated under Indiana law on January 5, 1968. The
principal office of Lincoln Life is located at 1300 South Clinton Street, Fort
Wayne, Ind. 46802. The principal office of Lincoln National Corp. is located at
200 East Berry Street, Fort Wayne, Ind. 46802. Through its affiliated companies,
Lincoln National Corp. provides wealth accumulation and protection products and
services -- including annuities, life insurance, 401(k) plans, life-health
reinsurance, institutional investment management and mutual funds.
THE GENERAL ACCOUNT
The GENERAL ACCOUNT of Lincoln Life consists of all assets owned by Lincoln Life
other than those allocated to any of its separate accounts, including the
SEPARATE ACCOUNT. The GENERAL ACCOUNT supports Lincoln Life's insurance and
annuity obligations. Because of applicable exemptive and exclusionary
provisions, interests in the GENERAL ACCOUNT have not been registered under the
Securities Act of 1933, and the GENERAL ACCOUNT has not been registered as an
investment company under the Investment Company Act of 1940.
THE SEPARATE ACCOUNT
Lincoln Life Flexible Premium Variable Life Account J (SEPARATE ACCOUNT) was
established by Lincoln Life as a separate account on March 9, 1994. Although the
assets of the SEPARATE ACCOUNT are the property of Lincoln Life, the laws of
Indiana under which the SEPARATE ACCOUNT was established provide that the assets
in the SEPARATE ACCOUNT attributable to the POLICIES are not chargeable with
liabilities arising out of any other business which Lincoln Life may conduct.
The assets of the SEPARATE ACCOUNT shall, however, be available to cover the
liabilities of the GENERAL ACCOUNT of Lincoln Life to the extent that the
SEPARATE ACCOUNT's assets exceed its liabilities arising under the POLICIES
supported by it. The assets of the SEPARATE ACCOUNT will be valued once daily at
the close of regular trading (currently 4:00 p.m. New York time) on each day the
New York Stock Exchange is open. The New York Stock Exchange is currently closed
on the following holidays: New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
The SEPARATE ACCOUNT has been registered as an investment company under the
Investment Company Act of 1940 and meets the definition of "separate account"
under Federal Securities laws. Registration with the Securities and Exchange
Commission does not involve supervision of the management or investment
practices or policies of the SEPARATE ACCOUNT or Lincoln Life by the Commission.
The SEPARATE ACCOUNT is divided into ten SUBACCOUNTS. Each SUBACCOUNT invests
exclusively in shares of one of the FUNDS comprising the American Variable
Insurance Series: the Global Small Capitalization Fund, the Global Growth Fund,
the Growth Fund, the International Fund, the Bond Fund, the Growth-Income Fund,
the Asset Allocation Fund, the High-Yield 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 Lincoln Life variable annuity
contract holders. Should Lincoln Life become aware of any material
irreconcilable conflict, either potential or existing, between its variable
annuity and variable life insurance contractowners, Lincoln Life has agreed to
notify the Series' Board of Trustees and to remedy, at Lincoln Life's own
expense, any such conflict. Each FUND has two classes of shares, designated as
class 1 shares and class 2 shares. Class 1 and class 2 differ in that class 2
(but not class 1) shares are subject to a 12b-1 plan for the payment by the FUND
of certain distribution-related expenses. Only class 1 shares are available
under the POLICY.
There is no assurance that any FUND of the American Variable Insurance Series
will achieve its stated investment objective. For a complete description of the
American Variable Insurance Series, please refer to the prospectus for the
Series which must accompany or precede this prospectus and which should be read
carefully.
THE INVESTMENT ADVISOR
Capital Research and Management Co., an investment management organization
founded in 1931, is the investment advisor to the series and other mutual funds,
including those in The American Funds Group. Capital Research and Management Co.
is located at 333 South Hope Street, Los Angeles, Calif. 90071 and 135 South
State College Boulevard, Brea, Calif. 92821. Capital Research and Management is
registered with the Securities and Exchange Commission as an investment advisor.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Lincoln Life does not control the investment advisor and therefore cannot
guarantee that the American Variable Insurance Series or any particular FUNDS
will be available for investment by the SUBACCOUNTS. Lincoln Life reserves the
right, subject to compliance with applicable law, to make additions to,
deletions from, or substitutions for the shares that are held by the SEPARATE
ACCOUNT or that the SEPARATE ACCOUNT may purchase. Lincoln Life reserves the
right to eliminate the shares of any FUND and to substitute shares of another
open-end, registered investment company, if the shares are no longer available
for investment, or if in the judgment of Lincoln Life further investment in any
FUND should
4
<PAGE>
become inappropriate in view of the purposes of the SEPARATE ACCOUNT. Lincoln
Life will not substitute any shares attributable to an OWNER'S interest in a
SUBACCOUNT of the SEPARATE ACCOUNT without notice and prior approval of the
Securities and Exchange Commission, to the extent required by the Investment
Company Act of 1940 or other applicable law. Nothing contained herein shall
prevent the SEPARATE ACCOUNT from purchasing other securities for other series
or classes of policies, or from permitting a conversion between series or
classes of policies on the basis of requests made by policyowners.
Lincoln Life also reserves the right to establish additional SUBACCOUNTS of the
SEPARATE ACCOUNT, each of which would invest in a new FUND or series of a FUND,
or in shares of another investment company, with a specified investment
objective. New SUBACCOUNTS may be established when, at the sole discretion of
Lincoln Life, marketing needs or investment conditions warrant, and any new
SUBACCOUNTS may be made available to existing policyowners on a basis to be
determined by Lincoln Life. Lincoln Life may also eliminate one or more
SUBACCOUNTS if, in its sole discretion, marketing, tax, or investment conditions
warrant. Exchange Commission, to the extent required by the Investment Company
Act of 1940 or other applicable law. Nothing contained herein shall prevent the
SEPARATE ACCOUNT from purchasing other securities for other series or classes of
policies, or from permitting a conversion between series or classes of policies
on the basis of requests made by policyowners.
Lincoln Life also reserves the right to establish additional SUBACCOUNTS of the
SEPARATE ACCOUNT, each of which would invest in a new FUND or series of a FUND,
or in shares of another investment company, with a specified investment
objective. New SUBACCOUNTS may be established when, at the sole discretion of
Lincoln Life, marketing needs or investment conditions warrant, and any new
SUBACCOUNTS may be made available to existing policyowners on a basis to be
determined by Lincoln Life. Lincoln Life may also eliminate one or more
SUBACCOUNTS if, in its sole discretion, marketing, tax, or investment conditions
warrant.
In the event of any such substitution or change, Lincoln Life may by appropriate
endorsement make such changes in the policy as may be necessary or appropriate
to reflect such substitution or change. If deemed by Lincoln Life to be in the
best interests of persons having voting rights under the POLICIES, the SEPARATE
ACCOUNT may be operated as a management company under the Investment Company Act
of 1940, it may be deregistered under that Act in the event such registration is
no longer required, or it may be combined with other Lincoln Life separate
accounts.
THE POLICY
REQUIREMENTS FOR ISSUANCE OF A POLICY
Individuals wishing to purchase a POLICY must send a completed application to
Lincoln Life, 1300 South Clinton Street, Fort Wayne, Ind. 46802. The minimum
SPECIFIED AMOUNT of a policy is $50,000. A policy will generally be issued only
to insureds 80 years of age or younger (ages 81-85 by exception only) who supply
satisfactory evidence of insurability sufficient to Lincoln Life. Acceptance is
subject to Lincoln Life's underwriting rules and, except in California, Lincoln
Life reserves the right to reject an application for any reason.
Additional insurance on the life of other persons may be applied for by
supplemental application. Approval of the additional insurance will be subject
to evidence of insurability satisfactory to Lincoln Life.
UNITS AND UNIT VALUES
The value of POLICY monies invested in each SUBACCOUNT is accounted for through
the use of UNITS and UNIT VALUES. A UNIT is an accounting unit of measure used
to calculate the value of an investment in a specified SUBACCOUNT. A UNIT VALUE
is the dollar value of a UNIT in a specified SUBACCOUNT on a specified valuation
date. Whenever an amount is invested in a SUBACCOUNT (due to net premium
payments, loan payments, or transfer of values into a SUBACCOUNT), the amount
purchases UNITS in that SUBACCOUNT; the number of UNITS purchased is determined
by dividing the dollar amount of the transaction by the UNIT VALUE on the day
the transaction is made. Similarly, whenever an amount is redeemed from a
SUBACCOUNT (due to loans and loan interest charges, withdrawals and withdrawal
charges, surrender and SURRENDER CHARGES, transfers of values out of a
SUBACCOUNT and transfer charges, income tax deductions (if any), COST OF
INSURANCE CHARGES, or monthly 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
allocated 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
valuation day.
The UNIT VALUE for a SUBACCOUNT on a specified valuation date is determined by
dividing the value of all assets owned by that SUBACCOUNT, net of the
SUBACCOUNT'S liabilities (including any accrued but unpaid DAILY MORTALITY AND
EXPENSE RISK CHARGES), by the total number of UNITS held by POLICIES in that
SUBACCOUNT. NET INVESTMENT RESULTS do
5
<PAGE>
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
determining the frequency and amount of premiums. During the first three policy
years, the POLICY will lapse unless either the total of all premiums paid (minus
any partial withdrawals and minus any outstanding loans) is at all times at
least equal to the DEATH BENEFIT GUARANTEE MONTHLY PREMIUM times the number of
months since the initial POLICY DATE (including the current month) or the NET
CASH SURRENDER VALUE of the POLICY is greater than zero. Payment of the DEATH
BENEFIT GUARANTEE MONTHLY PREMIUM during the first three policy years will
guarantee that the POLICY will remain in force for the first three policy years
despite negative NET CASH SURRENDER VALUE (see Death benefit guarantee, page
12), but continued payment of such premiums will not guarantee that the POLICY
will remain in force thereafter. The amount of the DEATH BENEFIT GUARANTEE
MONTHLY PREMIUM is based on the BASE MINIMUM PREMIUM per $1,000 of SPECIFIED
AMOUNT (determined by the INSURED'S age, sex, and underwriting class) and
includes additional amounts to cover charges for additional benefits, monthly
charges, and extra COST OF INSURANCE CHARGES for substandard risks. A table of
BASE MINIMUM PREMIUMS per $1,000 of SPECIFIED AMOUNT is in Appendix A, pages
25-26.
The OWNER may designate in the application one of several ways to pay the DEATH
BENEFIT GUARANTEE MONTHLY PREMIUM. The OWNER may elect to pay the first twelve
months of premiums in full prior to commencement of insurance coverage.
Alternatively, the OWNER may elect to pay a level PLANNED PERIODIC PREMIUM on a
quarterly or semi-annual basis sufficient to meet the premium requirements.
Premiums may also be paid monthly if paid by a pre-authorized check. Premiums,
other than the initial premium, are payable only at the Home Office of Lincoln
Life.
Each OWNER will also define a PLANNED PERIODIC PREMIUM schedule that provides
for payment of a level premium at fixed intervals for a specified period of
time. The OWNER is not required to pay premiums in accord with this schedule.
Furthermore, the OWNER has flexibility to alter the amount, frequency, and the
time period over which PLANNED PERIODIC PREMIUMS are paid. Failure to pay
PLANNED PERIODIC PREMIUMS will not of itself cause the POLICY to lapse, nor will
the payment of PLANNED PERIODIC PREMIUMS equal to or in excess of the required
DEATH BENEFIT GUARANTEE MONTHLY PREMIUMS guarantee that the policy will remain
in force beyond the first three policy years. Unless the policy is being
continued under the DEATH BENEFIT GUARANTEE, (see Death benefit guarantee, page
12), the POLICY will lapse any time outstanding loans with interest exceed
POLICY VALUE less SURRENDER CHARGE or POLICY VALUE less outstanding loans and
less SURRENDER CHARGE is insufficient to pay certain monthly deductions, and a
grace period expires without a sufficient payment. (See Policy lapse and
reinstatement, page 15.) Subject to the minimum premiums required to keep the
POLICY in force and the maximum premium limitations established under section
7702 of the Internal Revenue Code 1986, as amended (the Code), an OWNER may make
unscheduled premium payments at any time in any amount during the lifetime of
the INSURED until the MATURITY DATE. Monies received that are not designated as
premium payments will be assumed to be loan repayments if there is an
outstanding loan on the POLICY; otherwise, such monies will be assumed to be an
unscheduled premium payment.
PREMIUM LIMITATIONS. In no event can the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations
established for life insurance policies to meet the definition of life
insurance, as set forth under Section 7702 of the Code. Those limitations will
vary by issue age, sex, classification, benefits provided, and even policy
duration. If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium limitation, Lincoln Life will only accept
that portion of the premium which will make total premiums equal that amount.
Any part of the premium in excess of that amount will first be applied to reduce
any outstanding loan on the POLICY, and any further excess will be refunded to
the OWNER within 7 days of receipt and no further premiums will be accepted
until allowed by subsequent maximum premium limitations.
The tax status of a POLICY and the tax treatment of distributions from a POLICY
are dependent in part on whether or not the POLICY becomes a Modified Endowment
Contract. A POLICY will become a Modified Endowment Contract if premiums paid
into the POLICY cause the POLICY to fail the 7-pay test set forth under Section
7702A of the Code. Lincoln Life will monitor premiums paid into each POLICY
after the date of this prospectus to determine when a premium payment will
exceed the 7-pay test and cause the POLICY to become a Modified Endowment
Contract. If the OWNER has given Lincoln Life instructions that the POLICY
should not be allowed to become a Modified Endowment Contract, any premiums in
excess of the 7-pay limitation will first be applied to reduce any outstanding
loan on the POLICY, and any further excess will be refunded to the OWNER within
7 days of receipt. If the OWNER has not given Lincoln Life instructions to the
contrary, however, the premium will be paid into the POLICY and a letter of
notification of Modified Endowment Contract status will be sent to the OWNER.
The letter of notification will include the available options, if any, for
remedying the Modified Endowment Contract status of the POLICY.
6
<PAGE>
NET PREMIUMS. The net premium equals the premium paid less the percent of
premium charge (see Percent of premium charge, page 8).
ALLOCATION OF NET PREMIUMS. In the application for a POLICY, the OWNER can
allocate net premiums or portions thereof to the GENERAL ACCOUNT and the various
SUBACCOUNTS of the SEPARATE ACCOUNT. Notwithstanding the allocation in the
application, all net premiums received prior to the RECORD DATE will initially
be allocated to the GENERAL ACCOUNT. Net premiums received prior to the RECORD
DATE will be credited to the POLICY on the later of the POLICY DATE or the date
the premium is received. The RECORD DATE is the date the POLICY is recorded on
the books of Lincoln Life as an in-force policy, and may coincide with the
POLICY DATE. Net premiums will continue to be allocated to the GENERAL ACCOUNT
until the RECORD DATE. When the assets of the SEPARATE ACCOUNT are next valued
following the RECORD DATE, the value of the POLICY'S assets in the GENERAL
ACCOUNT will automatically be transferred to the GENERAL ACCOUNT and the
SUBACCOUNTS of the SEPARATE ACCOUNT in accord with the OWNER'S percentage
allocation in the application. No charge will be imposed for this initial
transfer. Net premiums paid after the RECORD DATE will be credited to the POLICY
on the date they are received and will be allocated in accord with the OWNER'S
instructions in the application. The minimum percentage of each premium that may
be allocated to the GENERAL ACCOUNT or to any SUBACCOUNT of the SEPARATE ACCOUNT
is 10%; percentages must be in whole numbers. The allocation of future net
premiums may be changed without charge at any time by providing written
notification on a form suitable to Lincoln Life, unless the OWNER has made
previous arrangements with Lincoln Life to allow the allocation of future net
premiums to be changed upon telephone request.
The value of the amount allocated to SUBACCOUNTS of the SEPARATE ACCOUNT will
vary with the investment experience of these SUBACCOUNTS and the OWNER bears the
entire investment risk. The value of the amount allocated to the GENERAL ACCOUNT
will earn a current interest rate guaranteed to be at least equal to the GENERAL
ACCOUNT guaranteed interest rate shown on the policy schedule. OWNERS should
periodically review their allocations of premiums and values in light of market
conditions, interest rates, and overall estate planning requirements.
DOLLAR COST AVERAGING PROGRAM
The OWNER may wish to make uniform monthly transfers from the GENERAL ACCOUNT to
one or more of the SUBACCOUNTS over a 12, 24, or 36-month period through the
Dollar Cost Averaging (DCA) program. Under the program, the OWNER designates the
total amount of POLICY VALUE ($5,000 minimum) to be transferred from the GENERAL
ACCOUNT to the chosen SUBACCOUNTS in accord with the most recent premium
allocation. The transfers continue until the end of the DCA period or until the
POLICY VALUE in the GENERAL ACCOUNT has been exhausted, whichever occurs sooner.
DCA may also be terminated upon written request by the OWNER.
The theory of DCA is that transfers of uniform dollar amounts purchase a greater
number of SUBACCOUNT UNITS when UNIT values are relatively low than are
purchased when UNIT values are higher. This has the effect, when purchases are
made at fluctuating prices, of reducing the aggregate average cost per UNIT to
less than the average of the UNIT VALUES on the same purchase dates. However,
participation in the DCA program does not assure the owner of a greater return
on purchases under the program, nor will it prevent or necessarily alleviate
losses in a declining market.
There are no charges associated with the DCA program. In order to participate in
(or terminate participation in) the DCA program, the OWNER must complete a
written request on a form suitable to Lincoln Life.
EFFECTIVE DATE
For all coverage provided in the original application, the effective date will
be the POLICY DATE, provided the POLICY has been delivered and the initial
premium has been paid prior to death and prior to any change in health or any
other factor affecting insurability of the INSURED as shown in the application.
The POLICY DATE is ordinarily the earlier of the date the full initial premium
is received or the date on which the POLICY is approved for issue by Lincoln
Life.
For any increase, the effective date will be the first MONTHLY ANNIVERSARY DAY
on or next following the day the application for the increase is approved.
For any insurance that has been reinstated, the effective date will be the first
MONTHLY ANNIVERSARY DAY on or next following the day the application for
reinstatement is approved.
RIGHT TO EXAMINE POLICY
The OWNER may, until a specified period of time has expired, examine the POLICY
and return it for refund of all premiums paid. The applicable period of time
will depend on the state in which the POLICY is issued, but will not expire
sooner than the latest of ten days after receipt of the POLICY, 45 days after
Part 1 of the application is completed, or ten days after the Notice of
Withdrawal Right is mailed or delivered to the OWNER. Upon cancellation the
POLICY will be void from the beginning. An OWNER wanting a refund should return
the POLICY to either Lincoln Life at its Home Office or to the registered agent
who sold it.
POLICY TERMINATION
All coverage under the POLICY will terminate when any one of the following
occurs: 1) the grace period ends without payment of required premium, and the
POLICY is not being continued under the DEATH BENEFIT GUARANTEE provision, 2)
the POLICY is surrendered, 3) the INSURED dies, or 4) the POLICY matures.
7
<PAGE>
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the POLICY to compensate Lincoln
Life for:
1. Providing the insurance benefit set forth in the POLICY and any optional
insurance benefits added by rider.
2. Administering the POLICY.
3. Assuming certain risks in connection with the POLICY.
4. Incurring expenses in distributing the POLICY.
The nature and amount of these charges are described more fully below.
PERCENT OF PREMIUM CHARGE. A percent of premium charge is currently deducted
from each premium you pay. The total charge currently consists of the sum of the
following:
a. 3.25% for charges deemed to be sales loads as defined by the amount
Company Act of 1940. This item is guaranteed not to exceed 3.25%.
b. 2.50% for premium taxes and other taxes not deemed to be sales loads as
defined by the Investment Company Act of 1940. This item is guaranteed not
to exceed 4.50%.
CONTINGENT DEFERRED SALES CHARGE (CDSC). During the first 8 policy years, the
POLICY VALUE is subject to a CONTINGENT DEFERRED SALES CHARGE which is deducted
if the POLICY lapses or is surrendered or upon a voluntary reduction in
SPECIFIED AMOUNT. During the first policy year, the CDSC is approximately equal
to 44% (less at older ages) of the required BASE MINIMUM PREMIUM for the
designated SPECIFIED AMOUNT. The BASE MINIMUM PREMIUM required varies with the
age, sex, and rating class of the INSURED. To determine the first year CDSC per
$1,000 of SPECIFIED AMOUNT, multiply the SURRENDER CHARGE found in the table of
SURRENDER CHARGES (see Appendix B, pages 25-26) times one-third. (For example,
the SURRENDER CHARGE for a male preferred smoker age 35 is $9.99 per $1,000 of
SPECIFIED AMOUNT, or $999 for a policy with $100,000 SPECIFIED AMOUNT. One-third
of the SURRENDER CHARGE, or $333, is the CDSC for the POLICY.) Furthermore, upon
lapse or surrender of the POLICY or voluntary reduction in SPECIFIED AMOUNT at
any time during the first two policy years, the total sales charges actually
deducted (the sales charge component of the percent of premium charge plus the
CDSC) will never exceed the following maximum: 30% of premiums paid up to the
first 12 DEATH BENEFIT GUARANTEE MONTHLY PREMIUMS, plus 10% of premiums paid up
to the next 12 DEATH BENEFIT GUARANTEE MONTHLY PREMIUMS, plus the sales charge
component of the percent of premium charge on premiums paid in excess of those
amounts.
During the second and subsequent policy years, the CDSC will equal the CDSC
during the first policy year times the percent indicated in the table below.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE (CDAC). During the first 8 policy
years, the POLICY VALUE is subject to a CONTINGENT DEFERRED ADMINISTRATIVE
CHARGE which is deducted if the POLICY lapses or is surrendered or upon a
voluntary reduction in SPECIFIED AMOUNT. During the first policy year, the CDAC
is approximately equal to 88% (less at older ages) of the required BASE MINIMUM
PREMIUM for the designated SPECIFIED AMOUNT. To determine the first year CDAC
per $1,000 of SPECIFIED AMOUNT, multiply the SURRENDER CHARGE found in the table
of SURRENDER CHARGES (see Appendix B, pages 27-28) times two-thirds. (For
example, the SURRENDER CHARGE for a male preferred smoker age 35 is $9.99 per
$1,000 of SPECIFIED AMOUNT, or $999 for a policy with $100,000 SPECIFIED AMOUNT.
Two-thirds of the SURRENDER CHARGE, or $666, is the CDAC for the POLICY).
During the second and subsequent policy years the CDAC will equal the CDAC
during the first policy year times the percent indicated in the table below. An
additional CDAC will be imposed under the POLICY in the event of each requested
increase in SPECIFIED AMOUNT. The additional CDAC is an amount per $1,000 of
increased SPECIFIED AMOUNT and will be deducted upon lapse or the surrender of
the POLICY or upon a voluntary reduction of the increased SPECIFIED AMOUNT at
any time during the 8 years following such increase. The amount of the CDAC will
be equal to the CDAC that would apply to a newly issued POLICY at the age of the
INSURED at the time of the increase. The percentage of the CDAC applicable in
any year after the increase is shown in the table below, where policy year is
calculated from the date of the increase.
<TABLE>
<CAPTION>
DURING POLICY YEAR PERCENT OF CDSD AND CDAC
(OR AFTER AN INCREASE) TO BE DEDUCTED
<S> <C>
- --------------------------------------------------
2 100%
3 100%
4 100%
5 100%
6 75%
7 50%
8 25%
</TABLE>
When the OWNER requests an increase in the SPECIFIED AMOUNT, no additional
premium is required provided that the current NET CASH SURRENDER VALUE is
sufficient to cover the CDAC associated with the increase, as well as the
increase in the COST OF INSURANCE CHARGES which result from the increase in
SPECIFIED AMOUNT. However, if the NET CASH SURRENDER VALUE is insufficient to
cover such costs, additional premium will be required for the increase to be
granted, and the percent of premium charge will be deducted from that additional
premium.
8
<PAGE>
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
Appendix B. For SURRENDER CHARGES during policy years 6 through 8 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,
additional SURRENDER CHARGES apply. During the first 8 years after an increase,
the values in Appendix B are multiplied by two-thirds and times the percentage
given in the table above.
MONTHLY DEDUCTIONS. On the POLICY DATE and on each MONTHLY ANNIVERSARY DAY
following, deductions will be made from the POLICY VALUE. These deductions are
of two types: A monthly charge and a monthly cost of insurance deduction.
Ordinarily, the monthly deductions are deducted from the POLICY VALUE in
proportion to the values in the GENERAL ACCOUNT and the SUBACCOUNTS. The monthly
deductions may be made by some other method if requested by the OWNER, and if
such method is acceptable to Lincoln Life.
COST OF INSURANCE CHARGES. On the POLICY DATE and on each MONTHLY ANNIVERSARY
DAY following, COST OF INSURANCE CHARGES will be deducted from the POLICY VALUE.
Ordinarily, the COST OF INSURANCE CHARGES are deducted in proportion to the
values in the GENERAL ACCOUNT and the SUBACCOUNTS. The COST OF INSURANCE CHARGES
may be made by some other method if requested by the OWNER, and if such method
is acceptable to Lincoln Life.
The COST OF INSURANCE CHARGES depend upon a number of variables, and the cost
for each policy month can vary from month to month. It will depend, among other
things, on the amount for which Lincoln Life is at risk to pay in the event of
the INSURED'S death. On each MONTHLY ANNIVERSARY DAY, Lincoln Life will
determine the monthly cost of insurance for the following:
a. the death benefit on the MONTHLY ANNIVERSARY DAY; divided by
b. 1.0032737 (the monthly interest factor equivalent to an annual interest
rate of 4%); minus,
c. the POLICY VALUE on the MONTHLY ANNIVERSARY DAY without regard to the cost
of insurance; divided by
d. 1,000; the result multiplied by
e. the applicable cost of insurance rate per $1,000 as described below.
The cost of insurance rates are based on the sex, ATTAINED AGE, rate class of
the person insured, and SPECIFIED AMOUNT of the POLICY. In states requiring
unisex rates, in federally qualified pension plan sales, in employer sponsored
situations, and in any other situation where unisex rates are required by law,
the cost of insurance rates are not based on sex. The monthly cost of insurance
rates may be changed by Lincoln Life from time to time. A change in the cost of
insurance rates will apply to all persons of the same ATTAINED AGE, sex, rate
class, and SPECIFIED AMOUNT and whose policies have been in effect for the same
length of time. The cost of insurance rates will not exceed those described in
the table of guaranteed maximum insurance rates shown in the POLICY. For
ATTAINED AGES under sixteen, these rates are based on the 1980 Commissioner's
Standard Ordinary Mortality Table, age last birthday; or for ATTAINED AGES
sixteen and over, depending on the smoking status of the INSURED, these rates
are based 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. Standard rate classes have guaranteed rates which do not
exceed 100% of the applicable table.
The rate class of an insured will affect the cost of insurance rate. Lincoln
Life currently places insureds into a standard rate class or rate classes
involving a higher mortality risk. In an otherwise identical policy, insureds in
the standard rate class will have a lower cost of insurance than those in the
rate class with the higher mortality risk. The standard rate class is also
divided into four categories: 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
similarly situated insureds who are standard smoker or standard nonsmoker
respectively.
The SPECIFIED AMOUNT of the POLICY will affect the cost of insurance rates
applied to a specific POLICY. In general, policies with a SPECIFIED AMOUNT of
$200,000 or more will have lower current cost of insurance rates than POLICIES
with smaller SPECIFIED AMOUNTS.
MONTHLY CHARGE. A monthly charge of $7.50 is deducted from the POLICY VALUE each
month the POLICY is in force to compensate Lincoln Life for continuing
administration of the POLICY, premium billings, overhead expenses, and other
miscellaneous expenses. Lincoln Life does not anticipate any profits from this
charge. This charge is guaranteed not to increase during the life of the POLICY.
FUND CHARGES AND EXPENSES. The investment advisor for each of the FUNDS deducts
a daily charge as a percent of the net assets in each FUND as an asset
management charge. The charge has the effect of reducing the investment results
credited to the SUBACCOUNTS.
Because the SEPARATE ACCOUNT purchases shares of the FUNDS involved, the value
of the net assets of the SUBACCOUNTS of the SEPARATE ACCOUNT will reflect not
only the fees of the investment advisor, but also other miscellaneous expenses
incurred by those FUNDS.
The asset management charges, miscellaneous expenses and total expenses for each
of the FUNDS are currently
9
<PAGE>
estimated, on the basis of their most recent fiscal year experience, where
applicable, to be as follows:
<TABLE>
<CAPTION>
ASSET MISC.
FUND MGT. CHARGE* EXPENSES* TOTAL*
- --------------------------------------------------------------------
<S> <C> <C> <C>
Global Small
Capitalization** .80% .06% .86%
Global Growth*** .71% .05% .76%
Growth .41% .01% .42%
International .58% .09% .67%
Growth-Income .36% .01% .37%
Asset Allocation .45% .02% .47%
High-Yield Bond .50% .02% .52%
Bond .53% .02% .55%
U. S. Gov't/AAA-Rated .51% .02% .53%
Cash Management .45% .02% .47%
</TABLE>
*Expressed as an annual percentage of each FUND'S average daily net assets.
**New FUND, with no prior fiscal year experience.
***Annualized figures based on operations for the period April 30, 1997 to
November 30, 1997.
See the FUNDS' prospectus for more complete information about the expenses of
the FUNDS.
MORTALITY AND EXPENSE RISK CHARGE. Lincoln Life deducts a daily charge as a
percent of the assets of the SEPARATE ACCOUNT as a MORTALITY AND EXPENSE RISK
CHARGE. This charge has the effect of reducing GROSS INVESTMENT RESULTS credited
to the SUBACCOUNTS. The daily rate currently charged is .0022191% (which is
equivalent to an annual rate of .81% of the value of the net assets 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
administering the policies will be greater than estimated.
OTHER CHARGES. Two other miscellaneous charges are occasionally incurred: a
withdrawal charge and a transfer charge. The withdrawal charge is incurred when
the OWNER of the POLICY requests a withdrawal from the POLICY VALUE; the charge
is deducted from the withdrawn amount and the balance is paid to the OWNER.
Withdrawals may be made any time after the first policy year, but only one
withdrawal may be made per year. The withdrawal charge is equal to the greater
of (1) a minimum withdrawal charge or processing fee (currently limited
voluntarily to $10), or (2) at times when the SURRENDER CHARGE is greater than
zero, an amount equal to the amount withdrawn multiplied by the percent of
withdrawal charge (currently limited voluntarily to 3%, during the first eight
policy years only). The amount, if any, by which the withdrawal charge exceeds
the processing fee first reduces any remaining CDSC; any further excess next
reduces any remaining CDAC; and any remaining excess will be waived. The
withdrawal charge is guaranteed not to exceed the greater of $25 or 5% of the
withdrawn amount at times when the SURRENDER CHARGE is greater than zero and is
guaranteed not to exceed $25 at all other times.
The transfer charge is incurred when the OWNER requests that funds be
transferred from one SUBACCOUNT or the GENERAL ACCOUNT to another SUBACCOUNT or
the GENERAL ACCOUNT. The transfer charge is $10, and is deducted from the amount
transferred; however, the transfer charge is currently being waived for all
transfers. The maximum number of transfers allowed between SUBACCOUNTS in a
policy year is twelve.
No charges are currently made from the SEPARATE ACCOUNT for federal or state
income taxes. Should Lincoln Life determine that such taxes may be imposed, the
Company may make deductions from the POLICY to pay those taxes. (See Federal tax
matters, pages 19-22.)
REDUCTION OF CHARGES
The percent of premium charge, SURRENDER CHARGE and monthly charge set forth in
this prospectus may be reduced because of special circumstances that result in
lower sales or administrative expenses. In particular, the percent of premium
charge and SURRENDER CHARGE will not be deducted on POLICIES issued to employees
and registered representatives of any member of the selling group and their
spouses and minor children, or to officers, directors, trustees or bona-fide
full-time employees of Lincoln National Corp. or The Capital Group, Inc. or
their affiliated or managed companies (based on the OWNER'S status at the time
the POLICY was purchased.) The amounts of any reductions will reflect the
reduced sales effort and administrative expenses resulting from, or differences
in expected death claims as a result of, the special circumstances. Reductions
will not be unfairly discriminatory against any person, including the affected
policyowners and OWNERS of all other policies funded by the SEPARATE ACCOUNT.
EXCHANGE OF LINCOLN LIFE UNIVERSAL LIFE POLICIES
Existing Lincoln Life Universal Life policies may currently be exchanged for a
policy described in this prospectus. Because Lincoln Life's expenses are reduced
in such exchanges, as a current practice the percent of premium charge will be
waived on the amount of POLICY VALUE exchanged. In addition, as a current
practice the CONTINGENT DEFERRED SALES CHARGE and the CONTINGENT DEFERRED
ADMINISTRATIVE CHARGE will be reduced to 25% of the normal charges for the
SPECIFIED AMOUNT transferred and further reduced by the amount of any SURRENDER
CHARGE collected on the surrendered policy. All additional premiums will be
subject to the percent of premium charge and any increase in SPECIFIED AMOUNT
will be subject to additional SURRENDER CHARGES. Existing Lincoln Life Variable
Life policies may not be exchanged unless or until Lincoln Life receives special
exemptive relief from
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the Securities and Exchange Commission to honor such exchange requests.
TERM CONVERSION CREDITS
Lincoln Life currently has a term conversion program which gives premium credits
to the POLICY if the OWNER is converting from a term insurance policy. Term
insurance policies issued by Lincoln Life or by most other life insurance
companies may be converted to the POLICY under this program and receive term
conversion credits. Except for guaranteed term conversion privileges provided
under some Lincoln Life term insurance policies or otherwise provided by special
agreement, all term insurance policy conversions are subject to evidence of
insurability satisfactory to Lincoln Life. All conversion credits are deposited
in the POLICY without the percent of premium charge. The amount of the term
conversion credits and the requirements for qualification for those credits is
subject to change by Lincoln Life, but such changes will not be unfairly
discriminatory against any person, including the affected policyowners and
OWNERS of all other policies funded by the SEPARATE ACCOUNT.
POLICY BENEFITS
DEATH BENEFIT AND DEATH BENEFIT TYPES
As long as the POLICY remains in force (see Policy lapse and reinstatement, page
15), 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 15.) 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 15.) These PROCEEDS will be further increased by
any additional insurance on the INSURED provided by rider.
The POLICY offers 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 12.)
TYPE 1. The death benefit is the greater of the SPECIFIED AMOUNT of the POLICY
or a specified percentage of the POLICY VALUE on or prior to the date of death.
The specified percentage at anytime is based on the ATTAINED AGE of the INSURED
as of the beginning of the policy year.
TYPE 2. The death benefit is equal to the greater of the SPECIFIED AMOUNT plus
the POLICY VALUE of the POLICY or a specified percentage of the POLICY VALUE on
or prior to the date of death. The specified percentage at any time is based on
the ATTAINED AGE of the INSURED as of the beginning of the policy year.
Under a Type 1 basic coverage, the net amount at risk decreases as the POLICY
VALUE increases. (The net amount at risk is equal to the death benefit less the
POLICY VALUE.) Under a Type 2 basic plus POLICY VALUE coverage, the net amount
at risk remains constant, so the cost of insurance deduction will be relatively
higher on a Type 2 basic plus POLICY VALUE coverage than on a Type 1 basic
coverage. As a result, POLICY VALUES under a Type 1 basic coverage tend to
increase faster than under a Type 2 basic plus POLICY VALUE coverage, assuming
favorable investment performance. Because of this, policyowners that are more
interested in achieving higher POLICY VALUES more quickly (assuming favorable
investment experience) would be more likely to select a Type 1 basic coverage.
In contrast, the death benefit under Type 2 will increase or decrease as the
POLICY VALUE increases or decreases. Consequently, policyowners who are more
interested in increasing total death benefits (assuming favorable investment
experience) would be more likely to select a Type 2 basic plus POLICY VALUE
coverage.
*The specified percentages are shown in the table that follows:
<TABLE>
<CAPTION>
ATTAINED SPECIFIED ATTAINED SPECIFIED ATTAINED SPECIFIED
AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40 OR
YOUNGER 250% 55 150% 70 115%
41 243 56 146 71 113
42 236 57 142 72 111
43 229 58 138 73 109
44 222 59 134 74 107
45 215 60 130 75 105
46 209 61 128 THROUGH
47 203 62 126 90
48 197 63 124 91 104
49 191 64 122 92 103
50 185 65 120 93 102
51 178 66 119 94 101
52 171 67 118 95 OR 100
53 164 68 117 OLDER
54 157 69 116
</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
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BENEFICIARY will be entitled to a life insurance death benefit of $500,000 (250%
x $200,000); a POLICY VALUE of $300,000 will yield a life insurance death
benefit of $750,000 (250% x $300,000); a POLICY VALUE of $500,000 will yield a
life insurance death benefit of $1,250,000 (250% x $500,000). Similarly, so long
as POLICY VALUE exceeds $100,000, each dollar taken out of POLICY VALUE will
reduce the life insurance death benefit by $2.50. If at any time the POLICY
VALUE multiplied by the specified percentage is less than the SPECIFIED AMOUNT,
the life insurance death benefit will equal the SPECIFIED AMOUNT of the POLICY.
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 result, 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
performance. In addition, the applicable percentage of 250% that is used is for
ages 40 or younger. Because the applicable percentage decreases as the attained
age increases, the impact of the applicable percentage on the death benefit
payment levels will be lessened as the ATTAINED AGE progresses beyond age 40.
DEATH BENEFIT GUARANTEE
Lincoln Life expects payment of the required DEATH BENEFIT GUARANTEE MONTHLY
PREMIUMS will be sufficient, when combined with NET INVESTMENT RESULTS, to pay
for all charges to the POLICY during the first three policy years, and thereby
provide life insurance protection on the INSURED for that period. In some
situations, however, the combination of poor NET INVESTMENT RESULTS and monthly
deductions could result in the NET CASH SURRENDER VALUE being reduced to zero.
In such situations, Lincoln Life will continue the POLICY in force for the first
three policy years, provided the DEATH BENEFIT GUARANTEE MONTHLY PREMIUM
requirement continues to be met. Lincoln Life makes no charge for this
additional benefit.
POLICY CHANGES
CHANGE IN TYPE OF DEATH BENEFIT. The OWNER may also change the type of death
benefit coverage from Type 1 to Type 2 or from Type 2 to Type 1. The request for
such a change must be made in writing on a form suitable to Lincoln Life. The
change will be effective on the first MONTHLY ANNIVERSARY DAY on or next
following the day Lincoln Life receives the request. No change in the type of
death benefit will be allowed if the resulting SPECIFIED AMOUNT would be less
than the minimum SPECIFIED AMOUNT of $50,000.
If the change is from Type 1 to Type 2, the INSURED'S SPECIFIED AMOUNT after
such change will be equal to the INSURED'S SPECIFIED AMOUNT prior to such change
minus the POLICY VALUE on the date of change.
If the change is from Type 2 to Type 1, the INSURED'S SPECIFIED AMOUNT after
such change will be equal to the INSURED'S SPECIFIED AMOUNT prior to such change
plus the POLICY VALUE on the date of change.
CHANGES IN AMOUNT OF INSURANCE COVERAGE. In addition to the above changes, the
OWNER may request to increase or decrease the SPECIFIED AMOUNT at any time. The
request for such a change must be from the OWNER and in writing on a form
suitable to Lincoln Life. Any decrease will become effective on the first
MONTHLY ANNIVERSARY DAY on or next following the day the request is received by
Lincoln Life. Any such decrease will reduce insurance first against insurance
provided by the most recent increase, next against the next most recent
increases successively, and finally against insurance provided under the
original application. The SPECIFIED AMOUNT after any requested decrease may not
be less than $50,000. Any request for an increase must be applied for on a
supplemental application. Such increase will be subject to evidence of
insurability satisfactory to Lincoln Life and to its issue rules and limits at
the time of increase. Furthermore, such increase will not be allowed unless the
NET CASH SURRENDER VALUE is sufficient to cover the next monthly deductions and
the SURRENDER CHARGE for the increase. Any increase will become effective on the
first MONTHLY ANNIVERSARY DAY on or next following the day the application for
increase is approved.
POLICY VALUE
The POLICY provides for the accumulation of POLICY VALUE, which is calculated as
often as the assets of the SEPARATE ACCOUNT are valued. The POLICY VALUE will
vary with the investment performance of the GENERAL ACCOUNT and of
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the SEPARATE ACCOUNT, as well as other factors. In particular, POLICY VALUE also
depends on any premiums received, any policy loans, and any charges and
deductions assessed the POLICY. The POLICY has no guaranteed minimum POLICY
VALUE or net CASH SURRENDER VALUE.
On the POLICY DATE, the POLICY VALUE will be the initial net premium, minus the
sum of the following:
a. The monthly charge;
b. The cost of insurance for the first month;
c. Any charges for extra benefits.
On each MONTHLY ANNIVERSARY DAY, the POLICY VALUE is equal to the sum of the
following:
a. The POLICY VALUE on the preceding day;
b. Any increase due to NET INVESTMENT RESULTS in the value of the SUBACCOUNTS
to which the INVESTMENT AMOUNT is allocated;
c. Interest at not less than the GENERAL ACCOUNT guaranteed interest rate
shown on the policy schedule on amounts allocated to the GENERAL ACCOUNT;
d. Interest at not less than the rate shown on the policy schedule on any
outstanding loan amount;
e. Any net premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to NET INVESTMENT RESULTS in the value of the SUBACCOUNTS
to which the INVESTMENT AMOUNT is allocated;
g. Any withdrawals;
h. Any amount charged against the INVESTMENT AMOUNT for federal or other
governmental income taxes;
i. All partial SURRENDER CHARGES deducted since the preceding day;
j. The monthly charge;
k. The cost of insurance for the following month;
l. Any charges for extra benefits.
On any day other than a MONTHLY ANNIVERSARY DAY, the POLICY VALUE is equal to
the sum of the following:
a. The POLICY VALUE on the preceding day;
b. Any increase due to NET INVESTMENT RESULTS in the value of the SUBACCOUNTS
to which the INVESTMENT AMOUNT is allocated;
c. Interest at not less than the GENERAL ACCOUNT guaranteed interest rate
shown on the policy schedule on amounts allocated to the GENERAL ACCOUNT;
d. Interest at not less than the rate shown on the policy schedule on any
outstanding loan amount;
e. Any net premiums received since the preceding day.
Minus the sum of the following:
f. Any decrease due to NET INVESTMENT RESULTS in the value of the SUBACCOUNTS
to which the INVESTMENT AMOUNT is allocated;
g. Any withdrawals;
h. Any amount charged against the INVESTMENT AMOUNT for federal or other
governmental income taxes;
The charges and deductions described above are further discussed in Charges and
deductions, page 7.
NET INVESTMENT RESULTS. The NET INVESTMENT RESULTS are the changes in the unit
values of the subaccounts from the previous valuation day to the current day.
The NET INVESTMENT RESULTS are equal to the per unit change in the market value
of each FUND'S assets, reduced by the per unit share of the asset management
charge, any miscellaneous expenses incurred by the FUND, and the mortality and
expense risk charge for the period, and increased by the per unit share of any
dividends credited to the subaccount by the FUND during the period.
The value of the assets in the FUNDS will be taken at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
TRANSFER BETWEEN SUBACCOUNTS
Any time after the RECORD DATE, the OWNER may request to transfer an amount from
one SUBACCOUNT to another. The request to transfer FUNDS must be in writing on a
form suitable to Lincoln Life; transfers may be made by telephone request only
if the OWNER has previously authorized telephone transfers in writing on a form
suitable to Lincoln Life. Lincoln Life will follow reasonable procedures to
determine that the telephone requester is authorized to request such transfers,
including requiring certain identifying information contained in the written
authorization. If such procedures are followed, Lincoln Life will not be liable
for any loss arising from any telephone transfer. Transfers will take effect on
the date that the request is received at the Home Office at Lincoln Life. A
transfer charge of $10 is made for each transfer and is deducted from the amount
transferred; however, the transfer charge is currently being waived for all
transfers. The minimum amount which may be transferred between SUBACCOUNTS is
$100. The maximum number of transfers allowed in a POLICY year is twelve.
TRANSFER TO AND FROM THE GENERAL ACCOUNT
Any time after the RECORD DATE, the OWNER may also request to transfer amounts
from the SEPARATE ACCOUNT to the GENERAL ACCOUNT. However, transfers from the
GENERAL
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<PAGE>
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 six policy months. There is no minimum transfer amount; however, if the
unloaned amount in the GENERAL ACCOUNT is $500 or less, the OWNER may transfer
the entire unloaned amount out of the GENERAL ACCOUNT. A transfer charge of $10
is made for each transfer and may be deducted from the amount transferred;
however, the transfer charge is currently being waived for all transfers.
LOANS
At any time while the POLICY is in force the OWNER may make written request for
a loan against the POLICY. A written loan agreement will be executed between the
OWNER and Lincoln Life. The POLICY will be the sole security for the loan, and
the POLICY must be assigned to Lincoln Life as part of the loan agreement.
Ordinarily, the loan will be processed within seven days from the date the
request for a loan is received at the Home Office of Lincoln Life. Payments may
be postponed under certain circumstances. (See Postponement of payments, page
17.)
A loan taken from, or secured by, a POLICY may have federal income tax
consequences. In particular, adverse tax consequences may occur if the policy
lapses with outstanding loans. (See Federal tax matters, pages 19-22.)
LOAN AMOUNT. The amount of all outstanding loans with interest may not exceed
the POLICY VALUE less SURRENDER CHARGE as of the date of the policy loan. If at
any time the total of policy loans plus loan interest equals or exceeds the
POLICY VALUE less SURRENDER CHARGE, notice will be sent to the last known
address of the OWNER, and any assignee of record, and the POLICY will enter into
the grace period. If sufficient payment is not received within 61 days after
notice is mailed, the POLICY will lapse and terminate without value. (See Policy
lapse and reinstatement, page 15.)
LOAN INTEREST. Interest on any loan will be payable annually in advance at an
annual rate of 6.0%, which is 6.38% effective annual rate of interest. Any
interest not paid when due will be added to the loan amount and will bear
interest at the same policy loan rate.
DEDUCTION OF LOAN AND LOAN INTEREST. Ordinarily the amount of any loan or unpaid
loan interest will be deducted from the GENERAL ACCOUNT and the SUBACCOUNTS in
proportion to the value in each. The deduction may be made by some other method
if the OWNER requests, and if such method is acceptable to Lincoln Life. Amounts
deducted from the SEPARATE ACCOUNT will be transferred to the Lincoln Life
GENERAL ACCOUNT, where they will earn interest at an annual rate of no less than
4.0%; currently, loaned amounts earn interest at an annual rate of 5.0%. The
amount will remain a part of the POLICY VALUE, but will not be increased or
decreased by investment results in the SEPARATE ACCOUNT. Therefore, the POLICY
VALUE could be more or less than what it would have been if the policy loan had
not been made, depending on the investment results in the SEPARATE ACCOUNT
compared to the interest credited to the assets transferred to the GENERAL
ACCOUNT to secure the loan. In this way, a loan may have a permanent effect upon
both the POLICY VALUE and the death benefit and may increase or decrease the
potential for policy lapse. In addition, outstanding policy loans reduce the
death benefit.
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 eighth policy
year). During any year in which the SURRENDER CHARGE is equal to zero, the
amount of the withdrawal may not be more than the NET CASH SURRENDER VALUE. As a
current practice, the withdrawal charge is equal to 3% of the withdrawn amount
during the first 8 policy years, and is equal to $10 at all other times. This
charge is guaranteed not to exceed the greater of $25 or 5% of the withdrawn
amount at times when the SURRENDER CHARGE is greater than zero and is guaranteed
not to exceed $25 at all other times. The OWNER should be aware that withdrawals
may result in the OWNER incurring a tax liability. (See Federal tax matters,
pages 19-22.)
DEDUCTION OF WITHDRAWAL. When a withdrawal is made, the POLICY VALUE will be
reduced by the amount of the withdrawal. The amount will be deducted from the
GENERAL ACCOUNT and the SUBACCOUNTS in proportion to the values in the GENERAL
ACCOUNT and the SUBACCOUNTS. The deduction may be made by some other method if
the OWNER requests it, and if such method is acceptable to Lincoln Life.
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<PAGE>
EFFECT OF WITHDRAWALS ON DEATH BENEFIT AND COST OF INSURANCE. A withdrawal may
affect the death benefit amount in one of several ways. First, if the death
benefit type is Type 1, the SPECIFIED AMOUNT will automatically be reduced by
the amount of the withdrawal, and thus will lower the death benefit by the same
amount. If the death benefit is Type 2, this reduction in the SPECIFIED AMOUNT
does not occur, but the death benefit is lowered by the amount the POLICY VALUE
is decreased by the withdrawal. In addition, since the death benefit is required
to be at least equal to the specified percentage multiplied times the POLICY
VALUE, a reduction in the POLICY VALUE will sometimes result in a reduction in
the death benefit equal to the specified percentage times the reduction in
POLICY VALUE. (See Death benefit and death benefit types, page 11.) In such
cases, where the death benefit is reduced by an amount greater than the
withdrawal, the subsequent cost of insurance will be reduced (under either type
of death benefit) to reflect the excess reduction in death benefit.
No withdrawal will be allowed if the resulting insured's SPECIFIED AMOUNT would
be less than $50,000. The request for withdrawal must be in writing on a form
suitable to Lincoln Life.
Ordinarily, withdrawals will be processed within seven days from the date the
request for a withdrawal is received at the Home Office of Lincoln Life. Payment
of the withdrawal amount may be postponed under certain circumstances. (See
Postponement of payments, page 17.)
POLICY LAPSE AND REINSTATEMENT
During the first three policy years, insurance coverage under the POLICY will be
continued in force as long as the total premiums paid (minus any partial
withdrawals and minus any outstanding loans) equals or exceeds the DEATH BENEFIT
GUARANTEE MONTHLY PREMIUM times the number of months since the POLICY DATE,
including the current month. Unless coverage is being continued under the DEATH
BENEFIT GUARANTEE (see Death benefit guarantee, page 12) lapse will occur when
the POLICY VALUE less SURRENDER CHARGES and less outstanding loans is
insufficient to cover the monthly deductions and the grace period expires
without a sufficient payment. Insurance coverage will continue during the grace
period, but the POLICY will be deemed to have no POLICY VALUE for purposes of
policy loans and surrenders. Regardless of premium payments or current NET CASH
SURRENDER VALUE, coverage will never be continued beyond the MATURITY DATE of
the POLICY.
A grace period of 61 days will begin on the date Lincoln Life sends a notice of
any shortfall to the last known address of the OWNER or any assignee. The OWNER
must, during the grace period, make a payment sufficient to cover the monthly
deductions and any other charges due under the POLICY until the end of the grace
period. Failure to make a sufficient payment during the grace period will cause
the POLICY to lapse. If lapse occurs during the first two policy years, any
excess sales charge will be returned to the OWNER. If the INSURED dies during
the grace period, regardless of the cause of the grace period, any due and
unpaid monthly deductions will be deducted from the death benefit.
A lapsed policy may be reinstated at any time within five years after the date
of lapse and before the MATURITY DATE by submitting evidence of insurability
satisfactory to Lincoln Life and a premium sufficient to keep the POLICY in
force for two months. The effective date of a reinstatement will be the first
MONTHLY ANNIVERSARY DAY on or next following the day the application for
reinstatement is approved.
SURRENDER OF THE POLICY
The OWNER may surrender the POLICY at any time during the lifetime of the
INSURED and receive the NET CASH SURRENDER VALUE. The NET CASH SURRENDER VALUE
is equal to the POLICY VALUE minus any 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 Lincoln
Life, or at a later date if so requested by the OWNER. Ordinarily, the surrender
will be processed within seven days from the date the request for surrender is
received at the Home Office of Lincoln Life. The surrender of the POLICY may
have tax consequences.
PROCEEDS AND PAYMENT OPTIONS
PROCEEDS. The amount payable under the POLICY on the MATURITY DATE, on the
surrender of the POLICY, or upon the death of any INSURED person is called the
PROCEEDS of the POLICY.
The PROCEEDS to be paid on the death of the INSURED will be the death benefit
minus any outstanding policy loan, and plus any unearned loan interest. The
PROCEEDS to be paid on the surrender of the POLICY or on the MATURITY DATE will
be the NET CASH SURRENDER VALUE.
Any amount to be paid at the death of the insured or any other termination of
this POLICY will be paid in one sum unless otherwise provided. Interest will be
paid on this amount from date of death or maturity to date of payment at a
specified rate, not less than that required by law. All or part of the sum of
this amount and such interest credited to date of payment will be applied to any
payment option.
To the extent allowed by law, PROCEEDS are not to be subject to any claims of a
BENEFICIARY'S creditors.
PAYMENT OPTIONS. Upon written request, all or part of the PROCEEDS and interest
credited thereon may be applied
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<PAGE>
to any payment option available from Lincoln Life at the time payment is to be
made. Under certain conditions, payment options will only be available with the
consent of Lincoln Life. Such conditions will exist if the PROCEEDS to be
settled under any option are $2,500 or less, or if any installment or interest
payment is $25 or less. In addition, if any payee is a corporation, partnership,
association, trustee, or assignee, approval by Lincoln Life is needed before any
PROCEEDS can be applied to a payment option.
The OWNER may elect any payment option while the INSURED is alive and may change
that election if that right has been reserved. When the PROCEEDS become payable
to a BENEFICIARY, the BENEFICIARY may elect any payment option if the PROCEEDS
are available to the BENEFICIARY in one sum.
The OPTION DATE is any date the POLICY terminates under the termination
provision.
Any PROCEEDS payable under the POLICY may also be settled under any other method
of settlement offered by Lincoln Life on the OPTION DATE. Additional interest as
determined by Lincoln Life may be paid or credited from time to time in addition
to the payments guaranteed under a payment option. The payment option elected as
well as the time the election is made, may have tax consequences.
When PROCEEDS become payable under a payment option, a payment contract will be
issued to the payee in exchange for the POLICY. Such payment contract may not be
assigned. Any change in payment option may be made only if it is provided for in
the payment contract. Under some of the payment options, PROCEEDS may be
withdrawn under such payment option if provided for in the payment contract. The
amount to be withdrawn varies by the payment option.
GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of the POLICY plus the application and any
supplemental application, plus any riders, plus any amendments. The POLICY is
issued in consideration of the application and payment of the initial premium.
Only statements in the application and any supplemental applications can be used
to contest the validity of the POLICY or defend a claim. These statements are,
in the absence of fraud, considered representations and not warranties. A change
in the POLICY will be binding on Lincoln Life only if the change is in writing
and the change is made by the President, Vice President, Secretary, or Assistant
Secretary of Lincoln Life.
The POLICY is nonparticipating; it will not share in the profit or surplus
earnings of Lincoln Life.
SUICIDE
If the INSURED commits suicide, while sane or insane, within two years from the
POLICY DATE, the total liability of Lincoln Life under the POLICY will be the
premiums paid, minus any policy loan, plus any unearned loan interest, minus any
prior withdrawals, and minus the cost of any riders.
If the INSURED commits suicide, while sane or insane, within two years from the
effective date of any increase in insurance, our total liability with respect to
such increase will be its cost of insurance and monthly charges.
If the INSURED commits suicide, while sane or insane, within two years from the
effective date of any reinstatement, our total liability with respect to such
reinstatement will be the premiums paid since the effective date of the
reinstatement, minus any policy loan, plus any loan interest, minus any prior
withdrawals, and minus the cost of any riders.
REPRESENTATIONS AND CONTESTABILITY
All statements made in an application by, or on behalf of, the INSURED will, in
the absence of fraud, be deemed representations and not warranties. Statements
may be used to contest a claim or validity of the POLICY only if these
statements are contained in the application for issue, reissue, or
reinstatement, or in any supplemental application, and a copy of that
application or supplemental application is attached to the POLICY. The POLICY
will not be contestable after it has been in force for two years during the
lifetime of the INSURED. Also, any increase in coverage or any reinstatement
will not be contestable after that increase or reinstatement has been in force
two years from its effective date during the lifetime of the INSURED. Any
contest will then be based only on the application for the increase or
reinstatement and will be subject to the same conditions as for contest of the
POLICY.
INCORRECT AGE OR SEX
If there is an error in the age or sex of the INSURED, the excess of the death
benefit over the POLICY VALUE will be adjusted to that which would be purchased
by the most recent cost of insurance at the correct age and sex. The resulting
death benefit will not be less than the percentage of the POLICY VALUE required
by the death benefit provision at the INSURED'S correct age.
CHANGE OF OWNER OR BENEFICIARY
The OWNER of the POLICY is the OWNER identified in the application, or a
successor. All rights of the OWNER belong to the OWNER while the INSURED is
alive. The rights pass to the estate of the OWNER if the OWNER dies before the
INSURED. The OWNER may transfer all ownership rights and privileges to a new
OWNER. The request must be in writing on a form suitable to Lincoln Life. The
change will
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be effective the day that the request is received in the Home Office of Lincoln
Life. Lincoln Life will not be responsible for any payment or other action taken
before having recorded the transfer. A change of ownership will not, in and of
itself, affect the interest of any BENEFICIARY. A change of ownership may have
tax consequences.
The BENEFICIARY is identified in the application for the POLICY, and will
receive the PROCEEDS when the INSURED dies. The BENEFICIARY may be changed by
the OWNER while the INSURED is alive, and provided that any prior designation
does not prohibit such a change. A change will revoke any prior designation of
the BENEFICIARY. The request to change BENEFICIARY must be in writing on a form
suitable to Lincoln Life. Lincoln Life reserves the right to require the POLICY
for endorsement of the change of BENEFICIARY designation.
If not otherwise provided, the interest of any BENEFICIARY who dies before the
INSURED will pass to any other BENEFICIARIES according to their interest.
Furthermore, if no BENEFICIARY survives the INSURED, the PROCEEDS will be paid
in one sum to the OWNER, if living. If the OWNER is not living, the PROCEEDS
will be paid to the OWNER'S estate.
ASSIGNMENT
Any assignment of the POLICY will not be binding on Lincoln Life unless it is in
writing on a form suitable to Lincoln Life and is received at the Home Office.
Lincoln Life will not be responsible for the validity of any assignment, and
reserves the right to require the POLICY for endorsement of any assignment. An
assignment of the POLICY may have tax consequences.
REPORTS AND RECORDS
Lincoln Life will maintain all records relating to the SEPARATE ACCOUNT. Lincoln
Life will mail to the OWNER at least once each year a report, without charge,
which will show the current POLICY VALUE, the current NET CASH SURRENDER VALUE,
the current death benefit, any current policy loans, any premiums paid, any COST
OF INSURANCE CHARGES deducted, and any withdrawals made. The report will also
include any other data that may be required where the contract is delivered. In
addition, Lincoln Life will provide to policyowners semi-annually, or otherwise
as may be required by regulations under the Investment Company Act of 1940, a
report containing information about the operations of the FUNDS.
Lincoln Life has entered into an agreement with Delaware Management Holdings,
Inc., 2005 Market Street, Philadelphia, PA 19203, to provide accounting services
to the SEPARATE ACCOUNT.
PROJECTION OF BENEFITS AND VALUES
At the OWNER'S request, Lincoln Life will provide a report to the OWNER which
shows projected future results. The request must be in writing on a form
suitable to Lincoln Life. The report will be comparable in format to those shown
in Appendix D and will be based on assumptions in regard to the death benefit as
may be specified by the OWNER, planned premium payments as may be specified by
the OWNER, and such other assumptions as are necessary and specified either by
the OWNER or Lincoln Life. A reasonable fee may be charged for this projection.
POSTPONEMENT OF PAYMENTS
Payments of any amount payable on surrender, loan, or benefits payable at death
or maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary week-end and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the Securities and Exchange
Commission; (ii) the Commission by order permits postponement for the protection
of OWNERS; or (iii) an emergency exists, as determined by the Commission, as a
result of which disposal of securities is not reasonably practical or it is not
reasonably practical to determine the value of the SEPARATE ACCOUNT'S net
assets. Transfers may also be postponed under such circumstances.
Requests for surrenders or policy loans of POLICY VALUES representing premiums
paid by check may be delayed until such time as the check has cleared the
OWNER'S bank.
RIDERS
The availability of the riders listed below is subject to approval by the State
Insurance Department of the State in which the POLICY is issued, and is also
subject to the current underwriting and issue procedures in place at the time of
the application. The underwriting and issue procedures are subject to change
without notice.
TERM RIDER FOR COVERED INSURED. The spouse and/or children of the Primary
Insured may be added as an Other Insured on the base plan. Likewise, other
individuals can be added as an Other Insured. The Term Rider for Covered Insured
is a term rider available for issue ages 0 to 80 and the cost of insurance is
deducted monthly for this benefit. Up to three such riders may be added to a
base policy. The maximum amount which may be issued on any rider equals the
amount of coverage on the POLICY multiplied times 19. The minimum amount is
$25,000 for each Other Insured.
CHILDREN'S TERM RIDER. The Children's Term Rider is a term rider available for
children (natural, adopted, or stepchild) of the Primary Insured. Children 15
days to age 24 inclusive are covered. The rider is available in units of $1,000
with a minimum of $2,000 and a maximum of $20,000 per any one family. The cost
of insurance for this rider is deducted monthly.
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GUARANTEED INSURABILITY RIDER. This rider is available for issue ages 0 to 40
and it is available for the Primary Insured, and/or those covered under the Term
Rider for Covered Insured. This rider allows the Covered Insured to purchase,
without evidence of insurability, additional insurance on the OPTION DATES, or
alternate OPTION DATES. It can be purchased in units of $1,000, with a minimum
amount of $10,000 and a maximum amount of $100,000 or the SPECIFIED AMOUNT, if
less. Total amount of options exercised may not exceed five times the option
amount. There are eight regular OPTION DATES, beginning at age 25, every three
years thereafter, and the last option is at age 46. An alternate OPTION DATE
will occur three months after marriage, birth of a child, or adoption of a
child. Exercising an alternate OPTION DATE reduces the next regular OPTION DATE.
This rider is not available for substandard risks. The cost of insurance for
this rider is deducted monthly from the POLICY VALUE.
ACCIDENTAL DEATH BENEFIT RIDER. This rider is available for the Primary Insured,
and/or those covered under the Term Rider for Covered Insured. The Accidental
Death Benefit Rider provides an additional life insurance benefit in the case of
accidental death. It is available for ages 5 through 69. The minimum amount
which can be purchased is $10,000 and the maximum amount is two times the
SPECIFIED AMOUNT on the Covered Insured, not to exceed a total of $350,000 in
all policies, in all companies, for that INSURED. The cost of insurance for this
rider is deducted monthly from the POLICY VALUE.
WAIVER OF COST OF INSURANCE RIDER. This rider is available for ages 5 through
64. It waives the total cost of insurance for the POLICY, the monthly charge,
and the cost of any additional benefit riders, after the Primary Insured has
been totally disabled for six consecutive months and the claim for total
disability has been approved. The cost of insurance for this rider is deducted
monthly from the POLICY VALUE.
DISABILITY BENEFIT PAYMENT RIDER. This rider is available for ages 5 through 64.
If the Covered Insured (Primary Insured or Other Insureds) under this rider has
been totally disabled for six consecutive months, and the claim for total
disability has been approved, a disability benefit amount will be paid as a
premium to the POLICY. The minimum benefit which can be selected is $50 per
month. The maximum is two times the DEATH BENEFIT GUARANTEE MONTHLY PREMIUM. The
cost of insurance for this rider is deducted monthly from the POLICY VALUE.
CONVALESCENT CARE BENEFIT RIDER. This rider may be available in several forms
which differ by the amount and duration of benefit payments and also by the
conditions required to receive benefit payments. The rider is available for the
Primary Insured only and its availability may stipulate certain minimum or
maximum POLICY SPECIFIED AMOUNTS. The rider provides benefit payments when the
health of the INSURED is such that covered convalescent care services are
necessary. The cost of insurance for this rider is deducted monthly from the
POLICY VALUE.
CONTINGENT OPTION RIDER. The Contingent Option Rider is a guaranteed
insurability rider that gives the OWNER the right to purchase an additional
policy without evidence of insurability upon the death of the designated person
(the Option Life). Available to issue ages 0 through 80. The cost of insurance
for this rider is based on the Contingent Option Amount and is deducted monthly
from the POLICY VALUE.
RETIREMENT OPTION RIDER. The Retirement Option Rider is a guaranteed
insurability rider that gives the OWNER the right to purchase an additional
policy without evidence of insurability within 60 days after a specific date
(the OPTION DATE). The OPTION DATE, determined at the issue of the rider, may be
the OWNER'S anticipated retirement date or some other date after which
additional insurance may be needed. Available to issue ages 0 through 70. The
cost of insurance for this rider is based on the retirement option amount and is
deducted monthly from the POLICY VALUE.
ACCELERATED BENEFIT ELECTION RIDER. This rider is available to issue ages 0
through 80 and gives the OWNER the right to receive a portion of the death
benefit prior to death if the INSURED is diagnosed as having an illness which
with reasonable medical certainty will cause death within 12 months. Upon
receipt of proof of loss, up to one-half of the eligible death benefit (as
defined in the rider) may be advanced to the OWNER in cash as an initial
accelerated benefit. A limited amount of subsequent accelerated benefit is also
available to pay premiums and interest charges required on the POLICY. The
amount of all advanced accelerated benefits creates an interest-bearing lien
against the death benefit otherwise payable at death. There is no cost of
insurance for this rider, but an administrative expense charge is payable upon
application for benefits.
JOINT LIFE TERM RIDER FOR COVERED INSUREDS. This rider is available for issue
ages 20 to 80. This rider provides term insurance for two, three, or four
individuals and pays the Joint Life Term death benefit upon the death of the
first to die of the Covered Insureds. The cost of insurance and monthly charges
for this rider are deducted monthly from the POLICY VALUE.
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LAST SURVIVOR TERM RIDER FOR COVERED INSUREDS. This rider is available for issue
ages 20 to 85 if the average of the ages does not exceed 80. This rider provides
term insurance for two, three, or four individuals and pays the Last Survivor
Term death benefit upon the death of the last to die of the Covered Insureds.
The cost of insurance and monthly charges for this rider are deducted monthly
from the POLICY VALUE. The minimum issue amount is $25,000; the maximum issue
amount is equal to 19 times the SPECIFIED AMOUNT of the policy.
LAST SURVIVOR CONTINGENT OPTION INSURABILITY RIDER AND LAST SURVIVOR RETIREMENT
OPTION INSURABILITY RIDER. These riders are only available if a Last Survivor
Term Rider for covered insureds is on the POLICY. The Last Survivor Contingent
Option Rider is a guaranteed insurability rider that gives the OWNER the right
to purchase an additional last survivor policy without evidence of insurability
upon the death of the designated person (the option life). The Last Survivor
Retirement Option Insurability Rider grants a similar benefit to be exercised
within 60 days of the OPTION DATE. The OPTION DATE is chosen at issue and cannot
be later than age 80 of the oldest insured. Available to issue ages 20 through
70 of the oldest INSURED. The cost of insurance for this rider is based on the
contingent option amount and is deducted monthly from the POLICY VALUE. The
minimum issue amount is $100,000; the maximum issue amount is 5 times the
SPECIFIED AMOUNT of the Last Survivor Term rider to which it is attached.
DISTRIBUTION OF THE POLICY
Lincoln Life intends to offer the POLICY in all jurisdictions where it is
licensed to do business.
Lincoln Life and American Fund Distributors, Inc. (AFD) are the co-principal
underwriters for the POLICIES. Both Lincoln Life and AFD are registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
broker-dealers and are members 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 principal business address of AFD is 333
South Hope Street, Los Angeles, Calif. 90071.
The POLICY will be sold by registered representatives of broker dealers
(including Lincoln Life) who are licensed as Lincoln Life's life insurance
agents. The POLICY will also be sold by properly licensed representatives of
independent broker-dealers which in turn have selling agreements with AFD and
have been appropriately licensed by state insurance departments as agents of
Lincoln Life. These representatives ordinarily receive commission and service
fees up to 80% of the first year required premium (the DEATH BENEFIT GUARANTEE
MONTHLY PREMIUM times 12), plus up to 3.0% of all other premiums paid, plus .25%
of accumulated POLICY VALUES in the third POLICY year and each year thereafter.
The local agency or broker-dealer receives additional compensation on the first
year required premium and all additional premiums, plus a small percentage of
accumulated POLICY VALUES. In some situations, the local agency or broker-dealer
may elect to share its commission with the registered representative. Selling
representatives are also eligible for bonuses and non-cash compensation if
certain production levels are reached. All compensation is paid from Lincoln
Life's resources, which include sales charges made under the POLICY.
FEDERAL TAX MATTERS
The following discussion is intended to provide a general description of the
federal income tax considerations associated with the POLICY. It does not
purport either to be complete or to cover all situations; this discussion is not
intended to be taken as tax advice. Consult a qualified tax advisor for more
complete information. This discussion is based upon Lincoln Life's understanding
of the present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Federal tax laws may change
without notice and as a result the taxable consequences to the INSURED,
policyowner, or BENEFICIARY may be altered.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the Code)
includes a definition of a life insurance contract for federal tax purposes.
This definition can be satisfied by complying with either of two tests set forth
in section 7702. Although the Secretary of the Treasury (the Treasury) is
authorized to prescribe regulations interpreting the manner in which the tests
under section 7702 are to be applied, such regulations have not been issued. In
addition, section 7702 of the Code was amended by imposing certain modified
requirements with respect to the mortality (i.e., cost of insurance) and other
expense charges that are to be used in determining compliance of the policies
with section 7702. Guidance as to how these modified requirements are to be
applied is extremely limited. If a POLICY were determined not to be a life
insurance contract for purposes of section 7702, such POLICY would not provide
most of the tax advantages normally provided by a life insurance policy.
With respect to a POLICY (other than a POLICY in respect of a smoker) issued on
the basis of a standard rate class or a rate class involving a lower mortality
risk (i.e., preferred basis), while there is some uncertainty due to the lack of
regulations and the limited guidance on the
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modified section 7702 requirements, Lincoln Life nonetheless believes that such
a POLICY should meet the section 7702 definition of a life insurance contract.
With respect to a policy issued on a substandard basis (i.e., a rate class
involving higher than standard mortality risk), a POLICY in respect of a smoker
issued on a standard rate class or a rate class with a lower mortality risk, or
a policy which has a last survivor of multiple INSUREDS or first to die of
multiple INSUREDS feature, there is even less guidance in particular as to how
the modified requirements are to be applied in determining whether such a POLICY
meets the section 7702 definition of a life insurance contract. Thus, it is not
clear whether or not such a POLICY would satisfy section 7702, particularly if
the OWNER pays the full amount of premiums permitted under the POLICY. If it is
subsequently determined that a POLICY does not satisfy section 7702, Lincoln
Life will take whatever steps are appropriate and necessary to cause such a
POLICY to comply with section 7702, including possibly refunding any premiums
paid that exceed the limitations allowable under section 7702 (together with
interest or other earnings on any premiums refunded as required by law). For
these reasons, Lincoln Life reserves the right to modify the POLICY as necessary
to qualify it as a life insurance contract under section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the SEPARATE ACCOUNT to be
"adequately diversified" in order for the policy to be treated as a life
insurance contract for federal tax purposes. The SEPARATE ACCOUNT, through the
various FUNDS in which it invests, intends to comply with the diversification
requirements prescribed in Treasury Regulations, which affect how each FUND'S
assets may be invested. Lincoln Life does not have control over the American
Variable Insurance Series or its investments. Nonetheless, Lincoln Life believes
that the FUNDS will be operated in compliance with the requirements prescribed
by the Treasury.
The regulations relating to diversification requirements do not provide guidance
concerning the extent to which policyowners may direct their investments to the
SUBACCOUNTS of a SEPARATE ACCOUNT. When additional guidance is provided, the
POLICY may need to be modified to comply with such guidance. As of the date of
this prospectus, the Treasury Department has issued no guidelines on this
subject, although it has indicated informally that guidelines could limit the
number of underlying funds or the frequency of transfers among those funds. Such
guidelines may apply prospectively only, although retroactive effect is possible
if the guidelines are considered not to embody a new position. For these
reasons, Lincoln Life reserves the right to modify the POLICY as necessary to
prevent the OWNER from being considered the owner of the assets of the SEPARATE
ACCOUNT or otherwise to qualify the POLICY for favorable tax treatment.
The following discussion assumes that the POLICY will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. IN GENERAL. Lincoln Life believes that the proceeds and cash value increases
of a POLICY should be treated in a manner consistent with a fixed benefit life
insurance POLICY for federal income tax purposes. Thus, the death benefit under
the POLICY should be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code.
A change in a POLICY'S SPECIFIED AMOUNT, a change in death benefit option, the
payment of premiums, the addition of additional insurance, a policy loan, a
partial withdrawal, a lapse with outstanding indebtedness, exchange of a POLICY,
or a surrender may have tax consequences depending upon the circumstances. In
addition, federal estate and generation skipping transfer, and state and local
estate inheritance, and other tax consequences of ownership or receipt of policy
proceeds depend upon the circumstances of each OWNER or BENEFICIARY. A competent
tax advisor should be consulted for further information. Generally, the OWNER
will not be deemed to be in constructive receipt of the cash value, including
increments thereof, under the POLICY until there is a distribution. The tax
consequences of distributions from, and loans taken from or secured by, a POLICY
depend on whether the POLICY is classified as a Modified Endowment Contract
under section 7702A.
2. MODIFIED ENDOWMENT CONTRACTS. A POLICY may be treated as a Modified Endowment
Contract depending upon the amount of premiums paid in relation to the death
benefit provided under such POLICY. In addition, if a POLICY is "materially
changed", it may be treated as a Modified Endowment Contract depending upon such
relationship after such change. The premium limitation and material change rules
for determining whether a POLICY is a Modified Endowment Contract are extremely
complex. Moreover, due to the POLICY'S flexibility, classification of a POLICY
as a Modified Endowment Contract will depend upon the circumstances of each
POLICY. Accordingly, a prospective OWNER should contact a competent tax advisor
before purchasing a POLICY to determine the circumstances in which the POLICY
would be a Modified Endowment Contract. In addition, an OWNER should contact a
competent tax advisor before paying any additional premium or making any other
change to, including an exchange of, a POLICY to determine whether such premium
payment or change would cause the POLICY to be treated as a Modified Endowment
Contract.
Lincoln Life will monitor premiums paid into each POLICY after the date of this
prospectus to determine when a premium payment will exceed the 7-pay 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
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POLICY do not at any time during the first seven policy years exceed the sum of
the equal annual premiums that would have been paid for a similar POLICY
providing for fully funded benefits at the end of the seven year period. If the
OWNER has given Lincoln Life instructions that the POLICY should not be allowed
to become a Modified Endowment Contract, any premiums in excess of the 7-pay
limitation will first be applied to reduce any outstanding loan on the POLICY,
and any further excess will be refunded to the OWNER within 7 days. If the OWNER
has not given Lincoln Life instructions to the contrary, however, the premium
will be paid into the POLICY and a letter of notification of Modified Endowment
Contract status will be sent to the OWNER. The letter of notification will
include the available options, if any, for remedying the Modified Endowment
Contract status of the POLICY.
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts are subject to
the following tax rules: First, all distributions, including distributions upon
surrender and benefits paid at maturity, from such a POLICY are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the cash value immediately before the distribution over the investment in the
POLICY 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%
additional income tax is imposed on the portion of any distribution from, or
loan taken from or secured by, such a POLICY that is included in income except
where the distribution or loan is made on or after the owner attains age 59 1/2,
is attributable to the OWNER'S becoming disabled, or is part of a series of
substantially equal periodic payments for the life of the OWNER or the joint
lives of the owner and the OWNER'S BENEFICIARY. Fourth, the Cost of Insurance
for certain riders which are not "qualified additional benefits" such as the
Convalescent Care Rider may be treated as distributions from such a POLICY and
taxed accordingly.
4. DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Distributions from a POLICY that is not classified as a Modified
Endowment Contract are generally treated as first recovering the investment in
the POLICY (described below) and then, only after the return of all such
investment in the POLICY, as distributing taxable income. An exception to this
general rule occurs in the case of a decrease in the SPECIFIED AMOUNT, a change
in death benefits from Type 2 to Type 1, or any other change that reduces
benefits under the POLICY in the first 15-years after the POLICY is issued and
that results in a cash distribution to the OWNER in order for the POLICY to
continue complying with the section 7702 definitional limits. In that case, such
distribution will be taxed in whole or in part as ordinary income (to the extent
of any gain in the POLICY) under rules prescribed in section 7702.
Loans from, or secured by, a POLICY that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the OWNER.
Upon a complete surrender or lapse of a POLICY that is not a Modified Endowment
Contract, or when benefits are paid at such a policy's maturity 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, and policies issued after
June 8, 1997, additional rules apply which may reduce or eliminate any interest
deduction. The OWNER should consult a competent tax advisor concerning the rules
and limitations.
6. INVESTMENT IN THE POLICY. Investment in the POLICY means (i) the aggregate
amount of any premiums or other consideration paid for a POLICY, minus (ii) the
aggregate amount received under the POLICY which is excluded from the gross
income of the OWNER (except that the amount of any loan from, or secured by, a
POLICY that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus, (iii) the amount of any
loan from, or secured by, a POLICY that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the OWNER.
7. MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by
Lincoln Life (or its affiliates) to the same OWNER during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in gross income under section 72(e) of the Code.
8. TAXATION OF CONVALESCENT CARE BENEFIT RIDER AND ACCELERATED BENEFIT ELECTION
RIDER. Lincoln Life believes that any benefits paid under the Accelerated
Benefit Election Rider generally will be excludable from the recipient's income.
It is unclear whether Convalescent Care Benefit Riders issued prior to January
1, 1997, constitute qualified long-term care insurance contracts
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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 longterm 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 earnings
or the realized capital gains attributable to the SEPARATE ACCOUNT. Based upon
these expectations, no charge is being made currently to the SEPARATE ACCOUNT
for Federal income taxes which may be attributable to the SEPARATE ACCOUNT. If,
however, Lincoln Life determines that it may incur such taxes, it may assess a
charge for those taxes from the POLICY.
VOTING RIGHTS
To the extent required by law, Lincoln Life will vote shares of the FUNDS held
in the SEPARATE ACCOUNT at regular and special shareholder meetings of the FUNDS
in accordance with instructions received from persons having voting interests in
the SEPARATE ACCOUNT. If, however, the Investment Company Act of l940 or any
regulation thereunder should be amended or if the present interpretation thereof
should change, and as a result Lincoln Life determines that it is permitted to
vote the fund shares in its own right, it may elect to do so.
The number of votes which each policyowner has the right to instruct will be
determined as one vote for each $100 of POLICY VALUE in each SUBACCOUNT.
Fractional shares will be allocated for amounts less than $100. The number of
votes which the policyowner has the right to instruct will be determined as of
the date coincident with the date established by the various series for
determining shareholders eligible to vote at the meetings of the FUNDS. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the FUNDS. Lincoln Life will vote
shares of each FUND as to which no timely instructions are received in
proportion to the voting instructions which are received with respect to all
Policies participating in that FUND. Each person having a voting interest will
receive proxy material, reports and other materials relating to the appropriate
portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Lincoln Life may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of any of the FUNDS or to approve or
disapprove an investment advisory contract for a FUND. In addition, Lincoln Life
itself may disregard voting instructions in favor of changes initiated by a
policyowner in the investment policy or the investment advisor of a FUND if
Lincoln Life reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to state law or prohibited
by state regulatory authorities or Lincoln Life determined that the change would
have an adverse effect on its GENERAL ACCOUNT in that the proposed investment
policy for any FUND may result in overly speculative or unsound investments. In
the event Lincoln Life does disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next semiannual
report to policyowners.
STATE REGULATION OF LINCOLN LIFE AND THE SEPARATE ACCOUNT
Lincoln Life, a stock life insurance company organized under the laws of
Indiana, is subject to regulation by the Insurance Department of the State of
Indiana. An annual statement is filed with the Indiana Department of Insurance
(Department) on or before March 1st of each year covering the operations and
reporting on the financial condition of Lincoln Life as of December 31 of the
preceding year. Periodically, the Department examines the liabilities and
reserves of Lincoln Life and the SEPARATE ACCOUNT and certifies their adequacy,
and a full examination of Lincoln Life's operations is conducted by the
Department at least once every five years.
In addition, Lincoln Life is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the Insurance Department of any other state applies the laws of the
state of domicile in determining permissible investments.
SAFEKEEPING OF THE 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.
22
<PAGE>
The FUNDS do not issue certificates. Thus, Lincoln Life holds the SEPARATE
ACCOUNT'S assets in an open account in lieu of stock certificates.
LEGAL PROCEEDINGS
There are no material legal or administrative proceedings pending or known to be
contemplated, other than ordinary routine litigation incidental to the business,
to which the SEPARATE ACCOUNT is a party, or to which any of its property is
subject. The co-principal underwriter, AFD, is not engaged in any material
litigation of any nature.
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of these proceedings are routine
and in the ordinary course of business. In some instances these proceedings
include claims for unspecified or substantial punitive damages and similar types
of relief in addition to amounts for alleged contractual liability or requests
for equitable relief. After consultation with legal counsel and a review of
available facts, it is management's opinion that the ultimate liability, if any,
under these suits will not have a material adverse effect on the financial
position of Lincoln Life.
During the 1990's class action lawsuits alleging sales practices fraud have been
filed against many life insurance companies, and Lincoln Life has not been
immune. Two lawsuits alleging fraud in the sale of interest-sensitive universal
and whole life insurance policies have been filed against Lincoln Life. These
two suits have been filed as class actions, although as of the date of this
Prospectus the court had not certified a class in either case. Plaintiffs seek
unspecified damages and penalties for themselves and on behalf of the putative
class. Although the relief sought in these cases is substantial, the cases are
in the early stages of litigation, and it is premature to make assessments about
potential loss, if any. Management denies the allegations and intends to defend
these suits vigorously. The amount of liability, if any, which may arise as a
result of these suits (exclusive of any indemnification from professional
liability insurers) cannot be reasonably estimated at this time.
EXPERTS
The financial statements of the Separate Account and the statutory-basis
financial statements and schedules of Lincoln Life appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports which also appear elsewhere in this
document and in the registration statement. The financial statements and
schedules audited by Ernst & Young LLP have been included in this document in
reliance on their reports given on their authority as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Denis G.
Schwartz, FSA, as stated in the opinion filed as an exhibit to the registration
statement.
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organizations.
Lincoln Life, as part of its year 2000 updating process, is responsible for the
updating of the SEPARATE ACCOUNT related computer systems. An affiliate of
Lincoln Life, Delaware Service Company (Delaware), provides substantially all of
the necessary accounting and valuation services for the SEPARATE ACCOUNT.
Delaware, for its part, is responsible for updating all of its computer systems,
including those which service the SEPARATE ACCOUNT, to accommodate the year
2000. Lincoln Life and Delaware have begun formal discussions with each other to
assess the requirements for their respective systems to interface properly in
order to facilitate the accurate and orderly operation of the SEPARATE ACCOUNT
beginning in the year 2000.
The year 2000 issue is pervasive and complex and affects virtually every aspect
of the businesses of both Lincoln Life and Delaware (the Companies). The
computer systems of the Companies and their interfaces with the computer systems
of vendors, suppliers, customers and other business partners are particularly
vulnerable. The inability to properly recognize date-sensitive electronic
information and to transfer data between systems could cause errors or even
complete failure of systems, which would result in a temporary inability to
process transactions correctly and engage in normal business activities for the
SEPARATE ACCOUNT. The Companies respectively are redirecting significant
portions of their internal information technology efforts and are contracting,
as needed, with outside consultants to help update their systems to accommodate
the year 2000. Also, in addition to the discussions with each other noted above,
the Companies have respectively initiated formal discussions with other critical
parties that interface with their systems to gain an understanding of the
progress by those parties in addressing year 2000 issues. While the Companies
are making substantial efforts to address their own systems and the systems with
which they interface, it is not possible to provide assurance that operational
problems will not occur. The Companies
23
<PAGE>
presently believe that, with the modification of existing computer systems,
updates by vendors and conversion to new software and hardware, the year 2000
issue will not pose significant operations problems for their respective
computer systems. In addition, the Companies are incorporating potential issues
surrounding year 2000 into their contingency planning process, in the event
that, despite these substantial efforts, there are unresolved year 2000
problems. If the remediation efforts noted above are not completed timely or
properly, the year 2000 issue could have a material adverse impact on the
operation of the businesses of Lincoln Life or Delaware, or both.
The cost of addressing year 2000 issues and the timeliness of completion will be
closely monitored by management of the respective Companies and, for each
company, will be based on its management's best estimates which are derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. Nevertheless, there can be no guarantee either by Lincoln Life or by
Delaware that estimated costs will be achieved, and actual results could differ
significantly from those anticipated. Specific factors that might cause such
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer problems, and other uncertainties.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of l933, as amended, with respect to the
POLICY offered hereby. This prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
Registration Statement, to all of which reference is made for further
information concerning the SEPARATE ACCOUNT, Lincoln Life and the POLICY offered
hereby. Statements contained in this prospectus as to the contents of the POLICY
and other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed.
24
<PAGE>
APPENDIX A
BASE MINIMUM PREMIUMS
PER $1,000 OF SPECIFIED AMOUNT*
MALE (OR UNISEX), AGE ON POLICY DATE
PRF NS = Preferred nonsmoker
STD NS = Standard nonsmoker
PRF SM = Preferred smoker
STD SM = Standard smoker
<TABLE>
<CAPTION>
AGE PRF NS STD NS PRF SM STD SM AGE PRF NS STD NS PRF SM STD SM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
0 ** 3.62 ** **
- ------------------------------------------------------------------------------------------------------------
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 16.0 17.47 26.57 27.53
13 3.00 53 17.27 18.71 28.74 29.82
14 3.18 54 18.73 20.29 31.04 32.12
15 3.35 55 20.26 22.06 33.39 34.59
- ------------------------------------------------------------------------------------------------------------
16 3.59 3.71 4.29 4.41 56 21.90 23.82 35.66 36.98
17 3.94 4.06 4.64 4.76 57 23.72 25.76 36.62 38.06
18 4.12 4.24 4.82 4.94 58 25.72 27.88 37.59 39.15
19 4.12 4.24 4.82 4.94 59 27.78 30.18 38.68 40.36
20 4.12 4.24 5.00 5.12 60 30.13 32.65 39.90 41.70
- ------------------------------------------------------------------------------------------------------------
21 4.12 4.24 5.05 5.29 61 32.83 35.47 41.25 43.17
22 4.12 4.24 5.05 5.29 62 34.55 37.43 42.79 44.83
23 4.12 4.24 5.23 5.47 63 35.58 38.70 44.46 46.74
24 4.12 4.24 5.41 5.65 64 36.80 40.04 46.01 48.65
25 4.12 4.24 5.41 5.65 65 38.03 41.51 47.93 50.57
- ------------------------------------------------------------------------------------------------------------
26 4.17 4.29 5.41 5.65 66 38.73 42.39 51.20 52.47
27 4.36 4.48 5.41 5.65 67 39.58 43.30 53.53 54.93
28 4.57 4.69 5.41 5.65 68 41.17 45.11 55.99 57.52
29 4.78 4.90 5.60 5.84 69 43.28 47.35 58.82 60.26
30 5.01 5.13 5.94 6.18 70 45.66 49.78 61.93 63.21
- ------------------------------------------------------------------------------------------------------------
31 5.26 5.38 6.18 6.42 71 48.30 52.46 65.39 66.41
32 5.52 5.64 6.50 6.74 72 51.55 55.63 69.24 70.09
33 5.80 5.92 6.84 7.08 73 55.35 59.42 73.74 74.33
34 6.09 6.21 7.20 7.44 74 59.69 63.68 78.52 78.90
35 6.40 6.52 7.58 7.82 75 64.41 68.23 83.30 83.55
- ------------------------------------------------------------------------------------------------------------
36 6.73 6.85 7.99 8.23 76 69.46 72.85 87.78 88.03
37 7.08 7.20 8.42 8.66 77 74.84 77.72 92.28 92.54
38 7.21 7.57 9.11 9.35 78 80.70 82.95 96.81 97.06
39 7.60 7.96 9.88 10.24 79 87.32 88.72 101.48 101.74
40 8.02 8.38 10.76 11.12 80 94.43 95.11 106.44 106.69
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*To determine the DEATH BENEFIT GUARANTEE MONTHLY PREMIUM, multiply the
specified amount divided by 1000 times the number shown for the age and
classification of the INSURED, 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.
25
<PAGE>
APPENDIX A CONTINUED
BASE MINIMUM PREMIUMS
PER $1,000 OF SPECIFIED AMOUNT*
FEMALE, AGE ON POLICY DATE
PRF NS = Preferred nonsmoker
STD NS = Standard nonsmoker
PRF SM = Preferred smoker
STD SM = Standard smoker
<TABLE>
<CAPTION>
AGE PRF NS STD NS PRF SM STD SM AGE PRF NS STD NS PRF SM STD SM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
0 ** 2.98 ** **
- ------------------------------------------------------------------------------------------------------------
1 1.76 41 7.06 7.42 9.29 9.53
2 1.76 42 7.43 7.79 9.88 10.24
3 1.76 43 7.70 8.18 10.58 10.94
4 1.76 44 7.99 8.59 11.64 12.00
5 1.76 45 8.42 9.02 12.70 13.06
- ------------------------------------------------------------------------------------------------------------
6 1.76 46 8.76 9.48 13.46 13.94
7 1.76 47 9.24 9.96 14.34 14.82
8 1.76 48 9.63 10.47 15.28 15.88
9 1.83 49 10.06 11.02 16.52 17.12
10 1.90 50 10.69 11.65 17.75 18.35
- ------------------------------------------------------------------------------------------------------------
11 1.98 51 11.57 12.53 19.04 19.76
12 2.12 52 12.33 13.41 20.46 21.18
13 2.15 53 13.21 14.29 21.75 22.59
14 2.24 54 14.15 15.35 23.16 24.00
15 2.33 55 14.92 16.24 24.57 25.41
- ------------------------------------------------------------------------------------------------------------
16 2.30 2.42 2.76 2.88 56 15.62 16.94 25.69 26.65
17 2.40 2.52 2.88 3.00 57 16.38 17.82 26.92 27.88
18 2.51 2.63 3.06 3.18 58 17.15 18.71 28.04 29.12
19 2.62 2.74 3.13 3.25 59 18.03 19.59 29.27 30.35
20 2.73 2.85 3.28 3.40 60 19.26 20.82 31.04 32.12
- ------------------------------------------------------------------------------------------------------------
21 2.85 2.97 3.43 3.55 61 20.73 22.41 33.21 34.41
22 2.98 3.10 3.58 3.70 62 22.73 24.53 35.60 36.92
23 3.12 3.24 3.74 3.86 63 25.08 27.00 36.75 38.19
24 3.25 3.37 3.92 4.04 64 27.61 29.65 37.97 39.53
25 3.41 3.53 4.10 4.22 65 30.19 32.47 39.19 40.87
- ------------------------------------------------------------------------------------------------------------
26 3.56 3.68 4.29 4.41 66 32.23 34.59 39.74 41.52
27 3.73 3.85 4.49 4.61 67 33.48 35.93 40.14 42.12
28 3.90 4.02 4.71 4.83 68 33.83 36.35 41.44 42.92
29 4.09 4.21 4.93 5.05 69 34.44 36.92 43.19 44.63
30 4.28 4.40 5.17 5.29 70 35.49 38.12 45.32 46.67
- ------------------------------------------------------------------------------------------------------------
31 4.37 4.61 5.42 5.54 71 37.48 40.19 47.97 49.20
32 4.59 4.83 5.69 5.81 72 39.99 42.75 51.10 52.29
33 4.82 5.06 5.97 6.09 73 43.05 45.85 54.79 55.89
34 5.06 5.30 6.27 6.39 74 46.75 49.51 59.11 60.04
35 5.32 5.56 6.58 6.70 75 50.82 53.53 63.83 64.47
- ------------------------------------------------------------------------------------------------------------
36 5.59 5.83 6.79 7.03 76 55.39 57.93 68.68 69.06
37 5.76 6.12 7.14 7.38 77 60.51 62.76 73.61 73.86
38 6.06 6.42 7.50 7.74 78 66.49 68.31 79.00 79.26
39 6.38 6.74 7.88 8.12 79 73.50 74.73 84.97 85.22
40 6.71 7.07 8.58 8.82 80 81.21 81.89 91.60 91.86
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*To determine the DEATH BENEFIT GUARANTEE MONTHLY PREMIUM, multiply the
specified amount divided by 1000 times the number shown for the age and
classification of the INSURED, 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.
26
<PAGE>
APPENDIX B
SURRENDER CHARGES
PER $1,000 OF SPECIFIED AMOUNT
MALE (OR UNISEX), AGE ON POLICY DATE*
PRF NS = Preferred nonsmoker
STD NS = Standard nonsmoker
PRF SM = Preferred smoker
STD SM = Standard smoker
<TABLE>
<CAPTION>
AGE PRF NS STD NS PRF SM STD SM AGE PRF NS STD NS PRF SM STD SM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
0 ** 3.52 ** **
- ------------------------------------------------------------------------------------------------------------
1 2.79 41 10.98 11.62 15.60 16.06
2 2.79 42 11.59 12.23 16.98 17.47
3 2.79 43 12.10 12.89 18.22 18.85
4 2.79 44 12.78 13.57 20.02 20.48
5 2.79 45 13.35 14.30 21.71 22.35
- ------------------------------------------------------------------------------------------------------------
6 2.79 46 13.97 15.09 23.19 23.98
7 2.79 47 14.96 16.06 24.66 25.61
8 2.79 48 15.80 17.23 26.53 27.48
9 2.90 49 16.96 18.39 28.40 29.35
10 3.04 50 18.22 19.80 30.34 31.44
- ------------------------------------------------------------------------------------------------------------
11 3.17 51 19.69 21.43 32.65 33.77
12 3.48 52 21.14 23.06 35.07 36.32
13 3.96 53 22.79 24.68 37.93 39.36
14 4.18 54 24.73 26.77 40.96 42.39
15 4.42 55 26.73 29.11 44.07 45.65
- ------------------------------------------------------------------------------------------------------------
16 4.73 4.88 5.65 5.81 56 28.91 31.44 47.06 48.40
17 5.19 5.35 6.12 6.27 57 31.31 33.99 48.33 48.40
18 5.43 5.59 6.36 6.51 58 33.95 36.81 48.40 48.40
19 5.43 5.59 6.36 6.51 59 36.65 39.82 48.40 48.40
20 5.43 5.59 6.58 6.75 60 39.75 43.08 48.40 48.40
- ------------------------------------------------------------------------------------------------------------
21 5.43 5.59 6.67 6.97 61 43.32 46.82 48.40 48.40
22 5.43 5.59 6.67 6.97 62 45.58 48.40 48.40 48.40
23 5.43 5.59 6.89 7.22 63 46.97 48.40 48.40 48.40
24 5.43 5.59 7.13 7.44 64 48.40 48.40 48.40 48.40
25 5.43 5.59 7.13 7.44 65 48.40 48.40 48.40 48.40
- ------------------------------------------------------------------------------------------------------------
26 5.50 5.65 7.13 7.44 66 48.40 48.40 48.40 48.40
27 5.74 5.92 7.13 7.44 67 48.40 48.40 48.40 48.40
28 6.03 6.18 7.13 7.44 68 48.12 48.12 48.40 48.40
29 6.31 6.47 7.37 7.70 69 47.85 47.85 48.35 48.35
30 6.60 6.78 7.83 8.14 70 47.62 47.62 48.28 48.28
- ------------------------------------------------------------------------------------------------------------
31 6.93 7.08 8.14 8.47 71 47.42 47.42 48.21 48.21
32 7.28 7.44 8.56 8.89 72 47.24 47.24 48.18 48.18
33 7.66 7.81 9.02 9.33 73 47.06 47.06 48.17 48.17
34 8.03 8.18 9.50 9.81 74 46.79 46.79 48.14 48.14
35 8.45 8.60 9.99 10.32 75 46.44 46.44 47.85 47.85
- ------------------------------------------------------------------------------------------------------------
36 8.87 9.04 10.54 10.85 76 46.06 46.06 46.81 46.81
37 9.35 9.50 11.11 11.42 77 45.38 45.38 45.65 45.65
38 9.50 9.99 12.01 12.34 78 44.08 44.08 44.37 44.37
39 10.03 10.49 13.02 13.51 79 42.67 42.67 42.96 42.96
40 10.58 11.04 14.19 14.67 80 41.12 41.12 41.41 41.41
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*For requested increases in the specified amount, the applicable SURRENDER
CHARGE is based on the age the increase is effective and will be two-thirds
that of the corresponding SURRENDER CHARGE listed above.
**This classification is not available below the age of 16.
27
<PAGE>
APPENDIX B CONTINUED
SURRENDER CHARGES
PER $1,000 OF SPECIFIED AMOUNT
FEMALE, AGE ON POLICY DATE*
PRF NS = Preferred nonsmoker
STD NS = Standard nonsmoker
PRF SM = Preferred smoker
STD SM = Standard smoker
<TABLE>
<CAPTION>
AGE PRF NS STD NS PRF SM STD SM AGE PRF NS STD NS PRF SM STD SM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
0 ** 2.90 ** **
- ------------------------------------------------------------------------------------------------------------
1 2.31 41 9.31 9.79 12.25 12.56
2 2.31 42 9.79 10.27 13.02 13.51
3 2.31 43 10.14 10.78 13.95 14.43
4 2.31 44 10.54 11.33 15.36 15.84
5 2.31 45 11.11 11.90 16.76 17.23
- ------------------------------------------------------------------------------------------------------------
6 2.31 46 11.55 12.50 17.75 18.39
7 2.31 47 12.19 13.13 18.92 19.56
8 2.31 48 12.72 13.82 20.17 20.97
9 2.40 49 13.27 14.54 21.80 22.59
10 2.51 50 14.10 15.36 23.43 24.22
- ------------------------------------------------------------------------------------------------------------
11 2.62 51 15.27 16.52 25.12 26.07
12 2.79 52 16.28 17.69 26.99 27.94
13 2.82 53 17.42 18.85 28.69 29.81
14 2.95 54 18.68 20.26 30.56 31.68
15 3.06 55 19.69 21.43 32.43 33.53
- ------------------------------------------------------------------------------------------------------------
16 3.04 3.19 3.63 3.78 56 20.61 22.35 33.90 35.16
17 3.17 3.32 3.78 3.96 57 21.63 23.52 35.53 36.81
18 3.30 3.45 4.03 4.18 58 22.62 24.68 37.00 38.43
19 3.45 3.61 4.14 4.29 59 23.78 25.85 38.63 40.06
20 3.61 3.76 4.31 4.47 60 25.41 27.48 40.96 42.39
- ------------------------------------------------------------------------------------------------------------
21 3.76 3.92 4.51 4.66 61 27.37 29.57 43.82 45.41
22 3.92 4.09 4.71 4.88 62 29.99 32.36 46.97 48.40
23 4.11 4.27 4.93 5.08 63 33.09 35.64 48.40 48.40
24 4.29 4.44 5.17 5.32 64 36.43 39.12 48.40 48.40
25 4.49 4.64 5.39 5.57 65 39.84 42.86 48.40 48.40
- ------------------------------------------------------------------------------------------------------------
26 4.69 4.86 5.65 5.81 66 43.19 46.35 48.40 48.40
27 4.91 5.08 5.92 6.07 67 45.56 48.40 48.40 48.40
28 5.15 5.30 6.20 6.36 68 46.75 48.40 48.40 48.40
29 5.39 5.54 6.51 6.67 69 48.17 48.17 48.31 48.31
30 5.65 5.81 6.82 6.97 70 47.78 47.78 47.97 47.97
- ------------------------------------------------------------------------------------------------------------
31 5.76 6.07 7.15 7.30 71 47.41 47.41 47.67 47.67
32 6.05 6.36 7.50 7.66 72 46.96 46.96 47.41 47.41
33 6.36 6.67 7.88 8.03 73 46.38 46.38 47.11 47.11
34 6.67 7.00 8.27 8.43 74 45.76 45.76 46.71 46.71
35 7.02 7.33 8.69 8.84 75 45.13 45.13 46.22 46.22
- ------------------------------------------------------------------------------------------------------------
36 7.37 7.70 8.95 9.26 76 44.54 44.54 45.73 45.73
37 7.59 8.07 9.42 9.72 77 43.99 43.99 45.30 45.30
38 7.99 8.47 9.90 10.21 78 43.48 43.48 44.06 44.06
39 8.40 8.89 10.41 10.71 79 42.51 42.51 42.65 42.65
40 8.84 9.33 11.33 11.64 80 40.94 40.94 41.07 41.07
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*For requested increases in the specified amount, the applicable SURRENDER
CHARGE is based on the age the increase is effective and will be two-thirds
that of the corresponding SURRENDER CHARGE listed above.
**This classification is not available below the age of 16.
28
<PAGE>
APPENDIX C
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -------------------------------------------------------------------
<S> <C>
NANCY J. ALFORD Vice President [4/96-present], (formerly Second
VICE PRESIDENT Vice President [1/90-4/96], Lincoln National
Life Insurance Co.
- -------------------------------------------------------------------
ROLAND C. BAKER President [1/95-present], First Penn-Pacific
VICE PRESIDENT AND Life Insurance Co. Formerly: Chairman and CFO
DIRECTOR [7/88-1/95], Baker, Ralish, Shipley & Politzer,
1801 S. Meyers Inc.
Road
Oakbrook Terrace,
Ill. 60181
- -------------------------------------------------------------------
JON A. BOSCIA President and Director, Lincoln National Corp.
DIRECTOR [1/98-present] (Formerly: President and Chief
Executive Officer [10/96-1/98]); Chief
Operating Officer [5/94-10/96]), Lincoln
National Life Insurance Co., President
[7/91-5/94] Lincoln Investment Management Inc.
- -------------------------------------------------------------------
JOHN GOTTA Vice President and General Manager
VICE PRESIDENT [1/98-present] Formerly: Senior Vice President,
900 Cottage Grove CIGNA [3/96-12/97]; Vice President, Connecticut
Rd. Mutual Life Insurance Company [8/94-3/96]; Vice
Bloomfield, CT President, CIGNA [3/93-8/94]; Regional Director
06152-2321 of Agencies, Phoenix-Home Life Mutual Insurance
Company [3/90-2/93]
- -------------------------------------------------------------------
MELANIE T. HALL Vice President [1/96-present] Formerly: Second
VICE PRESIDENT Vice President [6/95-1/96], Lincoln National
Life Insurance Co. Formerly: Assistant Vice
President [1/95-6/95], LNC Equity Sales
Corporation, Assistant Vice President
[12/93-1/95], Lincoln Investment Management,
Inc.; Assistant Vice President [12/92-12/93],
Lincoln National Life Insurance Co.
- -------------------------------------------------------------------
J. MICHAEL HEMP President [11/96-present], Lincoln Financial
VICE PRESIDENT Advisors Corp.; Vice President [10/95-Present],
Lincoln National Life Insurance Co. Formerly:
Regional Chief Executive Officer [11/79-10/95],
Lincoln Dallas RMO.
- -------------------------------------------------------------------
JACK D. HUNTER Executive Vice President [5/86-present] and
EXECUTIVE VICE General Counsel [3/75-Present], Lincoln
PRESIDENT, National Corporation and Executive Vice
GENERAL COUNSEL President [8/86-Present] and General Counsel
AND DIRECTOR [3/75-Present], The Lincoln National Life
200 East Berry Insurance Company
Street
Fort Wayne, Ind.
46802
- -------------------------------------------------------------------
STEPHEN H. LEWIS Senior Vice President, [5/94-present] Lincoln
VICE PRESIDENT National Life Insurance Co. Formerly: President
[2/85-5/94], First Penn-Pacific Life Insurance
Co.
- -------------------------------------------------------------------
H. THOMAS MCMEEKIN President [5/94-present], Lincoln Investment
DIRECTOR Management, Inc. Formerly: Executive Vice
200 East Berry President [2/92-11/92], Senior Vice President
Street [11/87-2/92]; Executive Vice President
Fort Wayne, Ind. [5/94-Present], Lincoln National Corporation
46802 Formerly: Senior Vice President [11/92-5/94]
- -------------------------------------------------------------------
IAN M. ROLLAND Chairman [1/92-present], Chief Executive
DIRECTOR Officer [5/77-present] and President
200 East Berry [12/75-1/92], Lincoln National Corp. Formerly:
Street Chairman [1/92-5/94], Chief Executive Officer
Fort Wayne, Ind. [7/77-5/94] and President [3/83-1/93], Lincoln
46802 National Life Insurance Co.
- -------------------------------------------------------------------
ARTHUR S. ROSS Vice President [8/91-present], Lincoln National
VICE PRESIDENT Life Insurance Co.
- -------------------------------------------------------------------
</TABLE>
29
<PAGE>
APPENDIX C CONTINUED
EXECUTIVE OFFICERS AND DIRECTORS
LINCOLN NATIONAL LIFE INSURANCE CO.
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S)
WITH APPLICANT* PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -------------------------------------------------------------------
<S> <C>
LAWRENCE T. Executive Vice President [10/96-present]
ROWLAND Formerly: Senior Vice President [1/93-10/96],
EXECUTIVE VICE Vice President [10/91-1/93], Lincoln National
PRESIDENT AND Life Insurance Co.
DIRECTOR
One Reinsurance
Place
1700 Magnavox Way
Fort Wayne, Ind.
46804
- -------------------------------------------------------------------
KEITH J. RYAN Senior Vice President Formerly Vice President,
SENIOR VICE Chief Financial Officer and Assistant Treasurer
PRESIDENT, CHIEF [1/96-present] Formerly: Controller
FINANCIAL OFFICER [6/95-12/95], Business Controls Director
AND ASSISTANT [11/90-6/95], Lincoln National Life Insurance
TREASURER Co.
- -------------------------------------------------------------------
GABRIEL L. SHAHEEN President and Chief Executive Officer
PRESIDENT, CHIEF [1/98-present] Formerly: Chairman and Managing
EXECUTIVE OFFICER Director, Lincoln National (UK) PLC
AND DIRECTOR [12/96-1/98]; President, Lincoln National
Reassurance Company [7/95-12/96]; Senior Vice
President, Lincoln National Life Reinsurance
Company [1/93-7/95]; Senior Vice President,
Lincoln National Life Insurance Company
[5/91-1/93]
- -------------------------------------------------------------------
RICHARD C. VAUGHAN Executive Vice President and Chief Financial
DIRECTOR Officer [1/95-present] Formerly: Senior Vice
200 East Berry President [6/92-1/95]), Lincoln National Corp.
Street
Fort Wayne, Ind.
46802
- -------------------------------------------------------------------
MICHAEL R. WALKER Vice President [1/96-present], Lincoln National
VICE PRESIDENT Life Insurance Co. Formerly: Vice President
[3/96-1/96], Employers Health Insurance Co.;
Vice President [7/85-3/93], Baker Hughes, Inc.
- -------------------------------------------------------------------
ROY V. WASHINGTON Vice President [7/96-present], Lincoln National
VICE PRESIDENT Life Insurance Co. Formerly: Associate Counsel
[2/95-7/96]. Formerly: Director of Compliance
[8/94-2/95], Lincoln Investment Management,
Inc.; Compliance Consultant [8/89-8/94],
Lincoln National Corp.
- -------------------------------------------------------------------
MICHAEL L. WRIGHT Senior Vice President [3/95-present], Lincoln
SENIOR VICE National Life Insurance Co. Formerly: Executive
PRESIDENT Vice President and Chief Operating Officer
[11/88-3/95], The Associate Group.
</TABLE>
*Unless otherwise indicated, the principal business address is 1300 South
Clinton Street, Fort Wayne, Indiana 46801.
30
<PAGE>
APPENDIX D
ILLUSTRATIONS OF POLICY VALUES
The following tables have been prepared to help show how values under the POLICY
change with investment performance. The tables show Type 1 death benefits,
POLICY VALUES, and NET CASH SURRENDER VALUES for each of the first 10 policy
years, and for every five year period thereafter through the thirtieth policy
year, assuming that the return on the assets invested in the account were a
uniform, gross, after tax, annual rate of 0%, 6%, and 12%. The actual death
benefits and NET CASH SURRENDER VALUES would be different from those shown if a
different classification were to be used or if the returns averaged 0%, 6%, and
12% but fluctuated over and under those averages throughout the years.
The death benefits and NET CASH SURRENDER VALUES shown on pages using current
charges are approximately those likely to be provided under the POLICY for the
investment returns indicated, assuming that the current percent of premium
charge is deducted, the current COST OF INSURANCE CHARGES are deducted, and the
current MORTALITY AND EXPENSE RISK CHARGE is deducted. Although the contract
allows for a maximum percent of premium charge, maximum COST OF INSURANCE
CHARGES specified in the l980 Commissioners Standard Ordinary Smoker and
Nonsmoker tables, and a maximum MORTALITY AND EXPENSE RISK CHARGE of .90%,
Lincoln Life expects that it will continue to charge the current percent of
premium charge, the current COST OF INSURANCE CHARGES, and the current MORTALITY
AND EXPENSE RISK CHARGE for the indefinite future. The figures shown on pages
using guaranteed maximum charges show the death benefits and NET CASH SURRENDER
VALUES which would result if the guaranteed maximum percent of premium charge,
the guaranteed maximum COST OF INSURANCE CHARGES, and the guaranteed maximum
MORTALITY AND EXPENSE RISK CHARGE were to be deducted. However, these are
primarily of interest only to show by comparison the benefits of the lower
current charges.
In each of the illustrations, an assumed gross annual return is indicated. The
gross annual return used in the illustrations is then reduced by the asset
management charge (current average .53%), the MORTALITY AND EXPENSE RISK CHARGE
(.81% 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. Thus, a 12%
gross annual return yields a net annual return of 10.48% using current charges,
and 10.38% using guaranteed charges. Similarly, gross annual returns of 6% and
0% yield net annual returns of 4.56% and -1.36% respectively using current
charges and 4.46% and -1.45% respectively using guaranteed charges.
31
<PAGE>
AMERICAN LEGACY VARIABLE LIFE
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
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1 $ 1,391 $100,000 $100,000 $100,000 $ 974 $ 1,040 $ 1,106 $ 114 $ 180 $ 246
2 2,852 100,000 100,000 100,000 1,928 2,120 2,320 1,068 1,260 1,460
3 4,386 100,000 100,000 100,000 2,859 3,240 3,652 1,999 2,380 2,792
4 5,996 100,000 100,000 100,000 3,766 4,399 5,113 2,906 3,539 4,253
5 7,688 100,000 100,000 100,000 4,650 5,601 6,717 3,790 4,741 5,857
- --------------------------------------------------------------------------------------------------------------------------
6 9,463 100,000 100,000 100,000 5,509 6,845 8,477 4,864 6,200 7,832
7 11,328 100,000 100,000 100,000 6,340 8,131 10,408 5,910 7,701 9,978
8 13,285 100,000 100,000 100,000 7,146 9,462 12,530 6,931 9,247 12,315
9 15,341 100,000 100,000 100,000 7,923 10,839 14,862 7,923 10,839 14,862
10 17,499 100,000 100,000 100,000 8,671 12,261 17,425 8,671 12,261 17,425
- --------------------------------------------------------------------------------------------------------------------------
15 30,021 100,000 100,000 100,000 11,921 20,100 34,680 11,921 20,100 34,680
20 46,003 100,000 100,000 100,000 14,112 29,199 62,950 14,112 29,199 62,950
25 66,400 100,000 100,000 146,522 14,697 39,578 109,345 14,697 39,578 109,345
30 92,433 100,000 100,000 224,993 13,117 51,644 184,421 13,117 51,644 184,421
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be
more or less than those shown. The death benefits and cash value for a contract
would be different from those shown if the actual gross annual return averaged
0.00%, 6.00% and 12.00% over a period of years, but also fluctuated above or
below those averages for individual contract years. No representations can be
made by Lincoln Life or any of the FUNDS that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% asset management charge, a .81% 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>
AMERICAN LEGACY VARIABLE LIFE
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
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1 $ 1,391 $100,000 $100,000 $100,000 $ 946 $ 1,010 $ 1,074 $ 86 $ 150 $ 214
2 2,852 100,000 100,000 100,000 1,871 2,058 2,253 1,011 1,198 1,393
3 4,386 100,000 100,000 100,000 2,773 3,143 3,544 1,913 2,283 2,684
4 5,996 100,000 100,000 100,000 3,652 4,266 4,959 2,792 3,406 4,099
5 7,688 100,000 100,000 100,000 4,506 5,427 6,510 3,646 4,567 5,650
- ------------------------------------------------------------------------------------------------------------------------
6 9,463 100,000 100,000 100,000 5,333 6,627 8,210 4,688 5,982 7,565
7 11,328 100,000 100,000 100,000 6,134 7,867 10,073 5,704 7,437 9,643
8 13,285 100,000 100,000 100,000 6,908 9,147 12,118 6,693 8,932 11,903
9 15,341 100,000 100,000 100,000 7,654 10,469 14,361 7,654 10,469 14,361
10 17,499 100,000 100,000 100,000 8,370 11,834 16,825 8,370 11,834 16,825
- ------------------------------------------------------------------------------------------------------------------------
15 30,021 100,000 100,000 100,000 11,455 19,311 33,341 11,455 19,311 33,341
20 46,003 100,000 100,000 100,000 13,471 27,893 60,221 13,471 27,893 60,221
25 66,400 100,000 100,000 139,677 13,803 37,472 104,237 13,803 37,472 104,237
30 92,433 100,000 100,000 213,373 11,378 47,943 174,896 11,378 47,943 174,896
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% 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.
33
<PAGE>
AMERICAN LEGACY VARIABLE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35
STANDARD SMOKER
$100,000 SPECIFIED AMOUNT
$1,675 ANNUAL PREMIUM USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1 $ 1,759 $100,000 $100,000 $100,000 $ 1,222 $ 1,305 $ 1,388 $ 190 $ 273 $ 356
2 3,605 100,000 100,000 100,000 2,419 2,661 2,913 1,387 1,629 1,881
3 5,544 100,000 100,000 100,000 3,580 4,059 4,578 2,548 3,027 3,546
4 7,580 100,000 100,000 100,000 4,706 5,502 6,399 3,674 4,470 5,367
5 9,718 100,000 100,000 100,000 5,797 6,992 8,394 4,765 5,960 7,362
- ------------------------------------------------------------------------------------------------------------------------
6 11,963 100,000 100,000 100,000 6,856 8,533 10,583 6,082 7,759 9,809
7 14,320 100,000 100,000 100,000 7,871 10,117 12,977 7,355 9,601 12,461
8 16,794 100,000 100,000 100,000 8,844 11,748 15,599 8,586 11,490 15,341
9 19,393 100,000 100,000 100,000 9,775 13,428 18,478 9,775 13,428 18,478
10 22,121 100,000 100,000 100,000 10,667 15,162 21,644 10,667 15,162 21,644
- ------------------------------------------------------------------------------------------------------------------------
15 37,951 100,000 100,000 100,000 14,332 24,563 42,915 14,332 24,563 42,915
20 58,155 100,000 100,000 122,097 16,317 35,228 77,769 16,317 35,228 77,769
25 83,940 100,000 100,000 179,507 16,189 47,586 133,960 16,189 47,586 133,960
30 116,849 100,000 100,000 273,508 12,958 62,402 224,187 12,958 62,402 224,187
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% asset management charge, a .81% 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>
AMERICAN LEGACY VARIABLE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35
STANDARD SMOKER
$100,000 SPECIFIED AMOUNT
$1,675 ANNUAL PREMIUM USING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
PREMIUMS ------------------------------- ------------------------------- -------------------------------
ACCUMULATED ASSUMING ASSUMING ASSUMING
END AT 5% HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY PER ------------------------------- ------------------------------- -------------------------------
YEAR 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 $ 1,759 $100,000 $100,000 $100,000 $ 1,168 $ 1,248 $ 1,329 $ 136 $ 216 $ 297
2 3,605 100,000 100,000 100,000 2,303 2,536 2,779 1,271 1,504 1,747
3 5,544 100,000 100,000 100,000 3,401 3,860 4,359 2,369 2,828 3,327
4 7,580 100,000 100,000 100,000 4,461 5,221 6,081 3,429 4,189 5,049
5 9,718 100,000 100,000 100,000 5,478 6,617 7,957 4,446 5,585 6,925
- ------------------------------------------------------------------------------------------------------------------------
6 11,963 100,000 100,000 100,000 6,451 8,046 10,000 5,677 7,272 9,226
7 14,320 100,000 100,000 100,000 7,376 9,508 12,228 6,860 8,992 11,712
8 16,794 100,000 100,000 100,000 8,253 11,002 14,659 7,995 10,744 14,401
9 19,393 100,000 100,000 100,000 9,078 12,527 17,313 9,078 12,527 17,313
10 22,121 100,000 100,000 100,000 9,849 14,083 20,213 9,849 14,083 20,213
- ------------------------------------------------------------------------------------------------------------------------
15 37,951 100,000 100,000 100,000 12,824 22,336 39,536 12,824 22,336 39,536
20 58,155 100,000 100,000 111,611 13,892 31,258 71,090 13,892 31,258 71,090
25 83,940 100,000 100,000 163,093 12,016 40,562 121,711 12,016 40,562 121,711
30 116,849 100,000 100,000 246,290 5,445 50,098 201,877 5,445 50,098 201,877
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% 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>
AMERICAN LEGACY VARIABLE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
STANDARD NONSMOKER
$100,000 SPECIFIED AMOUNT
$3,300 ANNUAL PREMIUM USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1 $ 3,465 $100,000 $100,000 $100,000 $ 2,187 $ 2,344 $ 2,501 $ 0 $ 0 $ 0
2 7,103 100,000 100,000 100,000 4,283 4,733 5,202 1,372 1,822 2,291
3 10,923 100,000 100,000 100,000 6,288 7,170 8,129 3,377 4,259 5,218
4 14,935 100,000 100,000 100,000 8,218 9,676 11,325 5,307 6,765 8,414
5 19,146 100,000 100,000 100,000 10,068 12,249 14,819 7,157 9,338 11,908
- ------------------------------------------------------------------------------------------------------------------------
6 23,569 100,000 100,000 100,000 11,820 14,876 18,629 9,637 12,693 16,446
7 28,212 100,000 100,000 100,000 13,478 17,567 22,804 12,023 16,111 21,348
8 33,088 100,000 100,000 100,000 15,036 20,321 27,386 14,308 19,593 26,658
9 38,207 100,000 100,000 100,000 16,487 23,140 32,428 16,487 23,140 32,428
10 43,582 100,000 100,000 100,000 17,825 26,026 37,994 17,825 26,026 37,994
- ------------------------------------------------------------------------------------------------------------------------
15 74,770 100,000 100,000 100,000 22,666 41,737 76,896 22,666 41,737 76,896
20 114,574 100,000 100,000 154,691 23,420 60,579 144,571 23,420 60,579 144,571
25 165,374 100,000 100,000 268,213 16,347 85,429 255,441 16,347 85,429 255,441
30 230,211 0 127,460 454,480 0 121,391 432,838 0 121,391 432,838
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% asset management charge, a .81% 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>
AMERICAN LEGACY VARIABLE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
STANDARD NONSMOKER
$100,000 SPECIFIED AMOUNT
$3,300 ANNUAL PREMIUM USING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1 $ 3,465 $100,000 $100,000 $100,000 $ 2,119 $ 2,272 $ 2,425 $ 0 $ 0 $ 0
2 7,103 100,000 100,000 100,000 4,146 4,582 5,039 1,235 1,671 2,128
3 10,923 100,000 100,000 100,000 6,078 6,933 7,864 3,167 4,022 4,953
4 14,935 100,000 100,000 100,000 7,912 9,322 10,921 5,001 6,411 8,010
5 19,146 100,000 100,000 100,000 9,640 11,744 14,231 6,729 8,833 11,320
- ------------------------------------------------------------------------------------------------------------------------
6 23,569 100,000 100,000 100,000 11,254 14,196 17,820 9,071 12,013 15,637
7 28,212 100,000 100,000 100,000 12,748 16,674 21,720 11,292 15,219 20,264
8 33,088 100,000 100,000 100,000 14,106 19,169 25,962 13,379 18,441 25,234
9 38,207 100,000 100,000 100,000 15,317 21,673 30,587 15,317 21,673 30,587
10 43,582 100,000 100,000 100,000 16,367 24,181 35,645 16,367 24,181 35,645
- ------------------------------------------------------------------------------------------------------------------------
15 74,770 100,000 100,000 100,000 18,746 36,687 70,293 18,746 36,687 70,293
20 114,574 100,000 100,000 140,693 13,628 48,549 131,489 13,628 48,549 131,489
25 165,374 0 100,000 243,103 0 58,691 231,526 0 58,691 231,526
30 230,211 0 100,000 408,032 0 66,524 388,602 0 66,524 388,602
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% 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>
AMERICAN LEGACY VARIABLE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
STANDARD SMOKER
$100,000 SPECIFIED AMOUNT
$4,300 ANNUAL PREMIUM USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1 $ 4,515 $100,000 $100,000 $100,000 $ 2,647 $ 2,845 $ 3,043 $ 0 $ 0 $ 0
2 9,256 100,000 100,000 100,000 5,192 5,755 6,344 627 1,190 1,779
3 14,234 100,000 100,000 100,000 7,628 8,730 9,929 3,063 4,165 5,364
4 19,460 100,000 100,000 100,000 9,963 11,781 13,841 5,398 7,216 9,276
5 24,948 100,000 100,000 100,000 12,190 14,909 18,122 7,625 10,344 13,557
- ------------------------------------------------------------------------------------------------------------------------
6 30,711 100,000 100,000 100,000 14,306 18,120 22,818 10,882 14,696 19,395
7 36,761 100,000 100,000 100,000 16,315 21,426 27,998 14,032 19,144 25,716
8 43,114 100,000 100,000 100,000 18,193 24,818 33,713 17,052 23,676 32,572
9 49,785 100,000 100,000 100,000 19,938 28,304 40,046 19,938 28,304 40,046
10 56,789 100,000 100,000 100,000 21,534 31,888 47,092 21,534 31,888 47,092
- ------------------------------------------------------------------------------------------------------------------------
15 97,427 100,000 100,000 113,791 27,411 52,177 98,095 27,411 52,177 98,095
20 149,293 100,000 100,000 197,113 29,038 79,454 184,218 29,038 79,454 184,218
25 215,488 100,000 125,172 341,500 23,132 119,211 325,238 23,132 119,211 325,238
30 299,971 100,000 176,625 578,115 3,669 168,214 550,586 3,669 168,214 550,586
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% asset management charge, a .81% 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>
AMERICAN LEGACY VARIABLE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 55
STANDARD SMOKER
$100,000 SPECIFIED AMOUNT
$4,300 ANNUAL PREMIUM USING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT POLICY VALUE NET CASH SURRENDER VALUE
------------------------------- ------------------------------- -------------------------------
PREMIUMS ASSUMING ASSUMING ASSUMING
END ACCUMULATED HYPOTHETICAL GROSS HYPOTHETICAL GROSS HYPOTHETICAL GROSS
OF AT 5% ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY INTEREST ------------------------------- ------------------------------- -------------------------------
YEAR PER YEAR 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1 $ 4,515 $100,000 $100,000 $100,000 $ 2,300 $ 2,484 $ 2,670 $ 0 $ 0 $ 0
2 9,256 100,000 100,000 100,000 4,465 4,979 5,518 0 414 953
3 14,234 100,000 100,000 100,000 6,492 7,484 8,567 1,927 2,919 4,002
4 19,460 100,000 100,000 100,000 8,380 10,000 11,845 3,815 5,435 7,280
5 24,948 100,000 100,000 100,000 10,124 12,525 15,379 5,559 7,960 10,814
- ------------------------------------------------------------------------------------------------------------------------
6 30,711 100,000 100,000 100,000 11,712 15,054 19,202 8,288 11,630 15,778
7 36,761 100,000 100,000 100,000 13,126 17,574 23,344 10,844 15,291 21,062
8 43,114 100,000 100,000 100,000 14,348 20,073 27,847 13,207 18,932 26,706
9 49,785 100,000 100,000 100,000 15,355 22,540 32,762 15,355 22,540 32,762
10 56,789 100,000 100,000 100,000 16,129 24,966 38,158 16,129 24,966 38,158
- ------------------------------------------------------------------------------------------------------------------------
15 97,427 100,000 100,000 100,000 15,924 36,500 76,565 15,924 36,500 76,565
20 149,293 100,000 100,000 156,869 4,985 46,443 146,607 4,985 46,443 146,607
25 215,488 0 100,000 273,476 0 52,675 260,454 0 52,675 260,454
30 299,971 0 100,000 459,970 0 51,080 438,067 0 51,080 438,067
</TABLE>
The hypothetical rates of return shown above and elsewhere in this prospectus
are illustrative only and should not be deemed a representation of past or
future investment rates of return. Actual rates of return may be more or less
than those shown. The death benefits and cash value for a contract would be
different from those shown if the actual gross annual return averaged 0.00%,
6.00% and 12.00% over a period of years, but also fluctuated above or below
those averages for individual contract years. No representations can be made by
Lincoln Life or any of the FUNDS that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time. Values
illustrated are net of a .53% 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
DEFINITIONS FOR SEPARATE ACCOUNT J
AGE -- The age at the INSURED'S last birthday on the POLICY DATE.
ATTAINED AGE -- The age of the INSURED on the POLICY anniversary on or next
preceding any MONTHLY ANNIVERSARY DAY.
BASE MINIMUM PREMIUM -- A premium per $1,000 of SPECIFIED AMOUNT used in the
calculation of the DEATH BENEFIT GUARANTEE MONTHLY PREMIUM. The BASE MINIMUM
PREMIUM is also used in determining the CONTINGENT DEFERRED SALES CHARGE and the
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE.
BENEFICIARY -- The BENEFICIARY is designated by the OWNER in the application. If
changed, the BENEFICIARY is as shown in the latest change filed with Lincoln
Life. If no BENEFICIARY survives the INSURED, the OWNER or the OWNER'S estate
will receive the benefit.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE (CDAC) -- An administrative charge for
underwriting, issue, and initial administration of the POLICY, which is imposed
under the POLICY and deducted upon lapse or surrender of the POLICY or voluntary
reduction in the SPECIFIED AMOUNT. The CONTINGENT DEFERRED ADMINISTRATIVE CHARGE
is part of the total SURRENDER CHARGE.
CONTINGENT DEFERRED SALES CHARGE (CDSC) -- A sales charge based upon the BASE
MINIMUM PREMIUM required for the first policy year, which is imposed under the
POLICY and deducted upon lapse or surrender of the POLICY or voluntary reduction
in the SPECIFIED AMOUNT. The CONTINGENT DEFERRED SALES CHARGE is part of the
total SURRENDER CHARGE.
COST OF INSURANCE CHARGE -- A charge deducted monthly from the POLICY VALUE to
provide the life insurance protection for the insured.
DEATH BENEFIT GUARANTEE -- The guarantee that, provided the DEATH BENEFIT
GUARANTEE MONTHLY PREMIUM requirements are met, the POLICY will not lapse during
the first three policy years due to negative NET CASH SURRENDER VALUE.
DEATH BENEFIT GUARANTEE MONTHLY PREMIUM -- The minimum monthly premium which
must be paid each month or in advance during the first policy year and which
must continue to be paid in the second and third policy years if the POLICY does
not have positive NET CASH SURRENDER VALUE. Failure to pay this premium when
required will result in the POLICY lapsing at the end of the grace period.
FREE LOOK PERIOD -- The period of time in which the OWNER may cancel the POLICY
and receive a refund. The OWNER may cancel the POLICY within 10 days of receipt,
or 45 days after Part 1 of the application is signed, or within 10 days after
mailing or personal delivery of the notice of withdrawal right.
FUND -- Any of the FUNDS in which the SEPARATE ACCOUNT may invest; currently,
the American Variable Insurance Series is available.
GENERAL ACCOUNT -- The assets of Lincoln Life other than those allocated to the
SEPARATE ACCOUNT or any other separate account.
INSURED -- The person upon whose life the POLICY is issued, and who is so named
on the Policy Schedule.
INVESTMENT AMOUNT -- The portion of the POLICY VALUE invested in the SEPARATE
ACCOUNT, and equal in amount to the POLICY VALUE minus amounts invested in the
GENERAL ACCOUNT (including any outstanding loans).
LINCOLN LIFE (we, our, us) -- Lincoln National Life Insurance Co.
MATURITY DATE -- The policy anniversary following the INSURED'S 99th birthday,
if living. It is the last date insurance coverage can remain in force and the
date any remaining NET CASH SURRENDER VALUE will be payable.
MORTALITY AND EXPENSE RISK CHARGE -- A daily charge deducted from the assets of
the SEPARATE ACCOUNT to provide for the risks of excessive mortality and
expense.
MONTHLY ANNIVERSARY DAY -- The same date in each month as the POLICY DATE.
NET CASH SURRENDER VALUE -- The amount payable to the owner upon surrender of
the POLICY. It is equal to the POLICY VALUE minus any SURRENDER CHARGE, minus
any outstanding loan and plus any unearned loan interest.
NET INVESTMENT RESULTS -- The NET INVESTMENT RESULTS are the changes in the unit
values of the subaccounts from the previous valuation day to the current day.
The NET INVESTMENT RESULTS are equal to the per unit change in the market value
of each FUND'S assets, reduced by the per unit share of the asset management
charge, any miscellaneous expenses incurred by the FUND, and the mortality and
expense risk charge for the period, and increased by the per unit share of any
dividends credited to the subaccount by the FUND during the period.
OPTION DATE -- Any date the POLICY terminates under the Termination Provision.
The term OPTION DATE may also be used with certain riders.
OWNER (you, your) -- The person so designated in the application or as
subsequently changed. If a POLICY has been absolutely assigned, the assignee is
the OWNER. A collateral assignee is not the OWNER.
PLANNED PERIODIC PREMIUM -- A scheduled premium of a level amount at a fixed
interval over a specified period of time.
40
<PAGE>
POLICY -- The Flexible Premium Variable Life Insurance Policy offered by Lincoln
Life and described in this prospectus.
POLICY DATE -- The date set forth in the POLICY that is used to determine policy
years and policy months. Policy anniversaries are measured from the POLICY DATE.
The POLICY DATE is ordinarily the earlier of the date the full initial premium
is received from the OWNER or the date on which the policy is approved for
issue.
POLICY VALUE -- The sum of all values in the SEPARATE ACCOUNT and in the GENERAL
ACCOUNT at any time, irrespective of outstanding loans or SURRENDER CHARGE.
PROCEEDS -- The amount payable on the MATURITY DATE, or on surrender of the
POLICY, or after the death of any INSURED person. The PROCEEDS will be different
on each of these events.
RECORD DATE -- The RECORD DATE is the date the POLICY is recorded on the books
of Lincoln Life as an in-force policy. Ordinarily, the POLICY will be recorded
as in-force within three business days after the later of the date we receive
the last outstanding requirement or the date of underwriting approval. The
RECORD DATE controls the timing of the transfer of initial assets from the
GENERAL ACCOUNT to the various SUBACCOUNTS.
SEPARATE ACCOUNT -- The Lincoln Life Flexible Premium Variable Life Account J, a
SEPARATE ACCOUNT established by LINCOLN LIFE to receive and invest net premiums
paid under the POLICY.
SERIES -- Any of the series in which the SEPARATE ACCOUNT may invest. Currently,
the sole series is American Variable Insurance Series.
SPECIFIED AMOUNT -- The minimum death benefit payable under the POLICY so long
as the POLICY remains in force. The death benefit PROCEEDS will be reduced by
any outstanding loan and any due and unpaid charges, and increased by any
unearned loan interest.
SUBACCOUNT -- A subdivision of the SEPARATE ACCOUNT. Each SUBACCOUNT invests
exclusively in the shares of a specified FUND.
SURRENDER CHARGE -- A charge deducted from POLICY VALUE upon surrender of the
POLICY or upon a voluntary reduction in SPECIFIED AMOUNT during the first 8
policy years or during the 8 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
investment in a specified SUBACCOUNT.
UNIT VALUE -- The dollar value of a unit in a specified SUBACCOUNT on a
specified valuation date.
41
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT CASH
OF NET BOND MANAGEMENT
ASSETS COMBINED ACCOUNT ACCOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
ASSETS
Investments in American
Variable Insurance
Series at net asset value:
- Bond Fund
482 shares at $10.43 per
share
(cost-$4,880) 0.1% $ 5,026 $5,026
- ------------------------------
- Cash Management Fund
4,442 shares at $11.01 per
share
(cost-$49,415) 0.6% 48,904 $48,904
- ------------------------------
- High-Yield Bond Fund
30,955 shares at $14.66
per share
(cost-$451,807) 5.4% 453,795
- ------------------------------
- Growth-Income Fund
58,217 shares at $36.42
per share
(cost-$2,101,428) 25.4% 2,120,275
- ------------------------------
- Growth Fund
82,423 shares at $44.98
per share
(cost-$3,522,153) 44.3% 3,707,401
- ------------------------------
- U.S. Government/AAA-Rated
Securities Fund
3,550 shares at $11.10 per
share
(cost-$38,994) 0.5% 39,400
- ------------------------------
- International Fund
93,303 shares at $14.48
per share
(cost-$1,488,349) 16.2% 1,351,025
- ------------------------------
- Asset Allocation Fund
38,627 shares at $15.32
per share
(cost-$568,250) 7.1% 591,768
- ------------------------------
- Global Growth Fund
3,619 shares at $10.78 per
share
(cost-$39,215) 0.4% 39,008
- ------------------------------ ------- ----------- -------- -----------
TOTAL ASSETS (Cost-$8,264,491) 100.0% 8,356,602 5,026 48,904
- ------------------------------
LIABILITY--
Payable to Lincoln National
Life Insurance Company 0.0% 185 -- 1
- ------------------------------ ------- ----------- -------- -----------
NET ASSETS 100.0% $ 8,356,417 $5,026 $48,903
- ------------------------------ ------- ----------- -------- -----------
------- ----------- -------- -----------
UNITS OUTSTANDING 4,270 43,884
- ------------------------------ -------- -----------
-------- -----------
NET ASSET VALUE PER UNIT $1.177 $ 1.114
- ------------------------------ -------- -----------
-------- -----------
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
HIGH-YIELD GROWTH- AAA-RATED ASSET GLOBAL
BOND INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in American
Variable Insurance
Series at net asset value:
- Bond Fund
482 shares at $10.43 per
share
(cost-$4,880)
- ------------------------------
- Cash Management Fund
4,442 shares at $11.01 per
share
(cost-$49,415)
- ------------------------------
- High-Yield Bond Fund
30,955 shares at $14.66
per share
(cost-$451,807) $453,795
- ------------------------------
- Growth-Income Fund
58,217 shares at $36.42
per share
(cost-$2,101,428) $ 2,120,275
- ------------------------------
- Growth Fund
82,423 shares at $44.98
per share
(cost-$3,522,153) $ 3,707,401
- ------------------------------
- U.S. Government/AAA-Rated
Securities Fund
3,550 shares at $11.10 per
share
(cost-$38,994) $39,400
- ------------------------------
- International Fund
93,303 shares at $14.48
per share
(cost-$1,488,349) $1,351,025
- ------------------------------
- Asset Allocation Fund
38,627 shares at $15.32
per share
(cost-$568,250) $ 591,768
- ------------------------------
- Global Growth Fund
3,619 shares at $10.78 per
share
(cost-$39,215) $ 39,008
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
TOTAL ASSETS (Cost-$8,264,491) 453,795 2,120,275 3,707,401 39,400 1,351,025 591,768 39,008
- ------------------------------
LIABILITY--
Payable to Lincoln National
Life Insurance Company 10 47 82 1 30 13 1
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
NET ASSETS $453,785 $ 2,120,228 $ 3,707,319 $39,399 $1,350,995 $ 591,755 $ 39,007
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
----------- ----------- ----------- ------------ -------------- ---------- ---------
UNITS OUTSTANDING 337,419 1,279,452 2,395,047 33,911 1,014,099 385,238 36,122
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
----------- ----------- ----------- ------------ -------------- ---------- ---------
NET ASSET VALUE PER UNIT $ 1.345 $ 1.657 $ 1.548 $ 1.162 $ 1.332 $ 1.536 $ 1.080
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
----------- ----------- ----------- ------------ -------------- ---------- ---------
</TABLE>
43
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
CASH
BOND MANAGEMENT
COMBINED ACCOUNT ACCOUNT
<S> <C> <C> <C>
- ------------------------------------------------------------------
PERIOD FROM JUNE 21, 1995 TO DECEMBER 31, 1995
Net investment income:
- Dividends from investment
income $ 1,804 -- $ 151
- ------------------------------
- Dividends from net
realized gain on
investments 10,582 -- --
- ------------------------------
- Mortality and expense risk
charge (317) -- (14)
- ------------------------------ ---------- -------- -----------
NET INVESTMENT INCOME 12,069 137
- ------------------------------
Net realized and unrealized
gain (loss) on
investments:
- Net realized gain (loss)
on investments 171 -- (1)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments (6,961) -- (53)
- ------------------------------ ---------- -------- -----------
NET GAIN (LOSS) ON INVESTMENTS (6,790) -- (54)
- ------------------------------ ---------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,279 -- $ 83
- ------------------------------ ---------- -------- -----------
---------- -------- -----------
YEAR ENDED DECEMBER 31, 1996
Net investment income:
- Dividends from investment
income $ 30,673 $103 $1,071
- ------------------------------
- Dividends from net
realized gain on
investments 162,703 -- --
- ------------------------------
- Mortality and expense risk
charge (10,978) (13) (143)
- ------------------------------ ---------- -------- -----------
NET INVESTMENT INCOME 182,398 90 928
- ------------------------------
Net realized and unrealized
gain (loss) on
investments:
- Net realized gain (loss)
on investments 4,134 12 (25)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments 34,519 80 (163)
- ------------------------------ ---------- -------- -----------
NET GAIN (LOSS) ON INVESTMENTS 38,653 92 (188)
- ------------------------------ ---------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 221,051 $182 $ 740
- ------------------------------ ---------- -------- -----------
---------- -------- -----------
YEAR ENDED DECEMBER 31, 1997
Net investment income:
- Dividends from investment
income $ 111,424 $255 $2,829
- ------------------------------
- Dividends from net
realized gain on
investments 808,228 57 --
- ------------------------------
- Mortality and expense risk
charge (44,707) (33) (382)
- ------------------------------ ---------- -------- -----------
NET INVESTMENT INCOME 874,945 279 2,447
- ------------------------------
Net realized and unrealized
gain (loss) on
investments:
- Net realized gain (loss)
on investments 78,307 25 (140)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments 64,553 66 (295)
- ------------------------------ ---------- -------- -----------
NET GAIN (LOSS) ON INVESTMENTS 142,860 91 (435)
- ------------------------------ ---------- -------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $1,017,805 $370 $2,012
- ------------------------------ ---------- -------- -----------
---------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
<TABLE>
<CAPTION>
U.S.
HIGH- GOVERNMENT/
YIELD GROWTH- AAA-RATED ASSET GLOBAL
BOND INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD FROM JUNE 21, 1995 TO DECEMBER 31, 1995
Net investment income:
- Dividends from investment
income $ 418 $ 424 $ 244 $ 117 $ 146 $ 304 --
- ------------------------------
- Dividends from net
realized gain on
investments -- 2,477 6,801 -- 392 912 --
- ------------------------------
- Mortality and expense risk
charge (22) (79) (124) (9) (30) (39) --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET INVESTMENT INCOME 396 2,822 6,921 108 508 1,177 --
- ------------------------------
Net realized and unrealized
gain (loss) on
investments:
- Net realized gain (loss)
on investments 4 95 (19) -- 10 82 --
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments (12) (693) (6,040) 8 (154) (17) --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET GAIN (LOSS) ON INVESTMENTS (8) (598) (6,059) 8 (144) 65 --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 388 $ 2,224 $ 862 $ 116 $ 364 $ 1,242 --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
--------- ---------- ---------- ------ -------------- ----------- --------
YEAR ENDED DECEMBER 31, 1996
Net investment income:
- Dividends from investment
income $ 6,867 $ 7,831 $ 4,190 $ 602 $ 3,681 $ 6,328 --
- ------------------------------
- Dividends from net
realized gain on
investments -- 44,833 85,248 -- 14,791 17,831 --
- ------------------------------
- Mortality and expense risk
charge (539) (2,515) (5,180) (55) (1,403) (1,130) --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET INVESTMENT INCOME 6,328 50,149 84,258 547 17,069 23,029 --
- ------------------------------
Net realized and unrealized
gain (loss) on
investments:
- Net realized gain (loss)
on investments 342 2,103 (999) (26) 2,651 76 --
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments 2,422 3,433 18,767 (202) 11,958 (1,776) --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET GAIN (LOSS) ON INVESTMENTS 2,764 5,536 17,768 (228) 14,609 (1,700) --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 9,092 $ 55,685 $ 102,026 $ 319 $ 31,678 $21,329 --
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
--------- ---------- ---------- ------ -------------- ----------- --------
YEAR ENDED DECEMBER 31, 1997
Net investment income:
- Dividends from investment
income $ 26,922 $ 27,752 $ 15,653 $2,147 $ 19,717 $16,009 $ 140
- ------------------------------
- Dividends from net
realized gain on
investments 4,667 197,434 438,839 -- 135,707 31,449 75
- ------------------------------
- Mortality and expense risk
charge (2,221) (10,450) (20,972) (236) (6,865) (3,468) (80)
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET INVESTMENT INCOME 29,368 214,736 433,520 1,911 148,559 43,990 135
- ------------------------------
Net realized and unrealized
gain (loss) on
investments:
- Net realized gain (loss)
on investments 606 22,496 49,915 16 2,188 3,216 (15)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments (422) 16,107 172,521 600 (149,128) 25,311 (207)
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET GAIN (LOSS) ON INVESTMENTS 184 38,603 222,436 616 (146,940) 28,527 (222)
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 29,552 $ 253,339 $ 655,956 $2,527 $ 1,619 $72,517 $ (87)
- ------------------------------ --------- ---------- ---------- ------ -------------- ----------- --------
--------- ---------- ---------- ------ -------------- ----------- --------
</TABLE>
45
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CASH
BOND MANAGEMENT
COMBINED ACCOUNT ACCOUNT
<S> <C> <C> <C>
- ------------------------------------------------------------------
Changes from operations:
- Net investment income $ 12,069 -- $ 137
- ------------------------------
- Net realized gain (loss)
on investments 171 -- (1)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments (6,961) -- (53)
- ------------------------------ ---------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 5,279 -- 83
- ------------------------------
Net increase from unit
transactions 223,844 -- 4,896
- ------------------------------ ---------- -------- -----------
TOTAL INCREASE IN NET ASSETS
AND NET ASSETS AT DECEMBER
31, 1995 229,123 -- 4,979
- ------------------------------
Changes from operations:
- Net investment income 182,398 $ 90 928
- ------------------------------
- Net realized gain (loss)
on investments 4,134 12 (25)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments 34,519 80 (163)
- ------------------------------ ---------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 221,051 182 740
- ------------------------------
Net increase from unit
transactions 2,233,949 2,932 21,008
- ------------------------------ ---------- -------- -----------
TOTAL INCREASE IN NET ASSETS 2,455,000 3,114 21,748
- ------------------------------ ---------- -------- -----------
NET ASSETS AT DECEMBER 31,
1996 2,684,123 3,114 26,727
- ------------------------------
Changes from operations:
- Net investment income 874,945 279 2,447
- ------------------------------
- Net realized gain (loss)
on investments 78,307 25 (140)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments 64,553 66 (295)
- ------------------------------ ---------- -------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 1,017,805 370 2,012
- ------------------------------
Net increase from unit
transactions 4,654,489 1,542 20,164
- ------------------------------ ---------- -------- -----------
TOTAL INCREASE IN NET ASSETS 5,672,294 1,912 22,176
- ------------------------------ ---------- -------- -----------
NET ASSETS AT DECEMBER 31,
1997 $8,356,417 $5,026 $48,903
- ------------------------------ ---------- -------- -----------
---------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
HIGH-YIELD GROWTH- AAA-RATED ASSET GLOBAL
BOND INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Changes from operations:
- Net investment income $ 396 $ 2,822 $ 6,921 $ 108 $ 508 $ 1,177 --
- ------------------------------
- Net realized gain (loss)
on investments 4 95 (19) -- 10 82 --
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments (12) (693) (6,040) 8 (154) (17) --
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 388 2,224 862 116 364 1,242 --
- ------------------------------
Net increase from unit
transactions 12,990 61,888 94,102 2,434 21,213 26,321 --
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
TOTAL INCREASE IN NET ASSETS
AND NET ASSETS AT DECEMBER
31, 1995 13,378 64,112 94,964 2,550 21,577 27,563 --
- ------------------------------
Changes from operations:
- Net investment income 6,328 50,149 84,258 547 17,069 23,029 --
- ------------------------------
- Net realized gain (loss)
on investments 342 2,103 (999) (26) 2,651 76 --
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments 2,422 3,433 18,767 (202) 11,958 (1,776) --
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 9,092 55,685 102,026 319 31,678 21,329 --
- ------------------------------
Net increase from unit
transactions 115,915 510,366 1,012,680 10,159 329,451 231,438 --
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
TOTAL INCREASE IN NET ASSETS 125,007 566,051 1,114,706 10,478 361,129 252,767 --
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
NET ASSETS AT DECEMBER 31,
1996 138,385 630,163 1,209,670 13,028 382,706 280,330 --
- ------------------------------
Changes from operations:
- Net investment income 29,368 214,736 433,520 1,911 148,559 43,990 $ 135
- ------------------------------
- Net realized gain (loss)
on investments 606 22,496 49,915 16 2,188 3,216 (15)
- ------------------------------
- Net change in unrealized
appreciation or
depreciation on
investments (422) 16,107 172,521 600 (149,128) 25,311 (207)
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 29,552 253,339 655,956 2,527 1,619 72,517 (87)
- ------------------------------
Net increase from unit
transactions 285,848 1,236,726 1,841,693 23,844 966,670 238,908 39,094
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
TOTAL INCREASE IN NET ASSETS 315,400 1,490,065 2,497,649 26,371 968,289 311,425 39,007
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
NET ASSETS AT DECEMBER 31,
1997 $453,785 $ 2,120,228 $ 3,707,319 $39,399 $1,350,995 $ 591,755 $ 39,007
- ------------------------------ ----------- ----------- ----------- ------------ -------------- ---------- ---------
----------- ----------- ----------- ------------ -------------- ---------- ---------
</TABLE>
47
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
THE SEPARATE ACCOUNT: Lincoln Life Flexible Premium Variable Life Account J
(Separate Account) was established as a segregated investment account of Lincoln
National Life Insurance Company (Lincoln Life) on March 9, 1994. The Separate
Account was registered on May 2, 1994, under the Investment Company Act of 1940,
as amended, as a unit investment trust, and commenced investment activity on
June 21, 1995.
INVESTMENTS: The Separate Account invests in the American Variable Insurance
Series (AVIS) which consists of nine funds: Bond Fund, Cash Management Fund,
High-Yield Bond Fund, Growth-Income Fund, Growth Fund, U.S. Government/AAA-Rated
Securities Fund, International Fund, Asset Allocation Fund and Global Growth
Fund (Funds). Investments in the Funds are stated at the closing net asset value
per share on December 31, 1997. AVIS is registered as an open-ended management
investment company.
Investment transactions are accounted for on a trade-date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by the average-cost method.
DIVIDENDS: Dividends paid to the Separate Account are automatically reinvested
in shares of the Funds on the payable date.
FEDERAL INCOME TAXES: Operations of the Separate Account form a part of and are
taxed with operations of Lincoln Life, which is taxed as a "life insurance
company" under the Internal Revenue Code. Using current law, no federal income
taxes are payable with respect to the Separate Account's net investment income
and the net realized gain on investments.
2. MORTALITY AND EXPENSE RISK CHARGE AND OTHER TRANSACTIONS WITH AFFILIATE
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 5.75%
of the premium. Amounts retained during 1997, 1996 and 1995 by Lincoln Life for
such charges were $193,178, $22,989 and $7,624, respectively.
SEPARATE ACCOUNT CHARGES: Amounts are charged daily to the Separate Account by
Lincoln Life for a mortality and expense risk charge at a current annual rate of
.81% of the average daily net asset value of the Separate Account. These charges
are made in return for Lincoln Life's assumption of risks associated with
adverse mortality experience or excess administrative expenses in connection
with policies issued.
OTHER CHARGES: Other charges, which are paid to Lincoln Life by redeeming
Separate Account units, are for monthly administrative charges, the cost of
insurance, transfer and withdrawal charges, and contingent surrender charges.
These other charges for 1997, 1996 and 1995 amounted to $600,215, $253,445 and
$12,332, respectively.
The monthly administrative charge amounts to $7.50 for each policy in force and
is intended to compensate Lincoln Life for continuing administration of the
policies, premium billings, overhead expenses, and other miscellaneous expenses.
Lincoln Life assumes the responsibility for providing the insurance benefits
included in the policy. The cost of insurance is determined each month based
upon the applicable insurance rate and the current death benefit. The cost of
insurance can vary from month to month since the determination of both the
insurance rate and the current death benefit depends upon a number of variables
as described in the Separate Account's prospectus.
The transfer charge amounts to $10 each time a policyowner tranfers funds from
one account to another; however, the transfer charge is currently being waived
for all transfers. The withdrawal charge is equal to 3% of the amount withdrawn
for the first 10 years of the policy; and is equal to $10 thereafter.
Surrender charges are deducted if the policy is surrendered during the first
eight policy years. Surrender charges in the first five years are approximately
132% of the required base minimum annual premium. Surrender charges in years six
through eight decrease by policy year to 0% in the ninth year. Surrender charges
are assessed separately on the initial specified policy amount and subsequent
increases to the specified policy amount. The amount of the surrender charge
assessed on increases to the specified policy amount would be equal to the
surrender charge that would apply to a new policy.
48
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
49
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
NOTES TO FINANCIAL STATEMENTS CONTINUED
3. NET ASSETS
Net Assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
HIGH-
CASH YIELD
BOND MANAGEMENT BOND
COMBINED ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Unit transactions $7,112,282 $4,474 $46,068 $ 414,753
- ---------------------------------------
Accumulated net investment income 1,069,412 369 3,512 36,092
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 82,612 37 (166) 952
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 92,111 146 (511) 1,988
- --------------------------------------- ---------- -------- ----------- ----------
$8,356,417 $5,026 $48,903 $ 453,785
---------- -------- ----------- ----------
---------- -------- ----------- ----------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
GROWTH- AAA-RATED ASSET GLOBAL
INCOME GROWTH SECURITIES INTERNATIONAL ALLOCATION GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Unit transactions $ 1,808,980 $ 2,948,475 $36,437 $1,317,334 $ 496,667 $ 39,094
- ---------------------------------------
Accumulated net investment income 267,707 524,699 2,566 166,136 68,196 135
- ---------------------------------------
Accumulated net realized gain (loss) on
investments 24,694 48,897 (10) 4,849 3,374 (15)
- ---------------------------------------
Net unrealized appreciation
(depreciation) on investments 18,847 185,248 406 (137,324) 23,518 (207)
- --------------------------------------- ------------ ------------ ------------ -------------- ---------- ---------
$ 2,120,228 $ 3,707,319 $39,399 $1,350,995 $ 591,755 $ 39,007
------------ ------------ ------------ -------------- ---------- ---------
------------ ------------ ------------ -------------- ---------- ---------
</TABLE>
51
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
NOTES TO FINANCIAL STATEMENTS CONTINUED
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------
UNITS AMOUNT UNITS AMOUNT
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
BOND ACCOUNT:
Purchases 2,190 $ 2,443 3,413 $ 3,481
Redemptions (810) (901) (523) (549)
- --------------------------------------- --------- ---------- --------- ----------
1,380 1,542 2,890 2,932
CASH MANAGEMENT ACCOUNT:
Purchases 58,163 63,469 33,602 35,092
Redemptions (39,297) (43,305) (13,442) (14,084)
- --------------------------------------- --------- ---------- --------- ----------
18,866 20,164 20,160 21,008
HIGH-YIELD BOND ACCOUNT:
Purchases 279,940 357,911 142,772 162,540
Redemptions (57,255) (72,063) (40,494) (46,625)
- --------------------------------------- --------- ---------- --------- ----------
222,685 285,848 102,278 115,915
GROWTH-INCOME ACCOUNT:
Purchases 1,196,776 1,844,806 594,069 726,276
Redemptions (391,991) (608,080) (176,278) (215,910)
- --------------------------------------- --------- ---------- --------- ----------
804,785 1,236,726 417,791 510,366
GROWTH ACCOUNT:
Purchases 2,019,319 2,723,358 1,632,065 1,785,703
Redemptions (632,818) (881,665) (712,555) (773,023)
- --------------------------------------- --------- ---------- --------- ----------
1,386,501 1,841,693 919,510 1,012,680
U.S. GOVERNMENT/AAA-RATED SECURITIES ACCOUNT:
Purchases 32,785 35,983 17,118 18,085
Redemptions (10,936) (12,139) (7,471) (7,926)
- --------------------------------------- --------- ---------- --------- ----------
21,849 23,844 9,647 10,159
INTERNATIONAL ACCOUNT:
Purchases 855,616 1,174,128 452,096 513,755
Redemptions (152,403) (207,458) (161,647) (184,304)
- --------------------------------------- --------- ---------- --------- ----------
703,213 966,670 290,449 329,451
ASSET ALLOCATION ACCOUNT:
Purchases 243,902 349,556 230,344 275,859
Redemptions (76,783) (110,648) (36,858) (44,421)
- --------------------------------------- --------- ---------- --------- ----------
167,119 238,908 193,486 231,438
GLOBAL GROWTH ACCOUNT:
Purchases 38,276 41,417 -- --
Redemptions (2,154) (2,323) -- --
- --------------------------------------- --------- ---------- --------- ----------
36,122 39,094 -- --
---------- ----------
NET INCREASE FROM UNIT TRANSACTIONS $4,654,489 $2,233,949
- --------------------------------------- ---------- ----------
---------- ----------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1995
TO DECEMBER 31,
1995
------------------
UNITS AMOUNT
<S> <C> <C>
- -----------------------------------------------------------
BOND ACCOUNT:
Purchases -- --
Redemptions -- --
- --------------------------------------- -------- --------
-- --
CASH MANAGEMENT ACCOUNT:
Purchases 5,745 $ 5,799
Redemptions (887) (903)
- --------------------------------------- -------- --------
4,858 4,896
HIGH-YIELD BOND ACCOUNT:
Purchases 13,754 14,355
Redemptions (1,298) (1,365)
- --------------------------------------- -------- --------
12,456 12,990
GROWTH-INCOME ACCOUNT:
Purchases 73,067 79,545
Redemptions (16,191) (17,657)
- --------------------------------------- -------- --------
56,876 61,888
GROWTH ACCOUNT:
Purchases 108,822 115,001
Redemptions (19,786) (20,899)
- --------------------------------------- -------- --------
89,036 94,102
U.S. GOVERNMENT/AAA-RATED SECURITIES ACCOUNT:
Purchases 2,495 2,516
Redemptions (80) (82)
- --------------------------------------- -------- --------
2,415 2,434
INTERNATIONAL ACCOUNT:
Purchases 22,942 23,828
Redemptions (2,505) (2,615)
- --------------------------------------- -------- --------
20,437 21,213
ASSET ALLOCATION ACCOUNT:
Purchases 38,363 41,105
Redemptions (13,730) (14,784)
- --------------------------------------- -------- --------
24,633 26,321
GLOBAL GROWTH ACCOUNT:
Purchases -- --
Redemptions -- --
- --------------------------------------- -------- --------
-- --
--------
NET INCREASE FROM UNIT TRANSACTIONS $223,844
- --------------------------------------- --------
--------
</TABLE>
53
<PAGE>
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
NOTES TO FINANCIAL STATEMENTS CONTINUED
5. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1997.
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE COST OF PROCEEDS FROM
PURCHASES SALES
<S> <C> <C>
- ----------------------------------------------------------------------------
Bond Account $ 2,560 $ 741
- ---------------------------------------
Cash Management Account 63,040 40,447
- ---------------------------------------
High-Yield Bond Account 343,412 28,279
- ---------------------------------------
Growth-Income Account 1,697,144 246,052
- ---------------------------------------
Growth Account 2,667,156 392,677
- ---------------------------------------
U.S. Government/AAA-Rated Securities
Account 32,475 6,728
- ---------------------------------------
International Account 1,151,719 36,708
- ---------------------------------------
Asset Allocation Account 326,688 43,964
- ---------------------------------------
Global Growth Account 41,003 1,773
- --------------------------------------- ------------------ --------------
$6,325,197 $797,369
------------------ --------------
------------------ --------------
</TABLE>
6. NEW INVESTMENT FUND
Effective January 1, 1996, the AVIS Bond Fund became available as an investment
option for Separate Account contract owners. Effective April 25, 1997, the AVIS
Global Growth Fund became available as an investment option for Separate Account
contract owners.
7. DAILY VALUATION CALCULATIONS
Effective October 1996, the daily unit value calculation process was transferred
from Lincoln Life to the Delaware Group, an affiliate of Lincoln Life. Costs
associated with the calculation of the unit value are paid by Lincoln Life.
54
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of Lincoln National Life Insurance Company
and
Policyowners of Lincoln National Flexible Premium Variable Life
Account J
We have audited the accompanying statement of net assets of Lincoln
National Flexible Premium Variable Life Account J (Separate Account)
as of December 31, 1997, and the related statements of operations and
changes in net assets for the two years then ended and the period
from June 21, 1995 to December 31, 1995. These financial statements
are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the
custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lincoln
National Flexible Premium Variable Life Account J at December 31,
1997, and the results of its operations and the changes in its net
assets for the two years then ended and the period from June 21, 1995
to December 31, 1995, in conformity with generally accepted
accounting principles.
[SIG]
Fort Wayne, Indiana
April 8, 1998
55
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------- ---------
(IN MILLIONS)
--------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $18,560.7 $19,389.6
- ------------------------------------------------------------------------------------
Preferred stocks 257.3 239.7
- ------------------------------------------------------------------------------------
Unaffiliated common stocks 436.0 358.3
- ------------------------------------------------------------------------------------
Affiliated common stocks 412.1 241.5
- ------------------------------------------------------------------------------------
Mortgage loans on real estate 3,012.7 2,976.7
- ------------------------------------------------------------------------------------
Real estate 584.4 621.3
- ------------------------------------------------------------------------------------
Policy loans 660.5 626.5
- ------------------------------------------------------------------------------------
Other investments 335.5 282.7
- ------------------------------------------------------------------------------------
Cash and short-term investments 2,133.0 759.2
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and investments 26,392.2 25,495.5
- ------------------------------------------------------------------------------------
Premiums and fees in course of collection 42.4 60.9
- ------------------------------------------------------------------------------------
Accrued investment income 343.5 343.6
- ------------------------------------------------------------------------------------
Funds withheld by ceding companies 44.1 25.8
- ------------------------------------------------------------------------------------
Other admitted assets 216.0 355.7
- ------------------------------------------------------------------------------------
Separate account assets 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total admitted assets $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 5,872.9 $ 5,954.0
- ------------------------------------------------------------------------------------
Other policyholder funds 16,360.1 17,262.4
- ------------------------------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 878.2 250.2
- ------------------------------------------------------------------------------------
Funds held under reinsurance treaties 720.4 564.6
- ------------------------------------------------------------------------------------
Asset valuation reserve 450.0 375.5
- ------------------------------------------------------------------------------------
Interest maintenance reserve 135.4 76.7
- ------------------------------------------------------------------------------------
Other liabilities 413.9 490.9
- ------------------------------------------------------------------------------------
Federal income taxes 0.8 4.3
- ------------------------------------------------------------------------------------
Net transfers due from separate accounts (761.9) (659.7)
- ------------------------------------------------------------------------------------
Separate account liabilities 31,330.9 23,735.1
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 55,400.7 48,054.0
- ------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million (owned by Lincoln National
Corporation) 25.0 25.0
- ------------------------------------------------------------------------------------
Paid-in surplus 1,821.8 883.4
- ------------------------------------------------------------------------------------
Unassigned surplus 1,121.6 1,054.2
- ------------------------------------------------------------------------------------ --------- ---------
Total capital and surplus 2,968.4 1,962.6
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $58,369.1 $50,016.6
- ------------------------------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF INCOME -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 5,589.0 $ 7,268.5 $ 4,899.1
- -----------------------------------------------------------------------------
Net investment income 1,847.1 1,756.3 1,772.2
- -----------------------------------------------------------------------------
Amortization of interest maintenance reserve 41.5 27.2 34.0
- -----------------------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 99.7 90.9 98.3
- -----------------------------------------------------------------------------
Expense charges on deposit funds 119.3 100.7 83.2
- -----------------------------------------------------------------------------
Other income 21.3 16.8 14.5
- ----------------------------------------------------------------------------- --------- --------- ---------
Total revenues 7,717.9 9,260.4 6,901.3
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 4,522.1 5,989.9 4,184.0
- -----------------------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 2,728.4 2,878.5 2,345.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Total benefits and expenses 7,250.5 8,868.4 6,529.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before dividends to policyholders, income taxes and net
realized gain on investments 467.4 392.0 371.6
- -----------------------------------------------------------------------------
Dividends to policyholders 27.5 27.3 27.3
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before federal income taxes and net realized gain on
investments 439.9 364.7 344.3
- -----------------------------------------------------------------------------
Federal income taxes 78.3 83.6 103.7
- ----------------------------------------------------------------------------- --------- --------- ---------
Gain from operations before net realized gain on investments 361.6 281.1 240.6
- -----------------------------------------------------------------------------
Net realized gain on investments, net of income tax expense and excluding net
transfers to the interest maintenance reserve 31.3 53.3 43.9
- ----------------------------------------------------------------------------- --------- --------- ---------
Net income $ 392.9 $ 334.4 $ 284.5
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
S-2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 1,962.6 $ 1,732.9 $ 1,679.6
- -----------------------------------------------------------------------------
Correction of prior years' asset valuation reserve (Note 15) (37.6) -- --
- -----------------------------------------------------------------------------
Correction of prior year's admitted assets (Note 15) (57.0) -- --
- ----------------------------------------------------------------------------- --------- --------- ---------
1,868.0 1,732.9 1,679.6
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income 392.9 334.4 284.5
- -----------------------------------------------------------------------------
Difference in cost and admitted investment amounts (36.2) 38.6 143.2
- -----------------------------------------------------------------------------
Nonadmitted assets (0.4) (3.0) 2.9
- -----------------------------------------------------------------------------
Regulatory liability for reinsurance (3.9) 0.6 (2.0)
- -----------------------------------------------------------------------------
Life policy reserve valuation basis (0.9) (0.4) 2.9
- -----------------------------------------------------------------------------
Asset valuation reserve (36.9) (105.5) (112.5)
- -----------------------------------------------------------------------------
Mortgage loan, real estate and other investment reserves -- -- 2.2
- -----------------------------------------------------------------------------
Paid-in surplus, including contribution of common stock of affiliated
company in 1997 938.4 100.0 15.1
- -----------------------------------------------------------------------------
Separate account receivable due to change in valuation (2.6) -- 27.0
- -----------------------------------------------------------------------------
Dividends to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------------- --------- --------- ---------
Capital and surplus at end of year $ 2,968.4 $ 1,962.6 $ 1,732.9
- ----------------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes. S-3
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 6,364.3 $ 8,059.4 $ 5,430.9
- -----------------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (649.2) (767.5) (383.6)
- -----------------------------------------------------------------------
Investment income received 1,798.8 1,700.6 1,713.2
- -----------------------------------------------------------------------
Benefits paid (5,345.2) (4,050.4) (3,239.6)
- -----------------------------------------------------------------------
Insurance expenses paid (2,867.5) (2,972.2) (2,513.5)
- -----------------------------------------------------------------------
Federal income taxes recovered (paid) (87.0) (72.3) 38.4
- -----------------------------------------------------------------------
Dividends to policyholders (28.4) (27.7) (16.5)
- -----------------------------------------------------------------------
Other income received and expenses paid, net (42.7) 6.3 14.4
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) operating activities (856.9) 1,876.2 1,043.7
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 12,142.6 12,542.0 13,183.9
- -----------------------------------------------------------------------
Purchase of investments (10,345.0) (14,175.4) (14,049.6)
- -----------------------------------------------------------------------
Other sources (uses) 563.1 (266.5) (64.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) investing activities 2,360.7 (1,899.9) (929.7)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in -- 100.0 15.1
- -----------------------------------------------------------------------
Proceeds from borrowings from shareholder 120.0 100.0 63.0
- -----------------------------------------------------------------------
Repayment of borrowings from shareholder (100.0) (63.0) (63.0)
- -----------------------------------------------------------------------
Dividends paid to shareholder (150.0) (135.0) (310.0)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (130.0) 2.0 (294.9)
- ----------------------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and short-term investments 1,373.8 (21.7) (180.9)
- -----------------------------------------------------------------------
Cash and short-term investments at beginning of year 759.2 780.9 961.8
- ----------------------------------------------------------------------- ---------- ---------- ----------
Cash and short-term investments at end of year $ 2,133.0 $ 759.2 $ 780.9
- ----------------------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
S-4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company ("Company") is a wholly owned
subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1997, the Company owns 100% of the outstanding
common stock of four insurance company subsidiaries: First Penn-Pacific Life
Insurance Company ("First Penn"), Lincoln National Health & Casualty
Insurance Company ("LNH&C"), Lincoln National Reassurance Company ("LNRAC")
and Lincoln Life & Annuity Company of New York ("LLANY").
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Department"), which practices differ from generally accepted
accounting principles ("GAAP"). The more significant variances from GAAP are
as follows:
INVESTMENTS
Bonds are reported at cost or amortized cost or fair value based on their
National Association of Insurance Commissioners ("NAIC") rating. For GAAP,
the Company's bonds are classified as available-for-sale and, accordingly,
are reported at fair value with changes in the fair values reported directly
in shareholder's equity after adjustments for related amortization of
deferred acquisition costs, additional policyholder commitments and deferred
income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis.
Changes between cost and admitted asset investment amounts are credited or
charged directly to unassigned surplus rather than to a separate surplus
account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the Interest Maintenance Reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by an NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period that the asset giving rise to the gain or loss is sold and valuation
allowances are provided when there has been a decline in value deemed other
than temporary, in which case, the provision for such declines are charged
to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP. Under statutory accounting principles, the Company's
subsidiaries are carried at their statutory basis net equity and presented
in the balance sheet as affiliated common stocks.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For
universal life insurance, annuity and other investment-type products,
deferred
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
policy acquisition costs, to the extent recoverable from future gross
profits, are amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts are reported as premium revenues;
whereas, under GAAP, such premiums and deposits are treated as liabilities
and policy charges represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Department to assume such business. Changes to those
amounts are credited or charged directly to unassigned surplus. Under GAAP,
an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting whereas such contracts would be accounted
for using deposit accounting under GAAP.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
A reconciliation of the Company's net income and capital and surplus
determined on a statutory accounting basis with amounts determined in
accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME
-----------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1995
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory basis $ 2,968.4 $ 1,962.6 $ 392.9 $ 334.4 $ 284.5
- ---------------------------------------------
GAAP adjustments:
Deferred policy acquisition costs and
present value of future profits 958.3 1,119.1 (98.9) 66.7 (63.0)
------------------------------------------
Policy and contract reserves (1,672.9) (1,405.3) (48.6) (57.1) (55.3)
------------------------------------------
Interest maintenance reserve 135.4 76.7 58.7 (39.7) 60.9
------------------------------------------
Deferred income taxes (13.0) (27.4) 70.3 1.8 38.3
------------------------------------------
Policyholders' share of earnings and
surplus on participating business (79.8) (81.9) 5.3 (.3) .2
------------------------------------------
Asset valuation reserve 450.0 375.5 -- -- --
------------------------------------------
Net realized gain (loss) on investments (91.5) (72.0) (20.4) 78.7 30.0
------------------------------------------
Unrealized gain on investments 1,245.5 825.2 -- -- --
------------------------------------------
Nonadmitted assets, including nonadmitted
investments 61.0 (7.1) -- -- --
------------------------------------------
Investments in subsidiary companies 188.8 156.6 (80.5) 29.9 34.3
------------------------------------------
Other, net (162.5) (99.0) (35.0) (82.6) (7.3)
------------------------------------------ --------- --------- --------- --------- ---------
Net increase (decrease) 1,019.3 860.4 (149.1) (2.6) 38.1
- --------------------------------------------- --------- --------- --------- --------- ---------
Amounts on a GAAP basis $ 3,987.7 $ 2,823.0 $ 243.8 $ 331.8 $ 322.6
- --------------------------------------------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
The discount or premium on bonds is amortized using the interest method. For
mortgage-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic
life of the securities. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to reflect
actual payments to date and anticipated future payments. The net investment
in the securities is adjusted to the amount that would have existed had the
new effective yield been applied since the acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items and are amortized over the
remaining lives of the hedged items as adjustments to investment income or
benefits from the hedged items through the IMR. Any unamortized gains or
losses are recognized when the underlying hedged items are sold. The
premiums paid for interest rate caps and swaptions are deferred and
amoritized to net investment income on a straight-line basis over the term
of the respective derivative.
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity
U.S. Government obligations, increased liabilities associated with certain
reinsurance agreements and foreign exchange risk. Moreover, the derivatives
used are designated as a hedge and reduce the indicated risk by having a
high correlation between changes in the value of the derivatives and the
items being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met or if the hedged items have
been sold, terminated or matured, the change in value of the derivatives is
included in net income.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments. Real estate is reported at depreciated cost.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds, mortgage loans and common and preferred stocks are
credited or charged directly in unassigned surplus.
LOANED SECURITIES
Securities loaned are treated as collateralized financing transactions and a
liability is recorded equal to the amount to be paid to reacquire the
security. It is the Company's policy to take possession of securities with a
market value at least equal to the value of the securities loaned.
Securities loaned are recorded at amortized cost as long as the value of the
related collateral is sufficient. The Company's agreements with third
parties generally contain contractual provisions to allow for additional
collateral to be obtained when necessary. The Company values collateral
daily and obtains additional collateral when deemed appropriate.
GOODWILL
Goodwill, which represents the excess of the ceding commission over
statutory-basis net assets of business purchased under an assumption
reinsurance agreement, is amortized on a straight-line basis over ten years.
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Department. The Company waives deduction of deferred fractional premiums on
the death of life and annuity policy insureds and returns any premium beyond
the date of death, except for policies issued prior to March 1977. Surrender
values on policies do not exceed the corresponding benefit reserves.
Additional reserves are established when the results of cash flow testing
under various interest rate scenerios indicate the need for such reserves.
If net premiums exceed the gross premiums on any insurance in-force,
additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends
in claim severity and frequency. Although considerable variability is
inherent in such estimates, management believes that the reserves for claims
and claim adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums and claims and claim adjustment expenses are accounted
for on bases consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts. Certain business
is transacted on a funds withheld basis and investment income on funds
withheld are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans is
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC. Pursuant to an intercompany
tax sharing agreement with LNC, the Company provides for income taxes on a
separate return filing basis. The tax sharing agreement also provides that
the Company will receive benefit for net operating losses, capital losses
and tax credits which are not usable on a separate return basis to the
extent such items may be utilized in the consolidated income tax returns of
LNC.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of the
intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of LNC's common stock at the grant date, or other
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
measurement date, over the amount an employee must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable
life and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's statements of income.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Department. "Prescribed" statutory accounting practices include state laws,
regulations and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices
may differ from state to state, may differ from company to company within a
state and may change in the future. The NAIC currently is in the process of
recodifying statutory accounting practices ("Codification"). Codification
will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.
Codification, which is expected to be approved by the NAIC in 1998, will
require adoption by the various states before it becomes the prescribed
statutory-basis of accounting for insurance companies domesticated within
those states. Accordingly, before Codification becomes effective for the
Company, the state of Indiana must adopt Codification as the prescribed
basis of accounting on which domestic insurers must report their
statutory-basis results to the Department. At this time, it is unclear
whether Indiana will adopt Codification. However, based on the current draft
guidance, management believes that the impact of Codification will not be
material to the Company's statutory-basis financial statements.
The Company has received written approval from the Department to record
surrender charges applicable to separate account liabilities for variable
life and annuity products as a liability in the separate account financial
statements payable to the Company's general account. In the accompanying
financial statements, a corresponding receivable is recorded with the
related income impact recorded in the accompanying statement of operations
as a change in reserves or change in premium and other deposit funds.
S-10
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 1,524.4 $ 1,442.2 $ 1,457.4
----------------------------------------------------------------
Preferred stocks 23.5 9.6 6.4
----------------------------------------------------------------
Unaffiliated common stocks 8.3 6.5 5.2
----------------------------------------------------------------
Affiliated common stocks 15.0 9.5 12.6
----------------------------------------------------------------
Mortgage loans on real estate 257.2 269.3 252.0
----------------------------------------------------------------
Real estate 92.2 114.4 110.0
----------------------------------------------------------------
Policy loans 37.5 35.0 32.1
----------------------------------------------------------------
Other investments 28.2 22.4 62.6
----------------------------------------------------------------
Cash and short-term investments 70.3 48.9 53.2
---------------------------------------------------------------- --------- --------- ---------
Total investment income 2,056.6 1,957.8 1,991.5
- -------------------------------------------------------------------
Expenses:
Depreciation 21.0 25.0 25.9
----------------------------------------------------------------
Other 188.5 176.5 193.4
---------------------------------------------------------------- --------- --------- ---------
Total investment expenses 209.5 201.5 219.3
- ------------------------------------------------------------------- --------- --------- ---------
Net investment income $ 1,847.1 $ 1,756.3 $ 1,772.2
- ------------------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
Nonadmitted accrued investment income at December 31, 1997
and 1996 amounted to $2,600,000 and $2,500,000,
respectively, consisting principally of interest on bonds in
default and mortgage loans.
S-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Corporate $13,003.8 $ 942.2 $ 60.1 $13,885.9
------------------------------------------------
U.S. government 436.3 67.9 -- 504.2
------------------------------------------------
Foreign government 1,202.1 104.9 5.4 1,301.6
------------------------------------------------
Mortgage-backed 3,874.3 215.2 27.1 4,062.4
------------------------------------------------
State and municipal 44.2 .3 -- 44.5
------------------------------------------------ --------- ----------- ----------- ---------
$18,560.7 $ 1,330.5 $ 92.6 $19,798.6
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
At December 31, 1996:
Corporate $12,548.1 $ 586.5 $ 66.6 $13,068.0
------------------------------------------------
U.S. government 1,088.7 43.2 18.0 1,113.9
------------------------------------------------
Foreign government 1,234.0 105.1 1.4 1,337.7
------------------------------------------------
Mortgage-backed 4,478.4 183.3 27.4 4,634.3
------------------------------------------------
State and municipal 40.4 .1 -- 40.5
------------------------------------------------ --------- ----------- ----------- ---------
$19,389.6 $ 918.2 $ 113.4 $20,194.4
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The carrying amount of bonds in the balance sheets at
December 31, 1997 and 1996 reflects NAIC adjustments of
$5,500,000 and $2,700,000, respectively, to decrease
amortized cost.
Fair values for bonds are based on quoted market prices,
where available. For bonds not actively traded, fair values
are estimated using values obtained from independent pricing
services or, in the case of private placements, are
estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit
quality and maturity of the investments.
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1997, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Maturity:
In 1998 $ 490.1 $ 494.9
--------------------------------------------------------------------------
In 1999-2002 3,088.7 3,185.4
--------------------------------------------------------------------------
In 2003-2007 4,762.7 4,971.0
--------------------------------------------------------------------------
After 2007 6,344.9 7,084.9
--------------------------------------------------------------------------
Mortgage-backed securities 3,874.3 4,062.4
-------------------------------------------------------------------------- --------- ---------
Total $18,560.7 $19,798.6
- ----------------------------------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 1997, the Company did not have a material
concentration of financial instruments in a single investee,
industry or geographic location.
Proceeds from sales of investments in bonds during 1997,
1996 and 1995 were $9,715,000,000, $10,996,900,000 and
$12,234,100,000, respectively. Gross gains during 1997, 1996
and 1995 of $218,100,000, $169,700,000 and $225,600,000,
respectively, and gross losses of $78,000,000, $177,000,000
and $83,100,000, respectively, were realized on those sales.
At December 31, 1997 and 1996, investments in bonds, with an
admitted asset value of $76,200,000 and $70,700,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in unaffiliated
common stocks and preferred stocks are as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
(IN MILLIONS)
--------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Preferred stocks $257.3 $12.1 $ .7 $268.7
- ----------------------------------------
Unaffiliated common stocks 357.0 98.5 19.5 436.0
- ----------------------------------------
At December 31, 1996:
Preferred stocks $239.7 $10.5 $ 1.7 $248.5
- ----------------------------------------
Unaffiliated common stocks 289.9 84.6 16.2 358.3
- ----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1997 and 1996 reflects NAIC
adjustments of $4,000,000 and $700,000, respectively, to
decrease amortized cost.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During 1997, the minimum and maximum lending rates for
mortgage loans were 7.09% and 9.25%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At December 31, 1997, the
Company did not hold any mortgages with interest overdue
beyond one year. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan
over the maximum loan that would be allowed on the land
without the building.
Realized capital gains are reported net of federal income
taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Realized capital gains $ 209.3 $ 69.3 $ 186.8
- ------------------------------------------------------------------------
Less amount transferred to IMR (net of related taxes (credit) of $54.0,
$(6.7) and $51.1 in 1997, 1996 and 1995, respectively) 100.2 (12.4) 94.8
- ------------------------------------------------------------------------ --------- --------- ---------
109.1 81.7 92.0
Less federal income taxes on realized gains 77.8 28.4 48.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net realized capital gains $ 31.3 $ 53.3 $ 43.9
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
4. SUBSIDIARIES
Statutory-basis financial information related to the
Company's four wholly-owned subsidiaries is summarized as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
--------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,154.4 $ 284.8 $ 399.0 $ 796.3
- -----------------------------------------------------------
Other assets 36.9 77.3 481.6 130.8
- ----------------------------------------------------------- --------- ----------- --------- ---------
Total admitted assets $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
Insurance reserves $ 1,072.2 $ 266.7 $ 279.3 $ 588.7
- -----------------------------------------------------------
Other liabilities 48.4 21.7 546.4 5.8
- -----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 164.7
- -----------------------------------------------------------
Capital and surplus 70.7 73.7 54.9 212.9
- ----------------------------------------------------------- --------- ----------- --------- ---------
Total liabilities and capital and surplus $ 1,191.3 $ 362.1 $ 880.6 $ 972.1
- ----------------------------------------------------------- --------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 267.6 $ 135.4 $ 125.3 $ 230.0
- ------------------------------------------------------------
Expenses 262.6 244.2 114.6 224.4
- ------------------------------------------------------------
Net realized gains (losses) .1 .6 (.1) (.1)
- ------------------------------------------------------------ --------- --------- --------- ---------
Net income $ 5.1 $ (108.2) $ 10.6 $ 5.5
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $ 1,090.7 $ 146.4 $ 406.7 $ 664.3
- -----------------------------------------------------------
Other assets 31.8 17.7 503.1 9.1
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total admitted assets $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Insurance reserves $ 1,013.5 $ 72.7 $ 261.8 $ 601.1
- -----------------------------------------------------------
Other liabilities 41.3 18.7 597.2 22.1
- -----------------------------------------------------------
Capital and surplus 67.7 72.7 50.8 50.2
- ----------------------------------------------------------- --------- ----------- ----------- -----------
Total liabilities and capital and surplus $ 1,122.5 $ 164.1 $ 909.8 $ 673.4
- ----------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIRST
PENN LNH&C LNRAC LLANY
------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 246.5 $ 104.9 $ 120.8 $ 642.7
- -------------------------------------------------------------
Expenses 247.1 97.1 114.1 661.3
- -------------------------------------------------------------
Net realized gains (losses) (.6) -- -- --
- ------------------------------------------------------------- --------- ----------- ----------- -----------
Net income (loss) $ (1.2) $ 7.8 $ 6.7 $ (18.6)
- ------------------------------------------------------------- --------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
The carrying value of affiliated common stocks, representing
their statutory-basis net equity, was $412,100,000 and
$241,500,000 at December 31, 1997 and 1996, respectively.
The cost basis of investments in subsidiaries as of December
31, 1997 and 1996 was $466,200,000 and $194,000,000,
respectively.
During 1997 and 1996, the Company's insurance subsidiaries
paid dividends of $15,000,000 and $10,500,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate for financial
reporting purposes differs from the prevailing statutory tax
rate principally due to tax-exempt investment income,
dividends-received tax deductions, differences in policy
acquisition costs and policy and contract liabilities for
tax return and financial statement purposes.
Federal income taxes incurred of $78,300,000, $83,600,000
and $103,700,000 in 1997, 1996 and 1995, respectively, would
be subject to recovery in the event that the Company incurs
net operating losses within three years of the years for
which such taxes were paid.
Prior to 1984, a portion of the Company's current income was
not subject to current income tax, but was accumulated for
income tax purposes in a memorandum account designated as
"policyholders' surplus." The Company's balance in the
"policyholders' surplus" account at December 31, 1983 of
$187,000,000 was "frozen" by the Tax Reform Act of 1984 and,
accordingly, there have been no additions to the accounts
after that date. That portion of current income on which
income taxes have been paid will continue to be accumulated
in a memorandum account designated as "shareholder's
surplus," and is available for dividends to the shareholder
without additional payment of tax by the Company. The
December 31, 1997 memorandum account balance for
"shareholder's surplus"
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
was $1,905,000,000. Should dividends to the shareholder
exceed its respective "shareholder's surplus," amounts would
need to be transferred from the "policyholders' surplus" and
would be subject to federal income tax at that time. Under
existing or foreseeable circumstances, the Company neither
expects nor intends that distributions will be made that
will result in any such tax.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption, "Other Admitted Assets", includes
amounts recoverable from other insurers for claims paid by
the Company, and the balance sheet caption, "Future Policy
Benefits and Claims," has been reduced for insurance ceded
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Insurance ceded $ 1,431.0 $ 1,154.5
- -------------------------------------------------------------------------------
Amounts recoverable from other insurers 35.9 16.0
- -------------------------------------------------------------------------------
</TABLE>
Reinsurance transactions included in the income statement
caption, "Premiums and Deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 727.2 $ 241.3 $ 667.7
- ------------------------------------------------------------------------
Insurance ceded 302.9 193.3 453.1
- ------------------------------------------------------------------------ --------- --------- ---------
Net amount included in premiums $ 424.3 $ 48.0 $ 214.6
- ------------------------------------------------------------------------ --------- --------- ---------
--------- --------- ---------
</TABLE>
The income statement caption, "Benefits and Settlement
Expenses," is net of reinsurance recoveries of
$1,240,500,000, $787,900,000 and $1,407,000,000 for 1997,
1996 and 1995, respectively.
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and Fees in Course of Collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.2 $ 2.4 $ .8
- ------------------------------------------------------------------------
Ordinary renewal 17.8 3.2 14.6
- ------------------------------------------------------------------------
Group life 10.6 .2 10.4
- ------------------------------------------------------------------------ --------- --- -----
$ 31.6 $ 5.8 $ 25.8
--------- --- -----
--------- --- -----
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
NET OF
GROSS LOADING LOADING
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Ordinary new business $ 3.9 $ 1.9 $ 2.0
- ------------------------------------------------------------------------
Ordinary renewal 35.1 3.0 32.1
- ------------------------------------------------------------------------
Group life 9.4 (.1) 9.5
- ------------------------------------------------------------------------ --------- --- -----
$ 48.4 $ 4.8 $ 43.6
--------- --- -----
--------- --- -----
</TABLE>
The Company has entered into non-exclusive managing general
agent agreements with International Benefit Services Corp.,
HRM Claim Management, Inc. and Pediatrics Insurance
Consultants, Inc. to write group life and health business.
Direct premiums written related to the agreements amounted
to $2,000,000, $2,600,000 and $8,800,000 in 1997 and
$26,200,000, $3,800,000 and $8,600,000 in 1996,
respectively. During 1996, LNC Administrative Services
Corporation entered into a similar agreement with the
Company with direct premiums written amounting to $7,200,000
and 6,200,000 in 1997 and 1996, respectively. Authority
granted by the managing general agents agreements include
underwriting, claims adjustment and claims payment services.
7. ANNUITY RESERVES
At December 31, 1997, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
7. ANNUITY RESERVES (CONTINUED)
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
----------------------
(IN MILLIONS)
----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,426.3 5%
-----------------------------------------------------------------------------
At book value, less surrender charge 4,225.8 8
-----------------------------------------------------------------------------
At market value 30,064.7 59
----------------------------------------------------------------------------- --------- ---
36,716.8 72
Subject to discretionary withdrawal without adjustment at book value with
minimal or no charge or adjustment 11,657.7 23
- --------------------------------------------------------------------------------
Not subject to discretionary withdrawal 2,531.1 5
- -------------------------------------------------------------------------------- --------- ---
Total annuity reserves and deposit fund liabilities -- before reinsurance 50,905.6 100%
- -------------------------------------------------------------------------------- ---
---
Less reinsurance 1,797.5
- -------------------------------------------------------------------------------- ---------
Net annuity reserves and deposit fund liabilities, including separate accounts $49,108.1
- -------------------------------------------------------------------------------- ---------
---------
</TABLE>
8. CAPITAL AND SURPLUS
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1997, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In 1998, the Company can pay dividends of
$361,600,000 without prior approval of the Indiana Insurance Commissioner.
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory-basis financial statements of income or
financial position for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Option issued subsequent to 1991 are
exercisable in 25% increments on the option issuance anniversary in the four
years following issuance.
As of December 31, 1997, 716,211 shares of LNC common stock were subject to
options granted to Company employees and agents under the stock option
incentive plans of which 370,239 were exercisable on that date. The exercise
prices of the outstanding options range from $23.50 to $75.66. During 1997,
1996 and 1995, 170,789, 72,405 and
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
117,806 options were exercised, respectively, and 1,846, 10,950 and 11,473
options were forfeited, respectively.
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
DISABILITY INCOME CLAIMS
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1997 and 1996 is a net
liability of $516,900,000 and $572,000,000, respectively. This liability is
based on the assumption that the recent experience will continue in the
future. If incidence levels or claim termination rates fluctuate
significantly from the assumptions underlying reserves, adjustments to
reserves may be required in the future. Accordingly, this liability may
prove to be deficient or excessive. However, it is management's opinion that
such future development will not materially affect the financial position of
the Company. The Company reviews reserve levels on an ongoing basis.
During 1995, the Company completed an in-depth review of the experience of
its disability income business. As a result of this study, and based on the
assumption that recent experience will continue in the future, net income
decreased by $15,200,000 as a result of strengthening the disability income
reserve.
Because of continuing adverse experience and worsening projections of future
experience, the Company conducted an additional in-depth review of loss
experience on its disability income business during 1997. As a result of
this study, the reserve level was deemed to be inadequate to meet future
obligations if current incident levels were to continue in the future. In
order to address this situation, the Company strengthened its disability
income reserve by $80,000,000 (pre-tax).
MARKETING AND COMPLIANCE ISSUES
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. The Company's management
continues to monitor the Company's sales materials and compliance procedures
and is making an extensive effort to minimize any potential liability. Due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time;
however, it is management's opinion that such future development will not
materially affect the financial position of the Company.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold by the Company, are supported by a single
portfolio of assets that attempts to match the duration of these
liabilities. Due to the long-term nature of group pension annuities and the
resulting inability to exactly match cash flows, a risk exists that future
cash flows from investments will not be reinvested at rates as high as
currently earned by the portfolio.
Accordingly, these liabilities may prove to be deficient or excessive.
However, it is management's opinion that such future development will not
materially affect the financial position of the Company.
LEASES
The Company leases its home office properties through sale-leaseback
agreements. The agreements provide for a 25 year lease period with options
to renew for six additional terms of five years each. The agreements also
provide the Company with the right of first refusal to purchase the
properties during the term of the lease, including renewal periods, at a
price as defined in the agreements. The Company also has the option to
purchase the leased properties at fair market value as defined in the
agreements on the last day of the initial 25-year lease ending in 2009 or on
the last day of any of the renewal periods.
Total rental expense on operating leases in 1997, 1996 and 1995 was
$29,300,000, $26,400,000 and
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
$22,500,000, respectively. Future minimum rental commitments are as follows
(in millions):
<TABLE>
<S> <C>
1998 $ 18.5
- --------------------------------------
1999 18.9
- --------------------------------------
2000 20.1
- --------------------------------------
2001 20.4
- --------------------------------------
2002 20.7
- --------------------------------------
Thereafter 152.2
- -------------------------------------- ---------
$ 250.8
---------
---------
</TABLE>
The future commitments include amounts for space and equipment to be used by
the personnel that were added on January 2, 1998 as a result of the purchase
of a block of individual life and annuity business (see NOTE 12).
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for providing information technology services for the Fort Wayne
operations. Annual costs are estimated to range from $33,600,000 to
$56,800,000.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. Industry regulations prescribe the maximum
coverage that the Company can retain on an individual insured. Prior to
December 31, 1997, the Company limited its maximum coverage that it retained
on an individual to $3,000,000. Based on a review of the capital and
business in-force (including the addition of the block of business described
in NOTE 12), effective in January 1998, the Company changed the amount it
will retain on an individual to $10,000,000. Portions of the Company's
deferred annuity business have also been reinsured with other companies to
limit its exposure to interest rate risks. At December 31, 1997, the
reserves associated with these reinsurance arrangements totaled
$1,760,000,000. To cover products other than life insurance, the Company
acquires other insurance coverages with retentions and limits that
management believes are appropriate for the circumstances. The Company
remains liable if its reinsurers are unable to meet their contractual
obligations under the applicable reinsurance agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1997, the Company has provided $12,400,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding
receivables from the ceding company, which are secured by future profits on
the reinsured business. However, the Company is subject to the risk that the
ceding company may become insolvent and the right of offset would not be
permitted.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $8,200,000 and $4,300,000 at December 31, 1997
and 1996, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1997, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or service; 3) sources of supply of labor
or services used in the business; or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a severe
impact to the Company's financial condition.
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine
in the ordinary course of business. The Company maintains professional
liability insurance coverage for claims in excess of $5,000,000. The degree
of applicability of this coverage depends on the specific facts of each
proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these suits
will
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
not have a material adverse affect on the financial position or results of
operations of the Company.
Two lawsuits involve alleged fraud in the sale of interest sensitive
universal life and whole life insurance policies. These two suits have been
filed as class actions against the Company, although the court has not
certified a class in either case. Plaintiffs seek unspecified damages and
penalties for themselves and on behalf of the putative class while the
relief sought in these cases in substantial, the cases are in the early
stages of litigation, and it is premature to make assessments about
potential loss, if any. Management intends to defend these suits vigorously.
The amount of liability, if any, which may arise as a result of these suits
cannot be reasonably estimated at this time.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company has
accrued for expected assessments net of estimated future premium tax
deductions.
GUARANTEES
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-
balance-sheet risks, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
NOTIONAL OR
CONTRACT AMOUNTS
--------------------
DECEMBER 31
--------------------
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Mortgage loan pass-through
certificates $ 41.6 $ 50.3
- ------------------------------
Real estate partnerships -- .5
- ------------------------------ --------- ---------
$ 41.6 $ 50.8
--------- ---------
--------- ---------
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans to finance their projects. In some cases, the terms of these
arrangements involve guarantees by each of the partners to indemnify the
mortgagor in the event a partner is unable to pay its principal and interest
payments. In addition, the Company has sold commercial mortgage loans
through grantor trusts which issued pass-through certificates. The Company
has agreed to repurchase any mortgage loans which remain delinquent for 90
days at a repurchase price substantially equal to the outstanding principal
balance plus accrued interest thereon to the date of repurchase. It is
management's opinion that the value of the properties underlying these
commitments is sufficient that in the event of default the impact would not
be material to the Company. Accordingly, both the carrying value and fair
value of these guarantees is zero at December 31, 1997 and 1996.
DERIVATIVES
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations, increased liabilities associated with reinsurance
agreements and foreign exchange risks. In addition, the Company is subject
to the risks associated with changes in the value of its derivatives;
however, such changes in value generally are offset by changes in the value
of the items being hedged by such contracts. Outstanding derivatives with
off-balance-sheet risks, shown in notional or contract amounts along with
their carrying value and estimated fair values, are as follows:
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
NOTIONAL OR ASSETS (LIABILITIES)
CONTRACT AMOUNTS -----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1997 1997 1996 1996
-------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $4,900.0 $5,500.0 $13.9 $ .9 $20.8 $ 8.2
---------------------------------
Swaptions 1,752.0 672.0 6.9 6.9 11.0 10.6
---------------------------------
Financial futures contracts -- 147.7 -- -- (2.4) (2.4)
---------------------------------
Interest rate swaps 10.0 -- -- (1.8) -- --
--------------------------------- -------- -------- -------- ----- -------- ------
6,662.0 6,319.7 20.8 6.0 29.4 16.4
Foreign currency derivatives:
Forward contracts 163.1 251.5 5.4 5.4 .2 (.2)
---------------------------------
Foreign currency options -- 43.9 -- -- .6 .4
---------------------------------
Foreign currency swaps 15.0 15.0 -- (2.1) -- (2.1)
--------------------------------- -------- -------- -------- ----- -------- ------
178.1 310.4 5.4 3.3 .8 (1.9)
-------- -------- -------- ----- -------- ------
$6,840.1 $6,630.1 $26.2 $ 9.3 $30.2 $ 14.5
-------- -------- -------- ----- -------- ------
-------- -------- -------- ----- -------- ------
</TABLE>
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts at December
31 is a follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
INTEREST RATE CAPS SPREAD LOCKS SWAPTIONS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,500.0 $ 5,110.0 $ -- $ 600.0 $ 672.0 $ --
- -----------------------------------
New contracts -- 390.0 50.0 15.0 1,080.0 672.0
- -----------------------------------
Terminations and maturities (600.0) -- (50.0) (615.0) -- --
- ----------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 4,900.0 $ 5,500.0 $ -- $ -- $ 1,752.0 $ 672.0
- ----------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL FUTURES INTEREST RATE SWAPS
CONTRACTS
------------------------------------------
1997 1996 1997 1996
------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 147.7 $ -- $ -- $ 5.0
- ------------------------------------------------------------
New contracts 88.3 7,918.8 10.0 --
- ------------------------------------------------------------
Terminations and maturities (236.0) (7,771.1) -- (5.0)
- ------------------------------------------------------------ --------- --------- --------- ---------
Balance at end of year $ -- $ 147.7 $ 10.0 $ --
- ------------------------------------------------------------ --------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
----------------------------------------------------------------
FOREIGN EXCHANGE FOREIGN CURRENCY FOREIGN CURRENCY
FORWARD CONTRACTS OPTIONS SWAPS
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 251.5 $ 15.7 $ 43.9 $ 99.2 $ 15.0 $ 15.0
- --------------------------------------
New contracts 833.1 406.9 -- 1,168.8 -- --
- --------------------------------------
Terminations and maturities (921.6) (171.1) (43.9) (1,224.1) -- --
- -------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at end of year $ 163.1 $ 251.5 $ -- $ 43.9 $ 15.0 $ 15.0
- -------------------------------------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
INTEREST RATE CAPS
The interest rate cap agreements, which expire in 1998 through 2003, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by the notional
amount divided by four. The purpose of the Company's interest rate cap
agreement program is to protect its annuity line of business from the effect
of rising interest rates. The premium paid for the interest rate caps is
included in other assets ($13,900,000 as of December 31, 1997) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2002 and 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of
fluctuating interest rates. The premium paid for the swaptions is included
in other assets ($6,900,000 as of December 31, 1997) and is being amortized
over the terms of the agreements. This amortization is included in net
investment income.
SPREAD LOCKS
Spread-lock agreements provide for a lump sum payment to or by the Company,
depending on whether the spread between the swap rate and a specified
Government note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity Government
security and the price sensitivity of the swap at that time. The purpose of
the Company's spread-lock program is to protect a portion of its fixed
maturity securities against widening of spreads.
FINANCIAL FUTURES
The Company uses exchange-traded financial futures contracts to hedge
against interest rate risks and to manage duration of a portion of its fixed
maturity securities. Financial futures contracts obligate the Company to buy
or sell a financial instrument at a specified future date for a specified
price. They may be settled in cash or through delivery of the financial
instrument. Cash settlements on the change in market values of financial
futures contracts are made daily.
INTEREST RATE SWAPS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreements the stream of variable coupon payments generated from the bonds,
and in turn, receives a fixed payment from the counterparty at a
predetermined interest rate. The net receipts/payments from interest rate
swaps are recorded in net investment income.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts,
foreign currency options and foreign currency swaps, all of which are traded
over-the-counter, to hedge some of the foreign exchange risk of investments
in fixed maturity securities denominated in foreign currencies. The foreign
currency forward contracts obligate the Company to deliver a specified
amount of currency at a future date at a specified exchange rate. Foreign
currency options give the Company the right, but not the obligation, to buy
or sell a foreign currency at a specific exchange rate during a specified
time period. A foreign currency swap is a contractual agreement to exchange
the currencies of two different countries pursuant to an agreement to
re-exchange the two currencies at the same rate of exchange at a specified
future date.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$7,000,000, $6,900,000 and $5,600,000 in 1997, 1996 and 1995, respectively.
Deferred losses of $2,600,000 as of December 31, 1997, were the result of:
1) terminated and expired spread-lock agreements and; 2) financial futures
contracts. These losses are included with the related fixed maturity
securities to which the hedge applied and are being amortized over the life
of such securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, swaptions, spread-lock
agreements, interest rate swaps, foreign exchange forward contracts, foreign
currency options and foreign currency swaps. However, the Company does not
anticipate nonperformance by any of the counterparties. The credit risk
associated with such agreements is minimized by purchasing such agreements
from financial institutions with long-standing, superior performance
records. The amount of such exposure is essentially the net replacement cost
or market value for such agreements with each counterparty if the net market
value is in the Company's favor. At December 31, 1997, the exposure was
$11,700,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values. Accordingly,
the estimates shown are not necessarily indicative of the amounts that would
be realized in a one-time, current market exchange of all of the Company's
financial instruments.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices, where available. For
bonds not actively traded, fair values are estimated using values obtained
from independent pricing services. In the case of private placements, fair
values are estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit quality and
maturity of the investments. The fair values of unaffiliated common stocks
are based on quoted market prices.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair values of mortgage loans on real estate are established
using a discounted cash flow method based on credit rating, maturity and
future income. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and payment record.
Fair values for impaired mortgage loans are based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are calculated on a
composite discounted cash flow basis using Treasury interest rates
consistent with the maturity durations assumed. These durations are based on
historical experience.
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other investments and cash and
short-term investments in the accompanying statutory-basis balance sheets
approximate their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future Policy Benefits and Claims" and "Other
Policyholder Funds," include investment type insurance contracts (i.e.,
deposit contracts and guaranteed interest contracts). The fair values for
the deposit contracts and certain guaranteed interest contracts are based on
their approximate surrender values. The fair values for the remaining
guaranteed interest and similar contracts are estimated using discounted
cash flow calculations. These calculations are based on interest rates
currently offered on similar contracts with maturities that are consistent
with those remaining for the contracts being valued.
The remainder of the balance sheet captions "Future Policy Benefits and
Claims" and "Other Policyholder Funds," that do not fit the definition of
"investment-type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and
have not been determined by the Company. It is the Company's position that
the disclosure of the fair value of these insurance contracts is important
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading if only the fair value of assets and
liabilities defined as financial instruments are disclosed. The Company and
other companies in the insurance industry are monitoring the related actions
of the various rule-making bodies and attempting to determine an appropriate
methodology for estimating and disclosing the "fair value" of their
insurance contract liabilities.
SHORT-TERM DEBT
Fair values of short-term debt approximates carrying values.
GUARANTEES
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on
historical performance where repurchases have been negligible and the
current status, which indicates none of the loans are delinquent, the fair
value liability for the guarantees related to the mortgage loan pass-through
certificates is insignificant.
DERIVATIVES
The Company's derivatives include interest rate cap agreements, swaptions,
spread-lock agreements, foreign currency exchange contracts, financial
futures contracts, interest rate swaps, foreign currency options and foreign
currency swaps. Fair values for these contracts are based on current
settlement values. These values are based on: 1) quoted market prices for
the foreign currency exchange contracts and financial future contracts and;
2) brokerage quotes that utilize pricing models or formulas using current
assumptions for all other swaps and agreements.
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real
estate are based on the difference between the value of the committed
investments as of the date of the accompanying balance sheets and the
commitment date. These estimates would take into account changes in interest
rates, the counterparties' credit standing and the remaining terms of the
commitments.
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------
1997 1996
----------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 18,560.7 $ 19,798.6 $ 19,389.6 $ 20,194.4
- -----------------------------------------------
Preferred stock 257.3 268.7 239.7 248.5
- -----------------------------------------------
Unaffiliated common stock 436.0 436.0 358.3 358.3
- -----------------------------------------------
Mortgage loans on real estate 3,012.7 3,179.2 2,976.7 3,070.9
- -----------------------------------------------
Policy loans 660.5 648.3 626.5 612.7
- -----------------------------------------------
Other investments 335.5 335.5 282.7 282.7
- -----------------------------------------------
Cash and short-term investments 2,133.0 2,133.0 759.2 759.2
- -----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,324.2) (16,887.6) (17,871.6) (17,333.0)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (1,267.0) (1,294.6) (1,799.7) (1,835.4)
--------------------------------------------
Short-term debt (120.0) (120.0) (100.0) (100.0)
- -----------------------------------------------
Derivatives 26.2 9.3 26.5 13.8
- -----------------------------------------------
Investment commitments -- (.5) -- (.6)
- -----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In October 1996, the Company and LLANY purchased a block of group
tax-qualified annuity business from UNUM Corporation's affiliate. The
transaction was completed in the form of a reinsurance transaction, which
resulted in a ceding commission of $71,800,000. The ceding commission has
been recorded as admissible goodwill of $62,300,000, which is to be
amortized on a straight-line basis over 10 years. LLANY was required by the
New York Department of Insurance to expense its portion of the ceding
commission in 1996. Policy liabilities and related accruals of the Company
and its wholly owned subsidiary increased by $3,200,000,000 as a result of
this transaction.
In 1997, LNC contributed 25,000,000 shares of common stock of American
States Financial Corporation ("American States") to the Company. American
States is a property casualty insurance holding company of which LNC owned
83.3%. The contributed common stock was accounted for as a capital
contribution equal to the fair value of the common stock received by the
Company. Subsequently, the American States common stock owned by the
Company, along with all other American States common stock owned by LNC and
its affiliates, was sold. The Company received proceeds from the sale in the
amount of $1,175,000,000. The Company recognized no gain or loss on the sale
of its portion of the common stock due to the receipt of such stock at fair
value.
On January 2, 1998, the Company issued a surplus note to LNC in return for
$500,000,000 in cash. The note calls for the Company to pay, on or before
March 31, 2028, the principal amount of the note and interest quarterly at a
6.56% annual rate. LNC also has a right to redeem the note for immediate
repayment in total or in part once per year on the
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
12. ACQUISITIONS AND SALES OF SUBSIDIARIES (CONTINUED)
anniversary date of the note, but not before January 2, 2003. Any payment of
interest or repayment of principal may be paid only out of excess surplus
(as defined in the note) and is subject to the approval of the Commissioner
of the Indiana Department of Insurance.
Proceeds from the sale of the Company's American States common stock, as
well as proceeds from the surplus note, were used to finance an indemnity
reinsurance transaction whereby the Company reinsured 100% of a block of
individual life insurance and annuity business from CIGNA Corporation. The
Company paid $1,264,400,000 to CIGNA on January 2, 1998 under the terms of
the reinsurance agreement, which will result in a decrease to surplus in
1998 of approximately $1,000,000,000. Operating results generated by this
block of business after the closing date will be included in the Company
financial statements from the closing date. At the time of closing, this
block of business had statutory liabilities of $4,658,200,000 that became
the Company's obligation. The company also received assets, measured on a
historical statutory basis, equal to the liabilities. During 1997, this
block produced premiums, fees and deposits of $1,051,000,000 and earnings of
$87,200,000 on a statutory basis. The Company also expects to pay
$30,000,000 to cover expenses associated with the reinsurance agreement and
to record a charge of approximately $12,000,000 during 1998 to cover certain
costs of integrating the existing operations with the new block of business.
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"),
has a nearly exclusive general agents contract with the Company under which
it sells the Company's products and provides the service that otherwise
would be provided by a home office marketing department and regional
offices. For providing these selling and marketing services, the Company
paid LFGI override commissions and operating expense allowances of
$61,600,000, $56,300,000 and $43,300,000 in 1997, 1996 and 1995,
respectively. LFGI incurred expenses of $5,500,000, $15,700,000 and
$10,400,000 in 1997, 1996 and 1995, respectively, in excess of the override
commissions and operating expense allowances received from the Company,
which the Company is not required to reimburse. Effective in January 1998,
the Company and LFGI agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1997 and 1996 include the
Company's participation in a short-term investment pool with LNC of
$325,600,000 and $175,100,000, respectively. Related investment income
amounted to $15,500,000, $15,300,000 and $21,100,000 in 1997, 1996 and 1995,
respectively. Other liabilities at December 31, 1997 and 1996 include
$120,000,000 and $100,000,000, respectively, of notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $48,500,000, $34,100,000 and
$24,900,000 in 1997, 1996 and 1995, respectively.
The Company cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income include premiums on
insurance business accepted under reinsurance contracts and exclude premiums
ceded to other affiliated companies, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------
(IN MILLIONS)
-------------------------------
<S> <C> <C> <C>
Insurance assumed $ 11.9 $ 17.9 $ 17.6
- ----------------------
Insurance ceded 100.3 302.8 214.4
- ----------------------
</TABLE>
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------
(IN MILLIONS)
--------------------
<S> <C> <C>
Future policy benefits
and claims assumed $ 245.5 $ 312.7
- ------------------------
Future policy benefits
and claims ceded 997.2 891.8
- ------------------------
Amounts recoverable on
paid and unpaid losses 30.4 31.2
- ------------------------
Reinsurance payable on
paid losses 5.3 2.7
- ------------------------
Funds held under
reinsurance treaties --
net liability 1,115.4 1,062.4
- ------------------------
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit
aggregating $280,900,000 and $314,200,000 at December 31, 1997 and 1996,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1997 and 1996, LNC had guaranteed $229,100,000 and $239,200,000,
respectively, of these letters of credit. At December 31, 1997, the Company
has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $130,700,000 for statutory surplus
relief received under financial reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered, principally for
annuity contracts, and for which the contractholder, rather than the
Company, bears the investment risk. Separate account contractholders have no
claim against the assets of the general account of the Company. Separate
account assets are reported at fair value and consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds. The detailed
operations of the separate accounts are not included in the accompanying
financial statements. Fees charged on separate account policyholder deposits
are included in other income.
Separate account premiums, deposits and other considerations amounted to
$4,821,800,000, $4,148,700,000 and $3,068,200,000 in 1997, 1996 and 1995,
respectively. Reserves for separate accounts with assets at fair value were
$30,560,700,000 and $23,047,800,000 at December 31, 1997 and 1996,
respectively. All reserves are subject to discretionary withdrawal at market
value. Substantially all of the Company's separate accounts are
nonguaranteed.
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of
various Separate Accounts:
Transfers to separate accounts $ 4,824.0 $ 4,149.6
- ------------------------------------------------------------
Transfers from separate accounts (2,943.8) (2,058.5)
- ------------------------------------------------------------ --------- ---------
Net transfer to separate accounts as reported in the
Company's NAIC Annual Statement -- Summary of Operations $ 1,880.2 $ 2,091.1
- ------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
15. RECONCILIATION OF ANNUAL STATEMENT TO AUDITED FINANCIAL STATEMENTS
In 1997, certain errors were identified by the Illinois
Insurance Department in the calculation of the AVR as of
December 31, 1996 and 1995. The effects of the AVR errors
also resulted in the need for revisions in the calculation
of certain investment limitation thresholds, the results of
which indicated that additional assets should have been
nonadmitted as of December 31, 1996. As discussed by the
Company with the Indiana and Illinois Insurance Departments,
corrections were made to affected pages of the Company's
NAIC Annual Statement which were refiled with various state
insurance departments. However, due to immateriality of the
corrections in relation to the financial statements taken as
a whole, the audited 1996 and 1995 statutory-basis financial
statements were not corrected and re-issued.
The Company's 1997 NAIC Annual Statement, as filed with
various state insurance departments, also includes the
corrected balances for 1996 and 1995. The following is a
reconciliation of total admitted assets, total liabilities
and capital and surplus as of December 31, 1996 as presented
in the 1997 NAIC Annual Statement (as corrected) to the
accompanying audited financial statements.
<TABLE>
<CAPTION>
TOTAL CAPITAL
ADMITTED TOTAL AND
ASSETS LIABILITIES SURPLUS
---------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1996 as
reported in the accompanying audited
financial statements $50,016.6 $ 48,054.0 $ 1962.6
- ----------------------------------------
Effect of AVR errors -- 37.6 (37.6)
- ----------------------------------------
Effect of change in investment
limitations (57.0) -- (57.0)
- ---------------------------------------- --------- ----------- --------
Balance as of December 31, 1996 as
reported in the 1997 NAIC Annual
Statement $49,959.6 $ 48,091.6 $1,868.0
- ---------------------------------------- --------- ----------- --------
--------- ----------- --------
</TABLE>
16. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is pervasive and complex and affects virtually every
aspect of the Company's business. The Company's computer systems and
interfaces with the computer systems of vendors, suppliers, customers and
business partners are particularly vulnerable. The inability to properly
recognize date sensitive electronic information and transfer data between
systems could cause errors or even a complete systems failure which would
result in a temporary inability to process transactions correctly and engage
in normal business
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
16. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
activities. The Company is redirecting a large portion of its internal
information technology efforts and contracting with outside consultants to
update its systems to accommodate the year 2000. Also, the Company has
initiated formal communications with critical parties that interface with
the Company's systems to gain an understanding of their progress in
addressing Year 2000 Issues. While the Company is making every effort to
address its own systems and the systems with which it interfaces, it is not
possible to provide assurance that operational problems will not occur. The
Company presently believes that with the modification of existing computer
systems, updates by vendors and conversion to new software and hardware, the
Year 2000 Issue will not pose significant operational problems for its
computer systems. In addition, the Company is developing contingency plans
in the event that, despite its best efforts, there are unresolved year 2000
problems. If the remediation efforts noted above are not completed timely or
properly, the Year 2000 Issue could have a material adverse impact on the
operation of the Company's business.
During 1997 and 1996, the Company incurred expenditures of approximately
$5,500,000 ($3,600,000 after-tax) to address this issue. The Company's
financial plans for 1998 through 2000 include expected expenditures of an
additional $20,000,000 ($13,000,000 after-tax) on this issue. The cost of
addressing Year 2000 Issues and the timeliness of completion will be closely
monitored by management and are based on managements's current best
estimates which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. Nevertheless, there can be no
guarantee that these estimated costs will be achieved and actual results
could differ significantly from those anticipated. Specific factors that
might cause such differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer problems and other uncertainties.
S-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets
of The Lincoln National Life Insurance Company (a wholly owned
subsidiary of Lincoln National Corporation) as of December 31,
1997 and 1996, and the related statutory-basis statements of
income, changes in capital and surplus and cash flows for each
of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting
practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from generally accepted
accounting principles. The variances between such practices and
generally accepted accounting principles and the effects on the
accompanying financial statements are also described in Note 1.
In our opinion, because of the effects of the matter described
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of The
Lincoln National Life Insurance Company at December 31, 1997 and
1996, or the results of its operations or its cash flows for
each of the three years in the period ended December 31, 1997.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of The Lincoln National Life Insurance Company at
December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
February 5, 1998
S-31
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C> <C>
Investment income earned:
Government bonds $ 52.8
-----------------------------------------------------------------------------------------
Other bonds (unaffiliated) 1,471.6
-----------------------------------------------------------------------------------------
Preferred stocks (unaffiliated) 23.5
-----------------------------------------------------------------------------------------
Common stocks (unaffiliated) 8.3
-----------------------------------------------------------------------------------------
Common stocks of affiliates 15.0
-----------------------------------------------------------------------------------------
Mortgage loans 257.2
-----------------------------------------------------------------------------------------
Real estate 92.2
-----------------------------------------------------------------------------------------
Premium notes, policy loans and liens 37.5
-----------------------------------------------------------------------------------------
Cash on hand and on deposit 1.0
-----------------------------------------------------------------------------------------
Short-term investments 69.3
-----------------------------------------------------------------------------------------
Other invested assets 21.9
-----------------------------------------------------------------------------------------
Derivative instruments (10.0)
-----------------------------------------------------------------------------------------
Aggregate write-ins for investment income 16.3
----------------------------------------------------------------------------------------- ---------
Gross investment income $ 2,056.6
- ---------------------------------------------------------------------------------------------------- ---------
---------
Real estate owned (cost, less encumbrances) $ 585.2
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans (unpaid balance):
Farm mortgages $ 0.1
-----------------------------------------------------------------------------------------
Residential mortgages 3.1
-----------------------------------------------------------------------------------------
Commercial mortgages 3,009.5
----------------------------------------------------------------------------------------- ---------
Total mortgage loans $ 3,012.7
- ---------------------------------------------------------------------------------------------------- ---------
---------
Mortgage loans by standing (unpaid balance):
Good standing $ 2,974.1
----------------------------------------------------------------------------------------- ---------
---------
Good standing with restructured terms $ 38.5
----------------------------------------------------------------------------------------- ---------
---------
Interest overdue more than three months, not in foreclosure $ --
----------------------------------------------------------------------------------------- ---------
---------
Foreclosure in process $ 0.1
----------------------------------------------------------------------------------------- ---------
---------
Other long-term assets (statement value) $ 281.5
- ---------------------------------------------------------------------------------------------------- ---------
---------
</TABLE>
S-32
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Bonds and stocks of parent, subsidiaries and affiliates (cost):
Common stocks of subsidiaries $ 466.2
- ----------------------------------------------------------------------------------------------- ---------
---------
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less $ 3,140.1
------------------------------------------------------------------------------------------
Over 1 year through 5 years 5,182.8
------------------------------------------------------------------------------------------
Over 5 years through 10 years 5,772.8
------------------------------------------------------------------------------------------
Over 10 years through 20 years 3,275.3
------------------------------------------------------------------------------------------
Over 20 years 3,270.6
------------------------------------------------------------------------------------------ ---------
Total by maturity $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Bonds by class (statement value):
Class 1 $13,879.0
------------------------------------------------------------------------------------------
Class 2 5,215.6
------------------------------------------------------------------------------------------
Class 3 848.0
------------------------------------------------------------------------------------------
Class 4 668.8
------------------------------------------------------------------------------------------
Class 5 23.6
------------------------------------------------------------------------------------------
Class 6 6.6
------------------------------------------------------------------------------------------ ---------
Total by class $20,641.6
-------------------------------------------------------------------------------------------- ---------
---------
Total bonds publicly traded $16,457.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Total bonds privately placed $ 4,184.5
- ----------------------------------------------------------------------------------------------- ---------
---------
Preferred stocks (statement value) $ 257.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Unaffiliated common stocks (market value) $ 436.0
- ----------------------------------------------------------------------------------------------- ---------
---------
Short-term investments (cost or amortized cost) $ 2,080.9
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps owned (statement value) $ 20.8
- ----------------------------------------------------------------------------------------------- ---------
---------
Financial options and caps written (statement value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Swap and forward agreements open (statement value) $ 5.4
- ----------------------------------------------------------------------------------------------- ---------
---------
Futures contracts open (current value) $ --
- ----------------------------------------------------------------------------------------------- ---------
---------
Cash on deposit $ 52.1
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance in-force:
Ordinary $ 108.6
------------------------------------------------------------------------------------------ ---------
---------
Group life $ 31.2
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-33
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA (CONTINUED)
DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<S> <C>
Amount of accidental death insurance in-force under ordinary policies $ 5.3
- ----------------------------------------------------------------------------------------------- ---------
---------
Life insurance policies with disability provisions in-force:
Ordinary $ 5.5
------------------------------------------------------------------------------------------ ---------
---------
Group life $ --
------------------------------------------------------------------------------------------ ---------
---------
Supplementary contracts in-force:
Ordinary -- not involving life contingencies:
Amount on deposit $ --
------------------------------------------------------------------------------------------ ---------
---------
Income payable $ 0.8
------------------------------------------------------------------------------------------ ---------
---------
Ordinary -- involving life contingencies:
Income payable $ 3.0
------------------------------------------------------------------------------------------ ---------
---------
Group -- not involving life contingencies:
Income payable $ 1.1
------------------------------------------------------------------------------------------ ---------
---------
Group -- involving life contingencies:
Income payable $ --
------------------------------------------------------------------------------------------ ---------
---------
Annuities:
Ordinary:
Immediate -- amount of income payable $ 71.8
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- fully paid account balance $ 0.7
------------------------------------------------------------------------------------------ ---------
---------
Deferred -- not fully paid account balance $ 264.0
------------------------------------------------------------------------------------------ ---------
---------
Group:
Amount of income payable $ 0.3
------------------------------------------------------------------------------------------ ---------
---------
Fully paid account balance $ 0.1
------------------------------------------------------------------------------------------ ---------
---------
Not fully paid account balance $ 72.3
------------------------------------------------------------------------------------------ ---------
---------
Accident and health insurance -- premiums in-force:
Ordinary $ 166.0
------------------------------------------------------------------------------------------ ---------
---------
Group $ 77.7
------------------------------------------------------------------------------------------ ---------
---------
Deposit funds and dividend accumulations:
Deposit funds account balance $16,507.3
------------------------------------------------------------------------------------------ ---------
---------
Dividend accumulations -- account balance $ 114.4
------------------------------------------------------------------------------------------ ---------
---------
</TABLE>
S-34
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED
STATUTORY-BASIS FINANCIAL DATA
NOTE -- BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis
financial data as of December 31, 1997 and for the year then
ended for purposes of complying with paragraph 9 of the Annual
Audited Financial Reports in the General Section of the National
Association of Insurance Commissioners' Annual Statement
Instructions and agrees to or is included in the amounts
reported in The Lincoln National Life Insurance Company's 1997
Statutory Annual Statement as filed with the Indiana Department
of Insurance.
S-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
OTHER FINANCIAL INFORMATION
Board of Directors
The Lincoln National Life Insurance Company
Our audits were conducted for the purpose of forming an opinion
on the statutory-basis financial statements taken as a whole.
The accompanying supplemental schedule of selected statutory
basis financial data is presented to comply with the National
Association of Insurance Commissioners' Annual Statement
Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the
auditing procedures applied in our audit of the statutory-basis
financial statements and, in our opinion, is fairly stated in
all material respects in relation to the statutory-basis
financial statements taken as a whole.
February 5, 1998
S-36
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
BROOKLYN, NY
PERMIT NO. 148
[LOGO]
Fort Wayne, Indiana 46801
- -C- 1998 Lincoln National Life Insurance Co.
May 98 [LOGO]
<PAGE>
This filing is made pursuant to Rule 6e-3(T)
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION PURSUANT TO SECTION 26(e) (2) (A) OF THE INVESTMENT COMPANY ACT
OF 1940
Lincoln National Life Insurance Company hereby represents that the fees and
charges deducted under the Policies registered by this registration statement,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Lincoln National Life
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 130 pages.
The undertaking to file reports.
The representation pursuant to Section 26 (e) (2) (A) of the Investment Company
Act of 1940.
The Signatures.
Written consents of the following persons:
Jeremy Sachs, Esquire
Denis G. Schwartz, FSA
Ernst & Young LLP
The following exhibits:
1. (1) Certified Resolution of the Board of Directors of the Company
establishing the Account.
(2) Not applicable.
(3) (a) Underwriting Agreement
(b) Selling Group Agreement (incorporated by reference to
registration statement filed on Form N-4 (File No. 33-27783)
filed on March 27, 1998).
(c) Commission Schedule (Revised).
(d) Amendment to Principal Underwriting Agreement.
(4) Not applicable.
(5) (a) Application
(b) Contract
<PAGE>
(6) (a) Certificate of Incorporation of the Company are incorporated
herein by reference to registration statement on Form S-6
(333-40745) filed on November 21, 1997.
(b) By-Laws of the Company are incorporated herein by reference to
registration statement on Form S-6 (333-40745) filed on November
21, 1997.
(7) Not applicable.
(8) Participation Agreement incorporated herein by reference to
Registrant's registration statement on Form S-6 filed on
April 24, 1997.
(9) Indemnification Agreement incorporated herein by reference to
Registrant's registration statement on Form S-6 filed on
April 24, 1997.
(10) See Exhibit 1(5).
2. See Exhibit 1(5)
3. Opinion and Consent of Jeremy Sachs, Esquire.
4. Not applicable.
5. Opinion and Consent of Denis G. Schwartz, FSA, Second Vice President.
6. Consent of Ernst & Young LLP, Independent Auditors.
7. Memorandum describing the Company's issuance, transfer and redemption and
conversion procedures for the Policy.
8. Services Agreement between Delaware Management Holdings, Inc., Delaware
Service Company, Inc. and Lincoln National Life Insurance Company is
incorporated herein by reference to registration statement filed on
Form S-6 (File no. 333-40745) filed on November 21, 1997.
9. Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Lincoln Life Flexible Premium Variable Life Account J, certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this post-effective amendment to this Registration Statement to be signed on its
behalf by the undersigned hereunto duly authorized, in the City of Fort Wayne,
State of Indiana on the 23rd day of April, 1998.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
on its own behalf as Depositor and on behalf of
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
By: /s/ Stephen H. Lewis
---------------------------------------
Stephen H. Lewis
Senior Vice President
Pursuant to the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gabriel L. Shaheen
- ---------------------------- Chief Executive Officer, April 23, 1998
Gabriel L. Shaheen President and Director
(Principal Executive Officer)
/s/ Keith J. Ryan
- ---------------------------- Senior Vice President, April 23, 1998
Keith J. Ryan Assistant Treasurer
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Jon A. Boscia
- ---------------------------- Director April 23, 1998
Jon A. Boscia
*
- ---------------------------- Executive Vice President, April 23, 1998
Jack D. Hunter General Counsel and Director
- ---------------------------- Director April , 1998
H. Thomas McMeekin
*
- ---------------------------- Director April 23, 1998
Ian M. Rolland
- ---------------------------- Director and April , 1998
Lawrence T. Rowland Executive Vice President
*
- ---------------------------- Director April 23, 1998
Richard C. Vaughan
*/s/ Jeremy Sachs
- ---------------------------- pursuant to a Power of Attorney filed
Jeremy Sachs with Post-Effective Amendment No. 1 to this
Registration Statement.
</TABLE>
<PAGE>
Exhibit 1
ESTABLISHMENT OF SEGREGATED INVESTMENT ACCOUNT J
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Pursuant to the authority given to me by Resolution No. 82-28 of the Board
of Directors of The Lincoln National Life Insurance Company (the "Company")
dated November 4, 1982, I establish a segregated investment account designated
"Lincoln National Flexible Premium Variable Life Account J (the "Account"). The
Account is to be used in connection with the issuance by the Company of flexible
premium variable life insurance policies. The Account shall have authority to
issue an unlimited number of shares or units and shall be registered as a unit
investment trust investment company with the Securities and Exchange Commission
(the "SEC"). The Account shall invest in shares of investment companies which
are registered with the SEC.
Dated: March 9, 1994 /s/ Ian M. Rolland
- -------------------- ----------------------------------------
Ian M. Rolland, Chief Executive Officer
<PAGE>
BOARD RESOLUTION
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ADOPTED NOVEMBER 4, 1982
82-28 RESOLVED, That the resolution relating to the establishment of
segregated investment accounts, adopted by the Board of Directors on
September 12, 1968, is hereby rescinded effective this date; and
RESOLVED FURTHER, That the chief executive officers of the
Company is hereby authorized in his discretion from time to time to
establish one or more segregated investment accounts in accordance
with the provisions of the Indiana Insurance Law, for such purpose or
purposes as he may determine and as may be appropriate under the
Indiana Insurance Law; and
RESOLVED FURTHER, That if in the opinion of legal counsel of the
Company it is necessary or desirable to register any of such accounts
under the Investment Company Act of 1940 or to register a security
issued by any such account under the Securities Act of 1933, or to
make application for exemption from registration, the chief executive
officer or such other officers as he may designate are hereby
authorized to accomplish any such registration or to make any such
application for exemption, and to perform all other acts as may be
desirable or necessary in connection with the conduct of business of
the Company with respect to any such account.
<PAGE>
UNDERWRITING AGREEMENT
THIS AGREEMENT is entered into on this 30th day of April, 1995 among THE
LINCOLN NATIONAL LIFE INSURANCE COMPANY ("LNL"), a life insurance company
organized under the laws of the State of Indiana on behalf of itself and LINCOLN
NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J, a separate account
established by LNL pursuant to the Indiana Insurance Code ("Separate Account
J"), and AMERICAN FUNDS DISTRIBUTORS, INC. ("AFD"), a corporation organized
under the laws of the State of California.
WITNESSETH:
WHEREAS, LNL proposes to issue to the public certain individual flexible
premium variable life insurance policies through Separate Account J (the
"Policies"); and
WHEREAS, LNL has established Separate Account J for the purpose of issuing
the Policies and has registered Separate Account J with the Securities and
Exchange Commission (the "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Policies to be issued are registered by LNL with the Commission
for offer and sale to the public, and otherwise are in compliance with all
applicable laws; and
WHEREAS, AFD is a broker-dealer registered under the Securities Exchange Act
of 1934 (the "1934 Act") and is a member of the National Exchange Act of 1934
(the "1934 Act") and is a member of the National Association of Securities
Dealers, Inc. (the "NASD"), and proposes to form a selling group for the
distribution of the Policies; and
WHEREAS, LNL will be principal underwriter of the Policies; and
WHEREAS, LNL desires to obtain the services of AFD as a co-underwriter of the
Policies;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, LNL, Separate Account J and AFD hereby agree as follows:
DUTIES OF AFD
1. Upon agreement with LNL, AFD will form a selling group consisting of
broker-dealers other than those listed in the attached Schedule of Excluded
Broker-Dealers (the "Broker Schedule"), to distribute the Policies which are
issued by LNL through Separate
<PAGE>
Account J and are registered with the Commission under the Securities Act of
1933 (the "1933 Act") for offer and sale to the public.
2. AFD will enter into and maintain a selling group agreement with each
broker-dealer joining such selling group (each, a "Member"). Promptly after
execution, AFD will provide an executed copy of each selling group agreement to
LNL. Any such selling group agreement will expressly be made subject to this
Agreement and will provide:
(i) that each Member will distribute the Policies only in those
jurisdictions in which the Policies are registered or qualified for sale and
only through duly licensed registered representatives of the Members who are
properly insurance licensed with LNL to sell the Policies in the applicable
jurisdiction(s);
(ii) that all applications and initial and subsequent payments under the
Policies collected by the Member will be remitted promptly by the Member to
LNL at such address as it may from time to time designate;
(iii) that each Member will comply with all applicable federal and state
laws, rules and regulations.
3. AFD will use reasonable efforts to provide information and marketing
assistance to the Members, including preparing and providing Members with
advertising materials and sales literature, and providing Members with current
Prospectuses for the Policies and for the shares of American Variable Insurance
Series (the "Series"). AFD will use reasonable efforts to ensure that Members
deliver only the currently effective Prospectuses of the Policies and the
Series.
AFD and LNL will cooperate in the development of advertising and sales
literature to be used by Members and by AFD itself.
LNL will deliver to LNC Equity Sales Corporation ("LNESCO") and to any other
broker-dealers listed in the Broker Schedule, and will use reasonable efforts to
ensure that LNESCO and any of those broker-dealers use, only sales literature
and advertising material which conform to the requirements of federal and state
laws and regulations and which have been authorized by both LNL and AFD.
AFD will deliver to Members, and use reasonable efforts to ensure that
Members use, only sales literature and advertising material which conform to the
requirements of federal and state laws and regulations and which have been
authorized by both LNL and AFD.
Until such time as AFD has begun forming a selling group to distribute the
Policies, LNL will be responsible for filing sales literature used by LNESCO and
any other broker-dealer listed in the attached Broker Schedule and advertising
material, where
<PAGE>
necessary, with appropriate securities regulatory authorities, including the
NASD. Once AFD has begun forming a selling group, AFD will perform these
functions.
Neither LNL nor AFD will distribute any Prospectus, sales literature,
advertising material or any other printed matter or material relating t the
Policies or the Series, if, to its knowledge, any of the foregoing misstates the
duties, obligations or liabilities of LNL or AFD.
4. AFD shall not be responsible for
(i) taking or transmitting applications for the Policies;
(ii) examining or inspecting risks or approving, issuing or delivering
Policies;
(iii) receiving, collecting or transmitting insurance premiums;
(iv) assisting in the completion of applications for Policies;
(v) paying sales commissions to licensed broker-dealers and insurance
agents; and
(vi) otherwise offering and selling Policies directly to the public.
5. AFD will bear all its expenses of providing services under this
Agreement, including the cost of preparing, printing and mailing advertising and
sales literature used by Members (other than LNL and LNESCO), and the cost of
printing and mailing Policy and Series Prospectuses which are used by Members
(other than LNESCO) for sales purposes, except that AFD shall not bear the
expenses of registering and qualifying the Policies for sale under federal and
state laws, nor expenses of preparing, printing and mailing Policy Prospectuses,
proxies and shareholder reports for purposes other than sales of new Policies by
Members besides LNESCO. It is understood that LNL will not be required to bear
the cost of preparing, printing and mailing Series Prospectuses (except for the
printing and mailing duties provided in paragraph 13), or of registering Series
shares. AFD will reimburse LNL for all state insurance licensing fees and
associated renewal fees incurred to enable representatives of Members to sell
the Policies.
6. AFD will furnish to LNL such information with respect to the Series in
such form and signed by such of its officers as LNL may reasonably request, and
will warrant that the statements therein when so signed are true and correct.
AFD will advise LNL immediately of:
(a) any request by the Commission (i) for amendment of the registration
statement relating to the Policies or the Series or (ii) for additional
information;
<PAGE>
(b) the issuance by the Commission of any stop order suspending the
effectiveness of the registration statement of the Policies or the Series or
the initiation of any proceedings for that purpose;
(c) the institution of any proceeding, investigation or hearing involving
the offer or sale of the Policies or the Series of which it becomes aware; or
(d) the occurrence of any material event, if known, which makes untrue any
statement made in the registration statement of the Policies or the fund or
which requires the making of a change therein in order to make any statement
made therein not misleading.
7. AFD will use reasonable efforts to have the Series register for sale
under the 1933 Act and, if required, under any applicable state laws, from time
to time as necessary, such additional shares of the Series as may reasonably be
necessary for use as the funding vehicle for Separate Account J.
DUTIES OF LNL
8. LNL or its agent will receive and process applications and premium
payments in accordance with the terms of the Policies and the current
Prospectuses. All applications for Policies are subject to acceptance or
rejection by LNL in its sole discretion. LNL will inform AFD of any such
rejection.
9. LNL will be responsible for filing with appropriate insurance
regulatory authorities, all materials required to permit the sale and
maintenance of the Policies, including the Policy Prospectus, Policies, forms,
sales literature and advertising material, where necessary.
10. LNL will furnish to AFD such information with respect to Separate
Account J and the Policies in such form and signed by such of its officers as
AFD may reasonably request, and will warrant that the statements therein
contained, when so signed, are true and correct. LNL will advise AFD
immediately of:
(a) any request by the Commission or by any state insurance regulatory
authority (i) for amendment of the registration statement relating to the
Policies or the Series or (ii) for additional information;
(b) the issuance by the Commission or by any state insurance regulatory
authority of any stop order suspending the effectiveness of the registration
statement of the Policies or the Series or the initiation of any proceedings
for that purpose;
<PAGE>
(c) the institution of any proceeding, investigation, hearing or other
action involving the offer or sale of the Policies or of shares of the
Series, of which it becomes aware;
(d) the occurrence of any material event, if known, which makes untrue any
statement made in the registration statement of the Policies or the Series or
which requires the making of a change therein in order to make any statement
made therein not misleading.
11. LNL will use reasonable efforts to register for sale, from time to
time as necessary, additional dollar amounts of the Policies under the 1933 Act
and, should it ever be required, under state securities laws; and to file for
approval under state insurance laws, when necessary; and will maintain
registration of Separate Account J under the 1940 Act.
12. LNL will pay on behalf of and as agent for AFD to Members of AFD's
selling group such commissions as are from time to time set forth in the selling
group agreements furnished to LNL by AFD. Such selling group agreements shall
provide for the return of sales commissions by the Members to LNL if the
Policies are tendered for redemption to LNL in accordance wit the "right to
examine policy" provisions in the Policy. AFD shall also return to LNL any
remuneration paid to AFD for policies so tendered.
13. (a) LNL will bear its expenses of providing services under this
Agreement, including:
1. the cost of preparing, printing and mailing advertising and sales
literature used by LNL, LNESCO or any other broker-dealer listed in the Broker
Schedule;
2. the cost of preparing the Prospectus for the Policies;
3. the cost of printing and mailing the Prospectuses for the
Policies and the Series to Policy owners;
4. the cost of printing and mailing Policy and Series Prospectuses
which are used for sales purposes by LNL, LNESCO or any other broker-dealer
listed in the Broker Schedule;
5. expenses and fees of registering or qualifying the Policies and
Separate Account J under federal or state laws; and
6. any expenses incurred by its employees in assisting AFD in
performing its duties hereunder.
<PAGE>
(b) Until AFD forms a selling group under this agreement, decisions
regarding selection of a financial printer for the printing of Policy
prospectuses shall be in the sole discretion of LNL. Thereafter, those
decisions shall be in the sole discretion of AFD.
(c) LNL will pay to AFD such remuneration as may be contained in the
particular Schedule of Commissions to Dealers and Remuneration to AFD
("Commission/Remuneration Schedule") which has been adopted and appended to
this Agreement and which is in force when the remuneration or reimbursement is
earned. That Schedule may be amended from time to time in the manner set forth
in Paragraph 26.
WARRANTIES
14. LNL represents and warrants to AFD that:
(i) a registration statement under the 1933 Act (File No. 33-76434) and
under the 1940 Act (File No. 811-8410) with respect tot he Policies and
Separate Account J has been filed with the Commission (a copy of which has
been delivered to AFD), and copies of any and all amendments thereto will be
forwarded to AFD at the time that they are filed with the Commission;
(ii) the registration statement and any further amendments or supplements
thereto will, when they become effective, conform in all material respects to
the requirements of the 1933 Act and the 1940 Act, and the rules and
regulations of the Commission thereunder, and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to
any statement or omission made in reliance upon and in conformity with
information furnished in writing to LNL by AFD expressly for use therein;
(iii) LNL is validly existing as a stock life insurance company under the
laws of the State of Indiana, with power (corporate or other) to own its
properties and conduct its business, as described in the Prospectus for the
policies, and has been duly qualified for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business to the extent such
qualification is required;
(iv) the Policies to be issued through Separate Account J have been duly
and validly authorized and, when issued and delivered against payment
therefor as provided in the Prospectuses and in the Policies, will be duly
and validly issued, and will conform to the description of the Policies
contained in the Prospectuses relating thereto;
<PAGE>
(v) the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which LNL is a party or by which LNL is bound,
LNL's Charter as a stock life insurance company or By-Laws, or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over LNL or any of its properties; and no consent, approval,
authorization or order of any court or governmental agency or body which has
not been obtained by the effective date of this Agreement is required for the
consummation by LNL of the transactions contemplated by this Agreement; and
(vi) there are no material legal or governmental proceedings pending to
which LNL or Separate Account J is a party or of which any property of LNL or
Separate Account J is subject, other than as set forth in the Prospectus
relating to the Policies, and other than litigation incidental to the kind of
business conducted by LNL which, if determined adversely to LNL, would not
individually or in the aggregate have a material adverse effect on the
financial position, surplus or operations of LNL;
(vii) any information furnished in writing by LNL to AFD for use in the
registration statement of the Series will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, nor
result in the registration statement's failing to conform in all respects to
the requirements of the 1933 Act and the rules and regulations thereunder;
(viii) LNL will comply with all applicable requirements of state insurance
laws and regulations; and
(ix) LNL will not pay commissions to persons who, to the best of LNL's
knowledge, are not appropriately licenses in a manner as to comply with
applicable state insurance laws and regulations.
15. AFD represents and warrants to LNL that:
(i) a registration statement under the 1933 Act (File No. 2-86838), and
under the 1940 Act (File No. 811-3857) with respect to the Series has been
filed with the Commission in the form previously delivered to LNL, the copies
of any and all amendments thereto will be forwarded to LNL at the time that
they are filed with the Commission;
<PAGE>
(ii) the registration statement for the Series and any further amendments
or supplements thereto will, when they become effective, conform in all
material respects to the requirements of the 1933 Act and the 1940 Act, and
the rules and regulations of the Commission thereunder, and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to AFD by LNL expressly for
use therein;
(iii) it is validly existing as a corporation in good standing under the
laws of California and it is a broker-dealer duly registered with the
Commission pursuant to the 1934 Act and is a member in good standing of the
NASD, with power (corporate or other) to own its properties and conduct its
business, and has been duly qualified for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business, to the extent such
qualification is required;
(iv) the shares to be issued by the Series have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided in the Series Prospectus, will be duly and validly issued and will
conform to the description of such shares contained in that Prospectus;
(v) the performance of its duties under this Agreement by AFD will not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any statute, and indenture, mortgage, deed of
trust, note agreement or other agreement or instrument to which AFD is a
party or by which AFD is bound, the Articles of Incorporation or By-Laws of
AFD, or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over AFD or its property;
(vi) there are no material legal or governmental proceedings pending to
which AFD or the Series is a party or of which any property of AFD or the
Series is the subject which are required to be described in the registration
statement of the Series and/or the Policies;
(vii) it will use reasonable efforts to ensure that no offering, sale or
other disposition of the Policies will be made until it has been notified by
LNL that the subject registration statements have been declared effective and
the Policies have been released for sale by LNL, and that such offering, sale
or other disposition shall be limited to those jurisdictions that have
approved or otherwise permit the offer and sale of the Policies by LNL;
(viii) any information furnished in writing by AFD to LNL for use in the
registration statement for the Policies will not contain any untrue statement
of a
<PAGE>
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, nor result in the
registration statement's failing to conform in all respects to the
requirements of the 1933 Act and the rules and regulations thereunder; and
(ix) it will comply with the requirements of state broker-dealer
regulations and the 1934 Act as each applies to AFD and shall conduct its
affairs in accordance with the rules of Fair Practice of the NASD.
MISCELLANEOUS
16. AFD makes no representation or warranty regarding the number of
Policies to be sold by licensed broker-dealers and insurance agents or the
amount to be paid thereunder. AFD does, however, represent that once the
parties agree to begin forming the selling group it will actively engage in its
duty to market the Policies under this Agreement on a continuous basis while the
Agreement is in effect and there is an effective registration of the Policies
and the Series with the Commission. This duty to actively market the Policies
will commence when the parties agree in writing upon the terms of Part A of the
Commission/Remuneration Schedule. (See paragraph 13.)
17. The parties shall coordinate with each other in the filing with the
Commission of amendments to the registration statements for the Policies and for
the Series, respectively.
18. (a) AFD may act as principal underwriter, co-underwriter, sponsor,
distributor or dealer for issuers other than LNL or its affiliates in connection
with mutual funds or insurance products; except that AFD shall not, while this
Agreement is in effect, act as principal underwriter, co-underwriter, sponsor,
distributor or dealer with respect to insurance policies which are issued by
insurance companies other than LNL or its affiliates that are similar to the
Policies. (However, nothing in the previous sentence shall diminish any
restriction upon AFD's activities imposed under any agreement between AFD and
LNL relating to variable annuity contracts.)
(b) While this Agreement is in effect, LNL will not:
(i) issue through broker-dealers (except itself, LNESCO and any other
broker-dealers listed in the Broker Schedule) any insurance policy similar to
the Policies unless agreed upon in writing by AFD and LNL.
(ii) enter into an agreement with any other organization for the purpose of
distributing the Policies, unless agreed to in writing by AFD and LNL.
(iii) pay commissions or remuneration to AFD for Policies sold by
broker-dealers listed in that schedule.
<PAGE>
(c) It is understood that shares of the Series may be sold to fund
insurance policies of issuers other than LNL or its affiliates or other
shareholders, as long as that activity is in accordance with Internal Revenue
Code Section 817 (h) and the regulations thereunder.
19. Nothing in this Agreement shall obligate LNL to appoint any Member or
registered representative of a Member its agent for purposes of the distribution
of the Policies. Nothing in this Agreement shall be construed as requiring AFD
to effect sales of the Policies directly to the public or to act as an insurance
agent or insurance broker on behalf of LNL for purposes of state insurance laws.
20. AFD agrees to indemnify LNL (or any affiliate, control person,
shareholder, director, officer or employee of LNL) for any liability incurred
(including reasonable costs relating to defense of any action) arising out of
any act or omission of AFD (or those of its affiliates) relating to
(i) rendering services under this Agreement or;
(ii) the purchase, retention or surrender of a Policy by any person or
entity;
provided, however, that indemnification will not be provided hereunder for any
such liability that results from the willful misfeasance, bad faith or gross
negligence of LNL or from the reckless disregard by LNL of the duties and
obligations arising under this Agreement.
21. LNL agrees to indemnify AFD (or any affiliate, control person,
shareholder, director, officer or employee of AFD) for any liability incurred
(including reasonable costs after execution, AFD will provide an executed copy
of each selling group agreement to LNL. Any such selling group agreement will
expressly be made subject to this Agreement and will provide:
(i) that each Member will distribute the Policies only in those
jurisdictions in which the Policies are registered or qualified for sale and
only through duly licensed registered representatives of the Members who are
properly insurance licensed with LNL to sell the Policies in the applicable
jurisdiction(s);
(ii) that all applications and initial and subsequent payments under the
Policies collected by the Member will be remitted promptly by the Member to
LNL at such address as it may from time to time designate;
(iii) that each Member will comply with all applicable federal and state
laws, rules and regulations.
<PAGE>
3. AFD will use reasonable efforts to provide information and marketing
assistance to the Members, including preparing and providing Members with
advertising materials and sales literature, and providing Members with current
Prospectuses for the Policies and for the shares of American Variable Insurance
Series (the "Series"). AFD will use reasonable efforts to ensure that Members
deliver only the currently effective Prospectuses of the Policies and the
Series.
AFD and LNL will cooperate in the development of advertising and sales
literature to be used by Members and by AFD itself.
LNL will deliver to LNC Equity Sales Corporation ("LNESCO") and to any other
broker-dealers listed in the Broker Schedule, and will use reasonable efforts to
ensure that LNESCO and any of those broker-dealers use, only sales literature
and advertising material which conform to the requirements of federal and state
laws and regulations and which have been authorized by both LNL and AFD.
AFD will deliver to Members, and use reasonable efforts to ensure that
Members use, only sales literature and advertising material which conform to the
requirements of federal and state laws and regulations and which have been
authorized by both LNL and AFD.
Until such time as AFD has begun forming a selling group to distribute the
Policies, LNL will be responsible for filing sales literature used by LNESCO and
other broker-dealer listed in the attached Broker Schedule and advertising
material, where necessary, with appropriate securities regulatory authorities,
including the NASD. Once AFD has begun forming a selling group, AFD will
perform these functions.
Neither LNL nor AFD will distribute and Prospectus, sales literature,
advertising material or any other printed matter or material relating to the
Policies or the Series, if, to its knowledge, any of the foregoing misstates the
duties, relating to defense of any action) arising out of any act or omission of
LNL (or those of its affiliates) relating to
(i) rendering services under this Agreement or;
(ii) the purchase, retention or surrender of a Policy by any person or
entity;
provided, however, that indemnification will not be provided hereunder for any
such liability that results from the willful misfeasance, bad faith or gross
negligence of AFD or from the reckless disregard by AFD of the duties and
obligations arising under this Agreement.
22. This Agreement will terminate automatically upon its assignment, as
that term is defined in the 1940 Act. The parties understand that there is no
intention to create a joint venture in the subject matter of this Agreement.
Accordingly, the right to
<PAGE>
terminate this Agreement and to engage in any activity not inconsistent with
this Agreement is absolute. This Agreement will terminate, without the payment
of any penalty by either party:
(a) at the option of LNL upon six months' advance written notice to
AFD; or,
(b) at the option of AFD upon six months' advance written notice to
LNL; or,
(c) at the option of LNL upon institution of formal proceedings
against AFD by the NASD or by the Commission; or,
(d) at the option of AFD upon institution of formal proceedings
against LNL by the Commission or by the Department of Insurance of any state;
or,
(e) as otherwise provided in the 1940 Act.
23. Each notice required by this Agreement shall be given in writing and
delivered by certified mail-return receipt requested.
24. This Agreement shall be controlled by the laws of the State of Indiana
and construed so as to interpret the Policies as insurance products written
within the business operation of LNL.
25. This Agreement, including the Broker Schedule and the
Commission/Remuneration Schedule, constitutes the entire agreement among the
parties pertaining to the marketing and distribution of the Policies, and
supersedes any and all prior agreements between the parties with respect to the
subject matter of this Agreement. This Agreement shall not affect the operation
of any previous agreements entered into between LNL and AFD unrelated to the
subject matter of this Agreement.
26. (a) Amending the Agreement. This Agreement and any Schedule may be
amended from time to time only by agreement in writing of the parties.
(b) Amending the Schedules. For purposes of simplifying and
expediting amendments to the Broker Schedule and to the Commission/Remuneration
Schedule, the parties shall observe the rule that a Schedule shall be deemed
amended as of the date on which the parties have executed and signed a new
Schedule which explains the extent to which it supersedes any prior Schedule and
which bears the date as of which it shall take effect. One exception to this
rule is that with respect to any Commission/Remuneration Schedule, AFD in its
sole discretion may alter, upon written notice to LNL, the ratio of commissions
paid to dealers and remuneration paid to AFD. AFD agrees to reimburse LNL for
any remuneration previously received to the extent
<PAGE>
necessary to pay additional commissions to dealers due to a retroactive
change of this ratio.
27. No waiver of any provision nor consent to any exceptions to the terms
of this Agreement shall be effective unless that waiver or consent is executed
in writing by the parties and then only for the the specific purpose, extent and
instance so provided.
28. This Agreement shall inure to the benefit of and be binding upon LNL
and AFD, and their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective successors
and assigns, any legal or equitable right, remedy or claim in respect of this
agreement or any provision herein contained.
29. This Agreement and any amendment to it, including any amended
Schedule, may be executed in one or more counterparts. All of those
counterparts shall constitute one and the same agreement. Neither this
Agreement nor any amendment shall become effective until all counterparts have
been fully executed and delivered.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be
duly executed and attested.
Lincoln National Life
Insurance Company on behalf
of itself and of Lincoln
National Flexible Premium
Variable Life Account
Attest:
By:________________________________
Its:_______________________________
American Funds Distributors, Inc.
Attest:
By:________________________________
Its:_______________________________
PCDocs No. 55905
<PAGE>
SCHEDULE OF COMMISSIONS TO
DEALERS AND REMUNERATION
TO AFD
("Commission/Remuneration Schedule")
Effective Date: April 30, 1995
------------------------------------------------------
ALL SALES
Lincoln National will make direct payment of commissions to dealers and
remuneration to AFD with respect to all sales of the Policies according to the
schedule set forth below. Where state law prohibits direct payment to AFD,
payment will be made in accordance with the applicable state law.
PART A: COMMISSIONS TO DEALERS REMUNERATION TO AFD
- -------
All premiums eligible To be agreed upon To be agreed upon
for Commissions From
Policies Sold By Member
Dealers
PART B: COMMISSIONS TO LINCOLN REMUNERATION TO AFD
- ------- NATIONAL
All Premiums Eligible (As determined by 0.10%
for Commissions From Lincoln National)
Policies Sold by LNL
and LNESCO Agents and
Brokers
<PAGE>
SCHEDULE OF EXCLUDED BROKER-DEALERS
("Broker Schedule")
1. The Lincoln National Life Insurance Company (LNL)
2. LNC Equity Sales Corporation (LNESCO)
<PAGE>
INDIVIDUAL LIFE COMMISSION SCHEDULE (Contract 1285)
For Payment of First Year Policy Commissions,
Renewal Commissions, and Service Fees
- --------------------------------------------------------------------------------
American Legacy Variable Life(1)
POLICY Target Excess
YEAR Premium Premium
- --------------------------------------------------------------------------------
1 50%(2) 2.5%
- --------------------------------------------------------------------------------
2-10 2.5% 2.5%
- --------------------------------------------------------------------------------
11 or more 2.5% 2.5%
- --------------------------------------------------------------------------------
1. Starting in the third policy year, this policy will be eligible for equity
participation as follows: .20% of the excess of the policy value over
policy loans. Equity participation in years 3 through 10 represent renewal
commissions and service fees in the 11th and subsequent years.
2. Additional First Year Commissions paid:
a. 50% of the target premium for increase in specified amount. (An
increase for this purpose will include only the portion of the
increase in excess of the previous highest specified amount.)
b. 50% of the cost of insurance for all other increases or rider
additions.
There will be a prorate chargeback of these commissions if within 12
months of the increase the policy is surrendered or such increase in
coverage is decreased or deleted.
<PAGE>
INDIVIDUAL LIFE COMMISSION SCHEDULE (Contract 1288)
For Payment of First Year Policy
Commissions, Renewal Commissions, and Service Fees
- --------------------------------------------------------------------------------
American Legacy Variable Life(1)
POLICY Target Excess
YEAR Premium Premium
- --------------------------------------------------------------------------------
1 60%(2) 2.5%
- --------------------------------------------------------------------------------
2-10 2.5% 2.5%
- --------------------------------------------------------------------------------
11 or more 2.5% 2.5%
- --------------------------------------------------------------------------------
1. Starting in the third policy year, this policy will be eligible for equity
participation as follows: .20% of the excess of the policy value over
policy loans. Equity participation in years 3 through 10 represent renewal
commissions and service fees in the 11th and subsequent years.
2. Additional First Year Commissions paid:
a. 50% of the target premium for increase in specified amount. (An
increase for this purpose will include only the portion of the
increase in excess of the previous highest specified amount.)
b. 50% of the cost of insurance for all other increases or rider
additions.
There will be a prorate chargeback of these commissions if within 12
months of the increase the policy is surrendered or such increase in
coverage is decreased or deleted.
<PAGE>
AMENDMENT TO THE PRINCIPAL UNDERWRITING AGREEMENT
This amendment, dated as of March 30, 1998 (this "Amendment"), to a certain
Principal Underwriting Agreement effective on the 30th day of April, 1995 (the
"Original Agreement"), is executed by and between LINCOLN NATIONAL LIFE
INSURANCE COMPANY ("Lincoln National"), a life insurance company organized under
the laws of the State of Indiana, on behalf of itself and LINCOLN NATIONAL
FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J ("Separate Account"), a separate
account established by Lincoln National pursuant to the Indiana Insurance Code,
and AMERICAN FUNDS DISTRIBUTORS, INC. ("AFD"), a corporation organized under the
laws of the State of California (collectively, the "Parties"). Unless otherwise
specifically provided, this Amendment shall be effective as of September 1,
1997.
WITNESSETH:
WHEREAS, the Original Agreement, as amended, provides for AFD to serve as
principal underwriter for certain flexible premium variable life insurance
policies defined more fully therein and marketed under the name "American Legacy
Variable Life" (the "Policies"); and
WHEREAS, the Original Agreement contains certain exclusivity provisions in
Section 18 that the Parties desire to eliminate; and
NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants
and conditions contained in the Original Agreement, as amended as well as herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Lincoln National, the Separate Account and AFD hereby
agree as follows:
A. SECTION 18. Section 18 of the Original Agreement is hereby replaced and
Section 5 of the Original Agreement is hereby modified by the "Non-Exclusivity
Provisions" set forth below. All other terms and conditions of the Original
Agreement as previously amended, are hereby ratified and confirmed with respect
to the Policies.
NON-EXCLUSIVITY PROVISIONS. AFD may act as principal underwriter, sponsor,
distributor or dealer for issuers other than Lincoln National or its affiliates
in connection with mutual funds or insurance products. American Variable
Insurance Series (the "Series") may be sold to fund insurance contracts and
policies, including those other than the Policies, of issuers other than Lincoln
National or its affiliates or to other shareholders in accordance with Internal
Revenue Code Section 817(h) and the regulations thereunder. Lincoln National
may issue through any broker-dealer any insurance contracts and policies;
however, Lincoln National will not enter into any agreement with any other
organization for the purpose of distributing the Policies. The foregoing is
subject to the covenants and conditions set forth below:
<PAGE>
1. APPOINTMENT FEES. The Original Agreement in the last sentence of
Section 5 provides that AFD will be responsible for all state
insurance appointing fees and associated insurance license renewal
fees incurred to enable members to sell the Policies ("appointment
fees"). This sentence in Section 5 is hereby eliminated and it is
agreed that Lincoln National will be responsible for any and all
appointment fees as of September 1, 1997. Lincoln National will also
assume the responsibility for deciding whether to pay appointment fees
with respect to "non-producers." In the event Lincoln National
determines to stop paying the appointment fees for any non-producer,
AFD shall be given the option to pay such fees.
2. LINCOLN FINANCIAL ADVISORS ("LFA"). The Schedule of Commissions to
Dealers and Remuneration to AFD effective as of April 1, 1996 is hereby
amended to provide that sales through LFA (referred to in Schedule A - III
by its predecessor company's name Lincoln National Sales Corporation or
"LNSC") shall be at full reallowance to AFD and subject to standard Selling
Group Agreement terms and conditions including remuneration for all new
sales. This item will be implemented on January 1, 1998.
3. BEST DEAL PROVISION. Lincoln National shall make available to AFD for
distribution through an AFD-formed selling group, at AFD's option, any
variable contract type or variable contract or policy feature issued by
Lincoln National through broker-dealers on the same terms and conditions.
Lincoln National shall make available to AFD any proposed variable contract
or policy type to be issued through broker-dealers prior to introduction.
AFD shall use its best efforts to provide wholesaler support for American
Legacy Variable Life and successor policies as long as the Original
Agreement, as amended, or similar agreement is in effect that is at least
comparable to the level of support provided by AFD for non-Lincoln
policies.
AFD will recommend to the Series' Board of Trustees that Lincoln National
may use at its option any fund of the Series in any of its contracts or
policies.
4. 1035 EXCHANGES. Lincoln National and AFD each agree not to seek or
encourage exchanges between the Policies and either any non-Lincoln
National policy or other Lincoln National policy. Both parties will
give their respective "best efforts" to discourage such exchanges.
The payment of compensation in connection with such an exchange will
not be a violation of this agreement; however, either Party may, if
necessary, cause commissions not to be paid on exchanges of this type
that do occur.
B. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which when so executed, shall be deemed to be an original, but such
counterparts taken together shall constitute but one and the same contract.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused the Amendment to be duly
executed and attested as follows:
The Lincoln National Life Insurance
Company for itself and Lincoln National
Flexible Premium Variable Life Account J
Attest: By:
-------------------------- ------------------------------
American Funds Distributors, Inc.
Attest: By:
-------------------------- ------------------------------
<PAGE>
<TABLE>
<S><C>
LINCOLN LIFE
Lincoln National Life Insurance Co. APPLICATION FOR LIFE INSURANCE
Fort Wayne, IN 4680-1110 PART ONE
219-455-2000 PLEASE PRINT
- ------------------------------------------------------------------------------------------------------------------------------------
LAST FIRST MIDDLE INITIAL
(a) Full name
1.PROPOSED (b) Social Security number (c) Date of birth / / (d) Age
INSURED STATE / COUNTRY
(e) Birthplace (f) Sex Male Female
(g) Driver's license # State
NO. & STREET CITY COUNTY STATE ZIP
(h) Residence address
(I) Phone no. ( ) -
(j) Employer's name
NO. & STREET CITY COUNTY STATE ZIP
(k) Employer's address
(l) Phone no. ( ) -
(m) Occupation
(n) Occupational duties
(o) Annual earned income $ (p) Income front other sources $
(q) List other sources
- ------------------------------------------------------------------------------------------------------------------------------------
2. PLAN (a) Plan of insurance
SELECTIONS (b) Amount of insurance $ (c) If UL or VUL Level (basic) Increasing (basic plus)
(d) If Whole Life: Is automatic premium loan provision to be in effect? Yes No
(If neither box is checked, "No" is assumed,)
(e) Term rider coverage
Proposed insured also applying for term rider coverage. Amount of term rider $____________
(If additional benefits/riders are requested on term coverage for proposed insured, indicate in
Special Instructions.)
Other(s) applying for a term rider. List names. (Also complete form 750TR for each term rider.)
(f) Additional benefits/policy riders (base insured only):
Accelerated benefit rider (sign form Contingent option insurability rider $
in back Option life name/D.O.B./sex
Accidental death benefit $___________ Retirement option insurability rider
Automatic increase rider (UL) $ ___________ Option date ___________
Children's term rider __________ units First-to-die rider (UL/VUL) Complete 750TR for
Convalescent care benefit (UL/VUL) each other covered insured) $ _____________
Disability benefit payment $_____ /month Name(s) of other covered insured(s) ____________
Guaranteed insurability __________ units _______________________________________________
Policy split option (Survivor Life only) Last survivor rider (UL/VUL) (Complete 750TR
Waiver of cost of insurance (UL/VUL) for each other covered insured) $ _______________
Waiver of premium benefit (Non-UL) Name(s) of other covered insured(s) ____________
Other benefits/riders __________________ ________________________________________________
___________________________________ Paid up additions purchase rider (WL only)
___________________________________ Purchase option A: single premium $ _______
___________________________________ Purchase option B: level premium $ ________
- ------------------------------------------------------------------------------------------------------------------------------------
3. SPECIAL
INSTRUCTIONS
Form 750L 3/94 Lincoln National Life Insurance Co. is a part of Lincoln National Corporation
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
4. BENEFICIARY(IES) (a) Primary
LAST FIRST MIDDLE INITIAL
Proceeds are paid (1) Full name
equally to all (IF NO RELATIONSHIP GIVE ADDRESS)
surviving primary (2) Relationship (3) Date of birth / /
beneficiaries unless
otherwise stated. if (b) Primary Contingent
there are no surviving LAST FIRST MIDDLE INITIAL
primary beneficiaries, (1) Full name
proceeds are paid (IF NO RELATIONSHIP GIVE ADDRESS)
equally to all (2) Relationship (3) Date of birth / /
surviving contingent (c) Primary Contingent
beneficiaries unless LAST FIRST MIDDLE INITIAL
otherwise stated. (1) Full name
(IF NO RELATIONSHIP GIVE ADDRESS)
(2) Relationship (3) Date of birth / /
- ------------------------------------------------------------------------------------------------------------------------------------
5. OWNER (a) Full name (b) Date of birth / /
Complete only if (c) Social Security no./Tax I.D. - - (d) Relationship to proposed insured
other than proposed (e) Residence address
insured (f) If proposed insured is a minor, will policy ownership pass as a gift to proposed insured at age 21 ?
Yes No (If you check "No," policy ownership will pass to the estate of the owner if the owner
and any contingent owner die before the insured. If neither box is checked,"No" is assumed.)
(g) Contingent owner (name/relationship to proposed insured)
(h) If two or more Primary owners are named, complete special instructions and check applicable block:
Joint owners with right of survivorship between them
Common owners with no right of survivorship between them
- ------------------------------------------------------------------------------------------------------------------------------------
6. APPLICANT (a) Applicant is Owner Other
Complete only if (b) Total amount of life insurance in force on Applicant $
other than (c) Occupation (d) Annual income $
proposed insured
COMPLETE THE FOLLOWING ONLY IF APPLICANT IS OTHER THAN OWNER OR PROPOSED INSURED.
(e) Social Security no./Tax I.D. - - (f) Date of birth
(g) Relationship to proposed insured
(h) Residence address
- ------------------------------------------------------------------------------------------------------------------------------------
7. CHILDREN Relationship to Date Height Weight Amount of life
List only those to be Name proposed insured of birth ft. in. (pounds) insurance in force
insured on children's
rider. For additional
children, enter in
Special Instructions
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
8. MONEY WITH Yes, give amount $ ______________________ If "Yes," complete Conditional Receipt.
APPLICATION No
- ------------------------------------------------------------------------------------------------------------------------------------
9. PREMIUM (a) Send notices to Residence address Employer's address Owner Other
(b) Billing frequency Monthly Quarterly Semi-annually
(EFT/PRD/M.A. only) Annually Single premium
(c) Billing method EFT (Monthly only) (Current # _____________) Direct
Military allotment (#________________) PRD (#___________)
(d) M.E.C. Yes, policy should be allowed to become a Modified Endowment Contract (M.E.C.).
No, policy should NOT be allowed to become a Modified Endowment Contract
(M.E.C.).
Premiums in excess of M.E.C. premium will be refunded to the owner.
- ------------------------------------------------------------------------------------------------------------------------------------
10. ALLOCATION OF REQUEST ONLY THOSE SUBACCOUNTS AVAILABLE WITH THE PRODUCT SELECTED. Refer to product prospectuses.
PREMIUM (Whole % only-each elected subaccount must be at least 10%. Total of all subaccounts must equal 100%.)
Applies only to AVIS SUBACCOUNTS LNIMC SUBACCOUNTS
Variable Life ALLOCATION SUBACCOUNT ALLOCATION SUBACCOUNT
%General account (LNL) %General account (LNL)
%Growth %Growth
%Growth-income %Bond
%High yield bond %International
%U.S. Govt/AAA-rated securities %Managed
%Cash management %Money market
% International %Putnam Master
%Asset allocation %Social awareness
% %Special opportunities
% %Aggressive growth
% %Capital Appreciation
% %Equity-income
% %
- ------------------------------------------------------------------------------------------------------------------------------------
11. ANNUAL I, the owner, certify under penalties of perjury that my correct SSN/TIN is included on this
DIVIDENDS application and I have not been notified that I am subject to backup withholding.
Applies only to if so notified, initial here. __________
participating Select option desired:
policies Paid in cash Reduce premiums Paid up additions Left at interest
One year term (select one):
Balance paid in cash Balance to reduce premiums
Balance to additions Balance to accumulate
- ------------------------------------------------------------------------------------------------------------------------------------
12. TOTAL (a) If none, check here
INSURANCE PLAN COVERAGE TO 1035
CURRENTLY IN (I.E. TERM, WHOLE AMOUNT OF ACCIDENTAL DEATH ISSUE BE REPLACED? EXCHANGE?
FORCE ON (b) COMPANY LIFE, UL, V(JL, ETC.) INSURANCE BENEFIT AMOUNT DATE YES* NO YES* NO
PROPOSED
INSURED(s)
(c) will premiums for insurance applied for be paid by policy loan or withdrawals from any existing
life policy or annuity? Yes* No
*IF "YES," COMPLETE AND SUBMIT APPLICABLE STATE-REQUIRED REPLACEMENT FORM(S) WITH THIS APPLICATION.
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
13. CORPORATION/ (a) Value of business: Net worth $ ______________________ (b) Fair market value $ _______________
BUSINESS (c) Proposed insured's interest: percent owned _______ %
ASSOCIATE (d) Names of other officers and co-owners and amount of business insurance on their lives
Complete only if a (if any not insured, explain)
corporation or a
business associate is VALUE OF PERCENTAGE AMOUNT AMOUNT
beneficiary or owner NAME BUSINESS INTEREST OWNED NOW CARRIED NOW REQUESTED
of the policy
- ------------------------------------------------------------------------------------------------------------------------------------
14. GENERAL THE FOLLOWING QUESTIONS PERTAIN TO ALL PROPOSED
INFORMATION PROPOSED INSUREDS, INCLUDING CHILDREN TO INSURED CHILDREN GIVE FULL DETAILS FOR ALL "YES" ANSWERS
BE COVERED UNDER CHILDREN'S RIDER. YES NO YES NO (INDICATE QUESTION NUMBER.)
(a) Are there any applications) for any life or health insurance
pending or contemplated?
(b) Have you ever received or claimed disability benefits or a
pension for any injury, sickness, or impaired condition?
(c) In the past 5 years, have you made, or contemplated making,
any flight other than as a passenger?
(If "Yes," complete aviation questionnaire.)
(d) In the past 5 years, have You engaged in, or contemplated
engaging in: ballooning; parachuting; hang gliding; vehicle
racing; scuba diving below 60 feet; mountain climbing, or any
similar sport or avocation?
(If "Yes," circle activity and complete appropriate questionnaire.)
(e) Do you have any intentions of traveling or living outside the
U.S.A. or Canada in the next 2 years except for vacation(s)?
(f) In the past Io years have you used alcohol to excess or intoxication;
or been convicted for the use or possession of alcohol; or received
advice, counseling or treatment as the result of the use of alcohol
or drugs; or used or been convicted for the use or possession of any
narcotic, stimulant, sedative, or hallucinogenic drug?
(If "Yes," complete Drug/Alcohol questionnaire.)
(g) In the past 5 years have you been convicted of 2 or more
moving violations, or driving under the influence, or had a
driver's license suspended or revoked? If yes, give details.
(h) In the past 10 years have you been convicted of a felony?
(I) In the past 10 years have you:
(1) been diagnosed as having, or been treated for, Acquired
Immune Deficiency Syndrome (AIDS) or HIV disease by a
member of the medical profession?
(2) tested positive for antibodies to the HIV virus?
- ------------------------------------------------------------------------------------------------------------------------------------
15. TOBACCO USE - What type of tobacco (nicotine) have you used in the past 12 months?
PRIMARY None
PROPOSED Cigarettes (average number smoked per day?
INSURED Pipe; cigar; chewing tobacco; snuff; nicotine gum or nicotine patch; other. (Circle type(s) used.)
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
16. MEDICAL (a) Do you have a regular doctor? Yes No
INFORMATION- if "Yes," name and address of your regular doctor ___________________________________________________
PROPOSED _____________________________________________________________________________________________________
INSUREDS (b) Date last consulted / / (c) Reasons and results _________________________
Questions (a) (d) Height ____ ft. ____ in. (e) Weight ________ lbs.
through (h) in this (f) Have you lost 10 pounds or more in the past year? Yes No If "Yes," amount lost ____ lbs.
section apply to Reason for weight loss?_______________________________________________________
primary proposed (g) Have two or more of proposed insured's immediate family (parents, brothers, or sisters) had heart
insured disease, stroke or diabetes prior to their age 60? Yes No
LIVING DECEASED
(h) FAMILY HISTORY AGE AGE AT DEATH CAUSE OF DEATH
Father
Mother
Brothers
Sisters
EXPLAIN FULLY ALL "YES" ANSWERS.
INCLUDE SPECIFIC DIAGNOSIS, TREATMENTS,
THE FOLLOWING QUESTIONS PERTAIN TO ALL PROPOSED RESULTS, DATES OF ONSET AND RECOVERY,
PROPOSED INSUREDS, INCLUDING CHILDREN TO INSURED CHILDREN AND NAMES AND ADDRESSED OF ALL
BE COVERED UNDER CHILDREN'S RIDER. YES NO YES NO DOCTORS AND HOSPITALS.
(I) Are you now receiving treatment or medication of any kind, or
do you contemplate treatment or surgery?
(j) In the past IO years, have you had or been told that you had:
high blood pressure or disease of the heart or blood vessels;
cancer or tumor of any kind; epilepsy or nervous disorder;
diabetes; lung or respiratory disorder; kidney or urinary bladder
disease; disorder of the lymph nodes or blood; gastrointestinal
or digestive disorder; or any disease of the reproductive organs,
including any sexually transmitted diseases?
(If "Yes," circle the items that pertain, and explain details.)
(k) In addition to any doctors or hospitals listed above, in the last 5
years, have you:
(1) been treated, examined or observed in a hospital, clinic, or
other medical facility?
(2) consulted with any other doctors?
(3) been treated or had an operation for any other cause(s) not
listed above?
(l) (Complete only if proposed insured is less than age 15.)
Has child had any birth injury or do you know of any
congenital or hereditary abnormality, disease or trait which
may affect the child's future health?
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
17. HOME OFFICE
CORRECTIONS
AND ADDITIONS
AGREEMENT
I understand and agree that:
1. This application is made tip of Part One, Part One TR (if completed), and Part Two, if required by Lincoln National Life
Insurance Company (the "Company"). The application, any policy issued as a result of it, and any papers attached to the policy by
the Company will form the entire contract of insurance.
2.Only an officer of the Company (the President, a Vice President, the Secretary, or an Assistant Secretary) may make or alter any
contract or agree not to enforce any of the Company's rights. NO AGENT, BROKER, OR MEDICAL EXAMINER IS AUTHORIZED TO ACCEPT RISKS,
PASS ON INSURABILITY, MAKE OR ALTER CONTRACTS, OR WAIVE ANY OF THE COMPANY'S OTHER RIGHTS OR REQUIREMENTS. Notice to or knowledge
imputed to any agent, broker, or medical examiner will not be notice to or knowledge to the Company unless it is set out in writing
in this application.
3. I have read the statements and answers in this application. To the best of my knowledge and belief, they are true, complete, and
correctly stated. They will be the basis for any policy issued based on this application.
4. Acceptance of the policy will mean acceptance of its terms and ratification of any changes noted on the "Home Office Corrections
or Additions" section, The following changes must be agreed to by me in writing: age at issue; plan or amount of insurance; premium;
classification of risks; or added benefits.
5.Unless the policy becomes effective as specified in the Conditional Receipt attached to this application, the Company will incur
no liability until: (1) any policy applied for has been delivered to and accepted by me; and (2) the first premium is paid. When I
accept the policy, the state of health of the proposed insured and/or applicant or any other factor affecting insurability must be,
the same as set forth in this application.
6. I HAVE RECEIVED THE CONDITIONAL RECEIPT IF MONEY WAS SUBMITTED WITH THIS APPLICATION. I HAVE READ THE CONDITIONAL RECEIPT AND
AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THEY HAVE BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
7. APPLIES ONLY IF APPLICATION IS FOR A FLEXIBLE PREMIUM VARIABLE LIFE POLICY
a. SUITABILITY (must be completed):
- I believe that a Flexible Premium Variable Life insurance policy is consistent with my investment objectives and financial
needs.
- My investment objectives are: Long term growth Growth & income Preservation of capital Income
Other (please indicate)______________________________________________
- Number of dependents _____ Age________, _________, _________, __________, ________, ________, ______
- Total FAMILY income $ _____________ FAMILY net worth $ _______________ OWNER'S earned income $ ______________
b. I have received the current prospectus for Flexible Premium Variable Life, an illustration, recent fund performance data and
any other information required by law.
c. I UNDERSTAND THAT THE DEATH BENEFIT FOR THE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY APPLIED FOR MAY INCREASE OR DECREASE BASED ON THE INVESTMENT EXPERIENCE OF THE
POLICY AND ON THE DEATH BENEFIT OPTION CHOSEN.
d. I UNDERSTAND THAT THE CASH SURRENDER VALUE FOR THE FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICY APPLIED FOR MAY INCREASE OR DECREASE BASED ON THE INVESTMENT
EXPERIENCE OF THE POLICY AND IS NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THERE IS NO
GUARANTEED MINIMUM CASH SURRENDER VALUE.
e. I hereby authorize and direct the Company to act on telephone instructions front any person who can furnish proper
identification to
transfer units from any sub-account (fund) to any other sub-account (fund) and/or to change the allocation of future premium
payments. The undersigned agrees that the Company is not liable for any loss arising from any telephone transfer or change in
allocation of future premium payments, ___________ initials of OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
AUTHORIZATION
I, THE PROPOSED INSURED, AUTHORIZE:
1. The disclosure of medical arid other relevant information about me or any of my children to be insured, for the purpose of
determining eligibility for insurance.
2. The following to disclose Such information to Lincoln National Life Insurance Company or its reinsurers, and to testify as to
such information, all to the extent permitted by law: any physician, medical professional, hospital, clinic, or other medical
or any medically related facility; any insurance or reinsurance company; any consumer reporting agency; other insurance support
organization; any employer; the Medical Information Bureau, Inc.; or any other person, organization, or institution that has
any records or knowledge of me, or of my children to be insured, or of our health.
I understand that Lincoln National Life insurance Company may release this information to its reinsuring companies, and may make a
brief report to the Medical Information Bureau, Inc. I agree that this Authorization will be valid for two years and six months from
the date shown below, and that a photocopy of it will be as valid as the original, I know that I may receive a copy of this
Authorization upon request. I acknowledge that I have received the Investigative Consumer Reports notice, the Privacy Notice and the
Important Notice attached to this application.
SIGNATURES
SIGNATURES BELOW INDICATE ACCEPTANCE OF THE "AGREEMENT" AND "AUTHORIZATION" SECTIONS ABOVE.
Signature of PROPOSED INSURED (if a minor, Signature of legal guardian ) X
Signature of APPLICANT (if other than proposed insured) X
Signature of OWNER (if other than proposed insured or applicant) X
CITY STATE DATE
Signed at on
I certify that I have truly arid accurately recorded on this application the information supplied by the proposed insured and/or
applicant.
Signature of AGENT OR BROKER X
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
TERMINAL ILLNESS I acknowledge that I have received the terminal illness accelerated benefit election disclosure
ACCELERATED information, Form 26797.
BENEFIT ELECTION DATE
DISCLOSURE Signature of applicant X
ACKNOWLEDGMENT DATE
Signature of agent or broker X
(DO NOT USE THIS SECTION IN THE STATES OF IL, MA, MI, NJ, PA, TX, District of Columbia)
- ------------------------------------------------------------------------------------------------------------------------------------
Agent's 1. a. How long have you known the proposed insured (applicant if proposed insured is under age 15)?
Report ____________________ How well? ___________________________________________________
b. Purpose of this insurance (if more than one purpose, indicate dollar amount for each purpose)
____________________________________________________________________________
c. Are you aware of anything about the health or hobbies of the proposed insured which might
adversely affect his or her insurability? Yes No
d. Did you see proposed insured when application was signed? Yes No
e. Will premiums be paid from proposed insured's personal funds? Yes No
2. Examination arrangements by____________________________________________________
Date examination ordered_______________________________________________________
IF BLOOD IS DRAWN, Informed Consent form must be signed BEFORE blood is drawn.
3. a. How long has proposed insured lived at present address? ____________________________
b. Previous addresses last five years _______________________________________________
c. Former name of any proposed insured if changed within five years_____________________
d. How much insurance does spouse have? __________________________________________
4. If proposed insured is under age 15, are all brothers and sisters insured? Yes No
If "Yes," give amounts ___________________________________________________________
If "No," give reasons _____________________________________________________________
5. Premium
a. Premium amount to be paid annually $ _______________
b. Additional 1st year lump sum (not 1035) $ _______________
6. To the best of your knowledge does this insurance replace any existing insurance or annuities?
Yes No
7. Replacement instructions
a. Estimated rollover value $ ______________
b. Apply rollover values as follows To pay modal premium
To meet minimum/target As a deposit-COD premium
8. References (names and addresses)_________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
9. Details to any previous questions (state question number) _______________________________________________________
_________________________________________________________________________________________________________________
10. Credit
RMO RMO ACF
CITY/RCEO MAIL CODE OPN ID SOLICITING AGENT/BROKER NUMBER %
<PAGE>
AGENT'S REPORT STATEMENTS BY AGENT
CONTINUED I CERTIFY THAT:
I asked and carefully explained each question to the proposed insured and/or applicant before
recording each answer prior to the application being signed;
The answers given in this application and Agent's Report are complete and accurate to the best of
my knowledge and belief;
The proposed insured and/or applicant knows that any false statement or misrepresentation in the
application may result in loss of coverage under the policy;
I have no personal knowledge of any other factors which may have an effect on the proposed insured(s)'
insurability;
I have given the Investigative Consumer Reports notice, the Privacy Notice., and the Important Notice
attached to this application to the proposed insured(s);
If the insurance applied for will or may replace any existing life insurance policy or annuity contract, I
have completed proper state-required replacement form(s);
If money is submitted with this application, conditions of Conditional Receipt must be met.
IF THE APPLICATION IS FOR A FLEXIBLE PREMIUM VARIABLE LIFE POLICY
I CERTIFY THAT:
I have reasonable grounds to believe the purchase of the policy applied for is suitable for the policy
owner based on the information furnished by the proposed insured and/or policy owner in this application;
A current prospectuses) was (were) delivered to the proposed insured and/or applicant; and
All of the sales materials used have been approved by the Home Office.
DATE
Signature of agent/broker X
PLEASE SUBMIT A COPY OF PAGE I OF THE PROPOSAL WITH THIS APPLICATION.
IF THIS IS A REPLACEMENT, YOU MUST SUBMIT A COPY OF THE ENTIRE PROPOSAL.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR REGIONAL Date application received ____________________
MARKETING OFFICE Inspection ordered
USE APS ordered. Doctor(s) ______________________________________
ONLY Exam ordered. Date _______________________
Check received. Amount $____________ Date of check _________________
Application mailed to Home Office. Date _____________________________
IF BLOOD IS DRAWN, Informed Consent mailed with application to Home Office. (informed
Consent must be signed before blood is drawn.)
Approved by Registered Principal X ________________________________
(If the application is for a Flexible Premium Variable Life policy.)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR HOME OFFICE Amount received $___________________
USE ONLY Suspense date ______________________
<PAGE>
LINCOLN LIFE Lincoln National Life Insurance Co., Fort Wayne, IN 46801-1110, 219-455-2000
- ------------------------------------------------------------------------------------------------------------------------------------
CONDITIONAL NO COVERAGE WILL BECOME EFFECTIVE PRIOR TO DELIVERY OF THE POLICY APPLIED
RECEIPT FOR UNLESS AND UNTIL ALL THE CONDITIONS OF THIS RECEIPT ARE MET. NO AGENT OR
BROKER HAS THE AUTHORITY TO ALTER OR WAIVE ANY OF ITS TERMS OR CONDITIONS.
NO AGENT OR BROKER IS AUTHORIZED TO TAKE A DEPOSIT OR ISSUE THIS RECEIPT AND
NO INSURANCE IS PROVIDED IF THE PROPOSED INSURED HAS WITHIN THE PAST 12
MONTHS BEEN TREATED FOR OR HAD HEART DISEASE, STROKE, CANCER, OR DIABETES.
CONDITIONS WHICH MUST BE MET BEFORE INSURANCE MAY BECOME EFFECTIVE
PRIOR TO DELIVERY OF THE POLICY:
1. An amount equal to at least one full planned modal premium must be submitted, i.e., if requested premium mode
is monthly, then one month's premium must be submitted;
2. All medical examinations, tests, x-rays, and electrocardiograms required by the Company's rules must be
completed within 60 days from the date of this receipt;
3. Each person proposed for coverage must be, on the effective date indicated below, a risk acceptable to the
Company exactly as applied for according to the Company's rules and practices, without modification of plan,
premium rate, or amount of coverage;
4. On the effective date the state of health and all factors affecting the insurability of each person proposed
for coverage must be as stated in applications required by the Company; and
5. The application may NOT request an amount of insurance on each person proposed for coverage that exceeds
$600,000, including accidental death benefit.
EFFECTIVE DATE: If all conditions above are met, then insurance, subject to all terms and conditions of the
policy applied for (as if the policy applied for had already been issued and delivered), will become effective
on the latest of: (a) the date of the application; or (b) the date of completion of all underwriting
requirements stated in (2) above; or (c) any date of issue requested in the application.
IMPORTANT NOTE: On each person proposed for coverage, the amount of insurance, including accidental death
benefit, which may become effective prior to delivery of the policy applied for will not exceed the lower of:
(a) the amount of insurance applied for on this application, or (b) $600,000.
IF ANY OF THE ABOVE CONDITIONS IS NOT MET, THE LIABILITY OF THE COMPANY WILL BE LIMITED TO THE RETURN OF THE
AMOUNT OF MONEY SUBMITTED.
I HAVE READ THE CONDITIONAL RECEIPT, AND I UNDERSTAND AND AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THESE HAVE
BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
DATE
Signature of applicant X________________________________________________________________________________
Any check for which this Conditional Receipt is issued must be made payable to the Company.
Do not make check payable to the agent or leave the payee blank.
Received cash check $_____________ from ___________________________________________________________
on ______________________ in connection with an application for life insurance, including any
riders for which application has been made.
Signature of agent or broker X__________________________________________________________________________________
(DO NOT DETACH)
- ------------------------------------------------------------------------------------------------------------------------------------
EFT Instructions: Complete information, sign and date authorization, attach blank check marked "VOID"
AUTHORIZATION Proposed insured ________________________________ Bank name _________________________
I authorize Lincoln National Life Insurance Company (LNL) to collect premiums and other payments by electronic
fund transfer (EFT), or to effect a charge by any other commercially accepted practice. The enclosed blank check
(marked "VOID") is drawn on the account from which deductions are to be made. This Authorization will apply to
any conversion, renewal, or change later made in the policy, and in no way affects the terms of the policy.
If I change my financial institution or my account number, or want to discontinue this agreement, I agree to
give 30 days notice to LNL. Notice to the financial institution only is not sufficient. LNL may terminate this
agreement if any debit is not paid upon presentation, Any debit returned to LNL marked "insufficient funds or
uncollected funds" will automatically be processed against the account a second time. LNL assumes no
responsibility for bank charges or, in the case of Variable Universal Life, for investment losses on these
debits.
DATE
Signature of bank account owner X______________________________________________________
(DO NOT DETACH)
<PAGE>
LINCOLN LIFE Lincoln National Life Insurance Co., Fort Wayne, IN 46801-1110, 219-455-2000
- ------------------------------------------------------------------------------------------------------------------------------------
CONDITIONAL NO COVERAGE WILL BECOME EFFECTIVE PRIOR TO DELIVERY OF THE POLICY APPLIED
RECEIPT FOR UNLESS AND UNTIL ALL THE CONDITIONS OF THIS RECEIPT ARE MET. NO AGENT OR
BROKER HAS THE AUTHORITY TO ALTER OR WAIVE ANY OF ITS TERMS OR CONDITIONS.
NO AGENT OR BROKER IS AUTHORIZED TO TAKE A DEPOSIT OR ISSUE THIS RECEIPT AND
Customer copy NO INSURANCE IS PROVIDED IF THE PROPOSED INSURED HAS WITHIN THE PAST 12
MONTHS BEEN TREATED FOR OR HAD HEART DISEASE, STROKE, CANCER, OR DIABETES.
CONDITIONS WHICH MUST BE MET BEFORE INSURANCE MAY BECOME EFFECTIVE
PRIOR TO DELIVERY OF THE POLICY:
1. An amount equal to at least one full planned modal premium must be submitted, i.e., if requested premium mode
is monthly, then one month's premium Must be Submitted;
2. All medical examinations, tests, x-rays, and electrocardiograms required by the Company's rules must be
completed within 60 days from the date of this receipt;
3. Each person proposed for coverage must be, on the effective date indicated below, a risk acceptable to the
Company exactly as applied for according to the Company's rules and practices, without modification of plan,
premium rate, or amount of coverage;
4. On the effective date the state of health and all factors affecting the insurability of each person proposed
for coverage must be as stated in applications required by the Company; and
5. The application may NOT request an amount of insurance on each person proposed for coverage that exceeds
$600,000, including accidental death benefit.
EFFECTIVE DATE: If all conditions above are met, then insurance, subject to all terms and conditions of the
policy applied for (as it the policy applied for had already been issued and delivered), will become effective
on the latest of: (a) the date of the application; or (b) the date of completion of all underwriting
requirements stated in (2) above; or (c) any date of issue requested in the application.
IMPORTANT NOTE: On each person proposed for coverage, the amount of insurance, including accidental death
benefit, which may become effective prior to delivery of the policy applied for will not exceed the lower of:
(a) the amount of insurance applied for on this application, or (b) $600,000.
IF ANY OF THE ABOVE CONDITIONS IS NOT MET, THE LIABILITY OF THE COMPANY WILL BE LIMITED TO THE RETURN OF THE
AMOUNT OF MONEY SUBMITTED.
I HAVE READ THE CONDITIONAL RECEIPT, AND I UNDERSTAND AND AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THESE HAVE
BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
DATE
Signature of applicant X________________________________________________________________________________________
Any check for which this Conditional Receipt is issued must be made payable to the Company.
Do not make check payable to the agent or leave the payee blank.
Received cash check $______________________ from _________________________
on _________________ in connection with an application for life insurance, including any riders
for which application has been made.
DATE
Signature of agent or broker X _________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
EFT Instructions: Complete information, sign and date authorization, attach blank check marked "VOID"
AUTHORIZATION Proposed Insured __________________________________________ Bank name _____________
Customer copy I authorize Lincoln National Life Insurance Company (LNL) to collect premiums and other payments by electronic
fund transfer (FFT), or to effect a charge by any other commercially accepted practice. The enclosed blank check
(marked "VOID") is drawn on the account from which deductions are to be made. This Authorization will apply to
any conversion, renewal, or change later made in the policy, and in no way affects the terms of the policy.
If I change my financial institution or my account number, or want to discontinue this agreement, I agree to
give 30 days notice to LNL. Notice to the financial institution only is not sufficient. LNL may terminate this
agreement if any debit is not paid upon presentation. Any debit returned to LNL marked "insufficient funds or
uncollected funds" will automatically be processed against the account a second time. LNL assumes no
responsibility for bank charges or, in the case of Variable Universal Life, for investment losses on these
debits.
Signature of bank account owner X ______________________________________________________
<PAGE>
LINCOLN LIFE Lincoln National Life insurance Co., Fort Wayne, IN 46801-1110, 219-455-2000
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTIGATIVE As part of our regular underwriting procedure, an investigative consumer report may be obtained
CONSUMER which will provide applicable information concerning character, general reputation, personal
REPORTS characteristics, arid mode of living. This information will he obtained through personal interviews with
your friends, neighbors, and associates. You may (1) request to be personally interviewed and/or (2) request a
copy of the investigative consumer report. Further information on the nature and
Customer copy scope of the report will be provided upon written request to the Underwriting Manager, Lincoln
National Life insurance Co., P.O. Box 1110, Fort Wayne, Indiana 46801. You may receive a copy of
such report by mailing a written request to us, your agent, or the reporting agency after
proper identification.
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVACY NOTICE Personal information may be collected from persons other than you. Such information, as well as
other personal or privileged information subsequently collected by us or your agent, may in certain
circumstances be disclosed to third parties without authorization. You have a right of access and
Customer copy correction with respect to all personal information collected. A detailed notice of information practices
will be furnished to you upon request.
- ------------------------------------------------------------------------------------------------------------------------------------
IMPORTANT The underwriting process (evaluation and classification of risks) is necessary to assure reasonable cost
NOTICE of insurance and provide a mechanism by which policyholders pay their fair share of the cost. In
considering your application, information from various sources is considered, including your own state-
ments, the results of your physical examination (if required), arid any reports we obtain from
Customer copy doctors or medical facilities where you have received treatment or consultation.
Information regarding your insurability and/or any past or future claims will be treated as confidential.
We, or our reinsurers, may, however, make a brief report thereon to the Medical Information Bureau, a
non-profit corporation, which operates as an information exchange on behalf of its members. If you
apply to another Bureau member company for life or health insurance coverage, or a claim for benefits
is submitted to such a company, the Bureau, upon request, will supply such company with the
information it may have in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have
in your file. if you question the accuracy of information in the Bureau's file, you may contact the
Bureau and seek a correction in accordance with the procedures set forth in the Federal Fair Credit
Reporting Act. The address of the Bureau's information office is Post Office Box 105, Essex Station,
Boston, MA 02112, telephone number (617) 426-3660. We, or our reinsurers, may also release
information in our file to other life insurance companies to whom you may apply for life or health
insurance, or to whom a claim may be submitted.
- ------------------------------------------------------------------------------------------------------------------------------------
AGREEMENT I UNDERSTAND AND AGREE THAT:
1. This application is made up of Part One, Part One TR (if completed), and Part Two if required by
Lincoln National Life Insurance Company (the "Company"). The application, any policy issued as a
Customer copy result of it, and any papers attached to the policy by the Company will form the entire contract of
This is a copy insurance.
of the agreement 2. Only an officer of the Company (the President, a Vice President, the Secretary, or an Assistant
you signed in Secretary) may make or alter any contract or agree not to enforce any of the Company's rights.
the application No agent, broker, or medical examiner is authorized to accept risks, pass on insurability,
make or alter contracts, or waive any of the Company's other rights or requirements.
Notice to or knowledge imptuted to any agent, broker, or medical examiner will not be notice to
or knowledge to the Company unless it is set out in writing in this application.
3. I have read the statements and answers in this application. To the best of my knowledge and belief,
they are true, complete, and correctly stated. They will be the basis for any policy issued based on
this application.
4. Acceptance of the policy will mean acceptance of its terms and ratification of any changes noted on
the "Home Office Corrections or Additions" addendum in the policy. The following changes must be
agreed to by me in writing: age at issue; plan or amount of insurance; premium; classification of
risks; or added benefits.
5. Unless the policy becomes effective as specified in the Conditional Receipt attached to this
application, the Company will incur no liability until: (1) any policy applied for has been delivered
to and accepted by me; and (2) the first premium is paid. When I accept the policy, the state of
health of the Proposed insured and/or applicant or any other factor affecting insurability must be the
same as set forth in this application.
6. I HAVE RECEIVED THE CONDITIONAL RECEIPT IF MONEY WAS SUBMITTED WITH THIS APPLICATION.
I HAVE READ THE CONDITIONAL RECEIPT AND AGREE TO ITS TERMS, CONDITIONS, AND LIMITS. THEY
HAVE BEEN FULLY EXPLAINED TO ME BY THE AGENT OR BROKER.
THIS PAGE MUST BE DELIVERED TO THE PROPOSED INSURED
</TABLE>
<PAGE>
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY BE
FIXED OR MAY VARY DEPENDING ON THE INVESTMENT EXPERIENCE OF THIS POLICY AND ON
THE DEATH BENEFIT OPTION SELECTED AS DESCRIBED IN THE DEATH BENEFIT SECTION OF
THIS POLICY.
THE CASH SURRENDER VALUE MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
EXPERIENCE OF THIS POLICY. NO MINIMUM CASH SURRENDER VALUE IS GUARANTEED.
We agree to pay the Proceeds to the Beneficiary after receipt of due proof of
the death of the Insured while this Policy is in force and before the Maturity
Date.
We agree to pay the Proceeds to the Owner if the Insured is living on the
Maturity Date.
READ THIS POLICY CAREFULLY. This is a legal contract between the Owner and the
Lincoln National Life Insurance Company.
RIGHT TO RETURN THIS POLICY. This Policy may be returned to the agent through
whom it was purchased or to our Home Office by the latest of. (1) 10 days after
its receipt, or (2) 45 days after Part 1 of the application was signed, or (3)
10 days after we mail or deliver the Notice of Withdrawal Right. Upon
cancellation this Policy will be void from the beginning. The refund will be the
total of all premiums paid for this Policy.
Signed for The Lincoln National Life Insurance Company at its Home Office in
Fort Wayne, Indiana.
/s/ Jon A. Boscia /s/ C. Suzanne Womack
JON A. BOSCIA, PRESIDENT C. SUZANNE WOMACK, SECRETARY
Flexible Premium Variable Life Insurance Policy
Flexible Premiums Payable Until Death or Maturity Date
Adjustable Death Benefit
Death Benefit Payable at Death Prior to Maturity Date
Net Cash Surrender Value Payable at Maturity Date
Nonparticipating - No Dividends
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
POLICY SCHEDULE
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
THE CONTRACT 1
OWNERSHIP, BENEFICIARY, AND ASSIGNMENT 2
PREMIUM, GRACE PERIOD, DEATH BENEFIT GUARANTEE, CONTINUATION OF
INSURANCE, AND REINSTATEMENT 2
GENERAL ACCOUNT 3
ACCOUNT 4
INVESTMENT AMOUNT AND TRANSFERS 4
POLICY VALUES 4
SURRENDER AND WITHDRAWALS 6
LOANS 7
DEATH BENEFIT 7
CHANGES 7
PROCEEDS 8
RIDERS AND AMENDMENTS, IF ANY
</TABLE>
As used in this Policy, the terms 'We', 'Us', and 'Our' refer to The Lincoln
National Life Insurance Company.
"Insured," as used in this Policy, means the person so named on the Policy
Schedule.
VUL5
<PAGE>
POLICY SCHEDULE
THE MATURITY DATE IS THE POLICY ANNIVERSARY FOLLOWING THE INSURED'S NINETY-NINTH
BIRTHDAY. COVERAGE MAY EXPIRE PRIOR TO THE MATURITY DATE IF NO PREMIUMS ARE PAID
AFTER THE INITIAL PREMIUM OR IF SUBSEQUENT PREMIUMS ARE INSUFFICIENT TO CONTINUE
COVERAGE TO SUCH DATE. COVERAGE MAY ALSO BE AFFECTED BY A CHANGE IN CURRENT
VALUES.
POLICY NUMBER: 20 123456 POLICY DATE: SEPTEMBER 1, 1993
INSURED: ABRAHAM LINCOLN MATURITY DATE: SEPTEMBER 1, 2057
SPECIFIED AMOUNT: $100,000 INITIAL PREMIUM: $2,000.00
INCLUDES THE POLICY VALUE
PLANNED PERIODIC PREMIUM:
MALE AGE: 35 AMOUNT: $2,000.00
RATE CLASS: STANDARD NONSMOKER FREQUENCY: ANNUALLY
MONTHLY ANNIVERSARY DAY: 01 GUARANTEED MAXIMUM PERCENT
OF PREMIUM CHARGE: 8.50%
MINIMUM SPECIFIED AMOUNT: $50,000.00 APPLIES TO ALL PREMIUMS
MINIMUM WITHDRAWAL AMOUNT: $500.00 POLICY LOAN RATE: 6% IN ADVANCE
PERCENT OF WITHDRAWAL CHARGE: 5% LOAN COLLATERAL RATE: 3%
MINIMUM WITHDRAWAL CHARGE: $25.00 GENERAL ACCOUNT GUARANTEED
INTEREST
MAXIMUM WITHDRAWAL PERCENT: 20% RATE: .24662% PER MONTH WHICH
EQUALS 3% PER YEAR
CHARGE FOR TRANSFER: $10.00 DEATH BENEFIT FACTOR: 1.0024662
DEATH BENEFIT GUARANTEE PERIOD: GUARANTEED MAXIMUM MORTALITY AND
60 MONTHS EXPENSE RISK CHARGE RATE: .90%
DEATH BENEFIT GUARANTEE MONTHLY
PREMIUM: $166.66
<PAGE>
POLICY SCHEDULE
POLICY NUMBER: 20 123456 POLICY DATE: SEPTEMBER 1, 1993
INSURED: ABRAHAM LINCOLN
TABLE OF MONTHLY CHARGES
<TABLE>
<CAPTION>
POLICY MONTHLY POLICY MONTHLY
YEAR CHARGES YEAR CHARGES
<S> <C> <C> <C>
1 $75.00 12 $75.00
2 75.00 13 75.00
3 75.00 14 75.00
4 75.00 15 75.00
5 75.00 16 75.00
6 75.00 17 75.00
7 75.00 18 75.00
8 75.00 19 75.00
9 75.00 20 75.00
10 75.00 THEREAFTER 75.00
11 75.00
</TABLE>
MONTHLY CHARGES WILL BE DEDUCTED FROM THE POLICY VALUE AT THE SAME TIME AND IN
THE SAME MANNER AS THE COST OF INSURANCE.
TABLE OF SURRENDER CHARGES
<TABLE>
<CAPTION>
POLICY SURRENDER POLICY SURRENDER
YEAR CHARGES YEAR CHARGES
<S> <C> <C> <C>
1 $2,429 14 $ 1,166
2 2,332 15 1,069
3 2,235 16 972
4 2,138 17 874
5 2,040 18 777
6 1,943 19 680
7 1,846 20 583
8 1,749 21 486
9 1,652 22 389
10 1,555 23 291
11 1,457 24 194
12 1,360 25 97
13 1,263 THEREAFTER 0
</TABLE>
SURRENDER CHARGES WILL ONLY BE DEDUCTED FROM THE POLICY VALUE IF THE SPECIFIED
AMOUNT IS DECREASED OR IF THIS POLICY TERMINATES DUE TO LAPSE OR SURRENDER.
<PAGE>
POLICY SCHEDULE
ACCOUNT AND SUBACCOUNTS
POLICY NUMBER 20 123456 POLICY DATE: SEPTEMBER 1, 1993
INSURED: ABRAHAM LINCOLN
ACCOUNT: LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
SUBACCOUNTS: EACH SUBACCOUNT OF THE LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE
LIFE ACCOUNT J INVESTS IN A SPECIFIC FUND. LISTED BELOW ARE THE SUBACCOUNTS, THE
FUNDS, AND THE INITIAL ALLOCATION OF NET PREMIUMS.
<TABLE>
<CAPTION>
SUBACCOUNT FUND ALLOCATION
<S> <C> <C>
INTERNATIONAL AMERICAN VARIABLE INSURANCE SERIES, 100%
INTERNATIONAL FUND
ASSET ALLOCATION AMERICAN VARIABLE INSURANCE SERIES, 0%
ASSET ALLOCATION FUND
GROWTH AMERICAN VARIABLE INSURANCE SERIES, 0%
GROWTH FUND
GROWTH-INCOME AMERICAN VARIABLE INSURANCE SERIES, 0%
GROWTH-INCOME FUND
HIGH-YIELD BOND AMERICAN VARIABLE INSURANCE SERIES, 0%
HIGH-YIELD BOND FUND
U.S. GOVERNMENT/ AMERICAN VARIABLE INSURANCE SERIES, 0%
AAA-RATED SECURITIES U.S. GOVERNMENT/AAA-RATED
SECURITIES FUND
CASH MANAGEMENT AMERICAN VARIABLE INSURANCE SERIES, 0%
CASH MANAGEMENT FUND
BOND AMERICAN VARIABLE INSURANCE SERIES 0%
BOND FUND
<CAPTION>
IN ADDITION TO THE NET PREMIUM ALLOCATIONS ABOVE, THE INITIAL ALLOCATION OF NET
PREMIUMS TO THE GENERAL ACCOUNT IS INDICATED BELOW:
<S> <C>
LINCOLN NATIONAL LIFE INSURANCE COMPANY GENERAL ACCOUNT 0%
</TABLE>
<PAGE>
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
GUARANTEED MAXIMUM COST OF INSURANCE RATES PER $1000
STANDARD NONSMOKER RATE 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 .06583 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 a rated class (other
than standard nonsmoker ) is shown on the Policy Schedule, the guaranteed
maximum cost of insurance rates will be determined by multiplying the rates for
a standard nonsmoker rate class shown above by the rated class factor shown in
the table below. 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.
<TABLE>
<CAPTION>
Rated Class Factors
<S> <C>
A = 1.25 F = 2.50
B = 1.50 H = 3.00
C = 1.75 J = 3.50
D = 2.00 L = 4.00
E = 2.25 P = 5.00
</TABLE>
<PAGE>
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
GUARANTEED MAXIMUM COST OF INSURANCE RATES PER $1000
STANDARD SMOKER RATE 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>
16 .16333 .08417 58 1.71167 .96333
17 .17500 .08833 59 1.85833 1.01583
18 .18417 .09250 60 2.02083 1.07833
19 .19000 .09500 61 2.20500 1.15667
20 .19333 .09750 62 2.41250 1.25750
21 .19333 .09917 63 2.64500 1.38083
22 .19000 .10167 64 2.89917 1.51750
23 .18667 .10417 65 3.16833 1.66250
24 .18167 .10667 66 3.45000 1.80917
25 .17583 .10917 67 3.74167 1.95167
26 .17250 .11333 68 4.04833 2.09583
27 .17083 .11667 69 4.38083 2.25250
28 .17083 .12083 70 4.74833 2.43750
29 .17333 .12583 71 5.16167 2.67167
30 .17750 .13167 72 5.62917 2.95917
31 .18333 .13667 73 6.14833 3.30167
32 .19083 .14250 74 6.71667 3.69167
33 .20083 .15000 75 7.32500 4.11833
34 .21250 .15833 76 7.94833 4.57167
35 .22667 .16750 77 8.57417 5.04667
36 .24333 .18167 78 9.20750 5.54833
37 .26417 .19833 79 9.87083 6.09583
38 .28750 .21750 80 10.58667 6.70917
39 .31417 .23833 81 11.57417 7.40667
40 .34500 .26333 82 12.24833 8.20083
41 .37833 .29000 83 13.19583 9.11833
42 .41500 .31667 84 14.18417 10.11583
43 .45500 .34333 85 15.18000 11.17750
44 .49917 .37000 86 16.16000 12.29500
45 .54583 .39833 87 17.16750 13.45750
46 .59417 .42750 88 18.22000 14.67167
47 .64667 .45750 89 19.26833 15.93750
48 .70333 .49000 90 20.32833 17.34333
49 .76500 .52583 91 21.43250 18.86250
50 .83333 .56417 92 22.71667 20.55167
51 .91083 .60500 93 24.36833 22.54333
52 .99917 .65167 94 26.62917 25.22250
53 1.09833 .70333 95 30.20667 29.24917
54 1.20667 .75583 96 36.35750 35.72167
55 1.32333 .81000 97 47.21167 46.86750
56 1.44583 .86333 98 66.20667 66.09417
57 1.57500 .91417
- --------------------------------------------------------------------------------
</TABLE>
The rates shown are for a standard smoker rate class. If a rated class (other
than standard smoker) is shown on the Policy Schedule, the guaranteed maximum
cost of insurance rates will be determined by multiplying the rates for a
standard smoker rate class shown above by the rated class factor shown in the
table below. The rates shown above are based on the 1980 Commissioners Standard
Ordinary Smoker Mortality Table, Age Last Birthday.
<TABLE>
<CAPTION>
Rated Class Factors
<S> <C>
A = 1.25 F = 2.50
B = 1.50 H = 3.00
C = 1.75 J = 3.50
D = 2.00 L = 4.00
E = 2.25 P = 5.00
</TABLE>
VULN5
<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 from
the Policy Date 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 under this
Policy with respect to such increase will be its Cost of Insurance and Monthly
Charges.
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, minus any withdrawals and minus the
cost of any riders, since the effective date of the reinstatement, minus any
policy loan, plus any unearned loan interest.
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:
a. 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.
b. For any increase or addition to coverage, the effective date will be the
first Monthly Anniversary Day concurrent with or next following the day We
approve the application for that increase or addition.
c. For any decrease in coverage, the effective date will be the first Monthly
Anniversary Day concurrent with or next following the day We receive the
request.
d. For any insurance that has been reinstated, the effective date will be the
first Monthly Anniversary Day concurrent with 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:
a. The grace period ends as provided in the Grace Period provision without
payment of required premium and the Policy is not being continued under the
Death Benefit Guarantee provision.
b. This Policy is surrendered.
c. The Insured dies.
d. 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 Maturity date is shown on the Policy
Schedule. Coverage under this policy 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 the Maturity Date.
AGE. Age means the Insured's age last birthday on the Policy Date. Attained age
means age last birthday on the policy anniversary concurrent with 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.
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 current Death Benefit;
<PAGE>
d. any current policy loans; and
e. 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. Upon request, 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 Periodic 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
We have made 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.
If not otherwise provided:
a. The interest of any Beneficiary who dies before the Insured will pass to
any other Beneficiaries according to their interests.
B. If no Beneficiary survives the Insured, the Pro- ceeds 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.
The request to change the Beneficiary designation must be in writing on a form
acceptable to Us. We reserve the right to require this Policy for endorsement
of a change of Beneficiary. A change of Beneficiary will revoke any prior
Beneficiary 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. 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.
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.
The Initial Premium is payable at the Home Office or may be delivered to any
authorized agent of the Company. Planned Periodic Premiums are payable at the
Home Office. Premium checks should be made payable to The Lincoln national Life
Insurance Company. 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.
Additional premium payments may be made at any time prior to the Maturity Date.
We reserve the right to limit the number and amount of additional premium
payments.
Total premiums will be limited so that this Policy will continuously satisfy the
premium limitations under Section 7702 of the Internal Revenue Code of 1986, as
amended. If any portion of a premium payment is in excess of the
<PAGE>
limitation, a refund of the excess premium, with current interest credited
thereon, will be made to the Owner. The refund will be made within 60 days after
the end of the policy year in which We receive the excess. If a refund of the
excess premium is not made for any reason within 60 days after the end of the
policy year, the Specified Amount will automatically increase so that this
Policy will continuously satisfy the premium limitations of Section 7702.
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 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 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 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 with- drawals 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.
If C ever exceeds A minus B, the Death Benefit Guarantee no longer applies.
We reserve the right to increase the Death Benefit Guarantee Monthly Premium
when any one of the following occurs after the Policy Date:
a. an increase in coverage under this Policy;
b. An increase in coverage under any rider; or
c. The addition of a rider.
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 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 Pol- icy in force for a
minimum of 2 months.
Reinstatement will become effective on the date described in the Effective Date
of Coverage provision.
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 account shown
on the Policy Schedule. This Account 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.
The allocation of future premium amounts may be changed at any time while this
Policy is in force. The request for change must be in writing on a form
acceptable to Us. The change will take effect on the date the request is
received at the 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
<PAGE>
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 in which this Policy was 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 depends
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 while
this Policy is in force.
TRANSFERS. If this Policy is in force, amounts may be transferred as follows:
a. Among Subaccounts, amounts may be transferred as often as twelve times
during a policy year.
b. To the General Account from any of the Subaccounts, amounts may be
transferred twelve times during a policy year.
c. 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.
The request to transfer amounts must be in writing on a form acceptable 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 the 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.
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; and
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;
i. all Partial Surrender Charges deducted since the preceding day;
j. the Monthly Charge for the following month;
k. the Cost of Insurance for the following month; and
l. any charges for extra benefits.
On any day other than a Monthly Anniversary Day, the Policy Value is equal to
the sum of the following:
a. the Policy Value on the preceding day;
b. any increase due to Net Investment Results in the value of the Subaccounts
to which the Investment Amount is allocated;
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; and
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; and
i. all Partial Surrender Charges deducted since the preceding day.
The Policy Value on the Policy Date will be the initial Net Premium minus the
sum of the following:
a. the Monthly Charge for the first month;
b. the Cost of Insurance for the first month; and
c. any charges for extra benefits.
When the Monthly 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 of Insurance for
this Policy is equal to:
a. the Death Benefit on the Monthly Anniversary Day;
<PAGE>
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 provision.
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 the 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
attained age, sex, and rate 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 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. These rates are based on the
mortality tables 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 CHARGE. The Monthly Charge is the charge for this Policy plus the charge
for any riders. The Table of Monthly Charges for this Policy is shown on the
Policy Schedule.
Monthly Charges are computed separately for the initial Specified Amount and for
each subsequent increase in the Specified Amount. If We approve a requested
increase in the Specified Amount, additional Monthly Charges will apply to this
Policy. We will send an additional Table of Monthly Charges to the Owner.
PERCENT OF PREMIUM CHARGE. The Guaranteed Maximum Percent of Premium Charge
used to determine the Net Premium is shown on the Policy Schedule. We may
use a Percent of Premium Charge which is less than the Guaranteed Maximum
Percent of Premium Charge.
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 applicable Surrender Charges.
SURRENDER CHARGE. The Table of Surrender Charges is shown on the Policy
Schedule.
Surrender Charges are computed separately for the initial Specified Amount and
for each subsequent increase in the Specified Amount, If We approve a requested
increase in the Specified Amount, additional Surrender Charges will apply to
this Policy, We will send an additional 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
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 Charge for
the next month, this Policy will terminate subject to the Grace Period
provision.
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 Policy Date should equal the General Account Guaranteed Interest Rate
shown on the Policy Schedule, with premiums and benefits determined
accordingly under the terms of this Policy, then the resulting Cash Surrender
Value will never be less than the minimum cash surrender value calculated
according to the Standard Non-forfeiture Law using the General Account
Guaranteed Interest Rate and using:
a. the 1980 Commissioners Standard Ordinary Mortality Table, Age Last
Birthday, 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
<PAGE>
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 acceptable 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 the Home Office.
Partial Surrender Charges that are the result of decreases in the Specified
Amount are described in the Changes in Amount of Insurance Coverage provision.
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 Charges are 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 Charges are 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 acceptable to Us.
An amount equal to the Withdrawal Charge will be deducted from each withdrawal
amount and the balance paid to the Owner. During any year in which the Surrender
Charges are greater than zero, the Withdrawal Charge will be equal to the
greater of
a. the Minimum Withdrawal Charge shown on the Policy Schedule; or
b. the withdrawal amount times the Percent of With- drawal Charge shown on the
Policy Schedule.
The excess, if any, of the Withdrawal Charge over the Minimum Withdrawal Charge
may not exceed the Surrender Charge and will reduce the Surrender Charge by the
amount of any such excess.
During any year in which the Surrender Charges are equal to zero, the Withdrawal
Charge will be the Minimum Withdrawal Charge.
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 I or by any other method requested
by the Owner and acceptable to Us. If the Death Benefit coverage is Type 1, the
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 provision. No withdrawal will be allowed if
the resulting 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 the Home Office.
LOANS
CASH LOANS. While this Policy is in force, 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 the 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 of all policy loans plus loan interest equals or
exceeds the Cash Surrender Value, this Policy will terminate, 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. Interest is payable annually in advance. Interest
which is not paid when due will be added to the loan and will bear interest at
the same rate as the loan.
LOAN REPAYMENTS. Loan repayments will be allocated to the Subaccounts in accord
with the most recent premium allocation or by any other method requested by the
Owner and acceptable to Us.
DEATH BENEFIT
DEATH BENEFIT. Subject to the provisions of this Policy, the Death Benefit
coverage at any time prior to the Maturity Date
<PAGE>
will be either Type 1 or Type 2 as defined below.
Type 1. Basic Coverage. If the Specified Amount includes the Policy Value, as
shown on the Policy Schedule, the Death Benefit at any time will equal
the Specified Amount.
Type 2. Basic plus Policy Value Coverage. If the Specified Amount is in
addition to the Policy Value, as shown on the Policy Schedule, the
Death Benefit at any time will be equal to the Policy Value plus the
Specified Amount.
The 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
attained age as of will decrease
the beginning of the proportionally
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
Death Benefit coverage. The request must be in writing on a form acceptable
to Us. The change will be effective on the first Monthly Anniversary Day
concurrent with or next following the day We receive the request. No change
in the type of Death Benefit coverage will be allowed if the resulting
Specified Amount would be less than the Minimum Specified Amount shown on the
Policy Schedule. The Specified Amount will be changed as follows:
a. If the change is from Type I to Type 2, the Specified Amount after such
change will be equal to:
1. the Specified Amount prior to such change; minus
2. the Policy Value on the date of change.
b. If the change is from Type 2 to Type 1, the Speci- fied Amount after such
change will be equal to:
1. the Specified Amount prior to such change; plus
2. the Policy Value on the date of change.
CHANGES IN AMOUNT OF INSURANCE COVERAGE. The 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 acceptable to Us.
Any decrease will become effective on the date described in the Effective Date
of Coverage provision. Any such decrease will reduce insurance in the following
order:
a. against the insurance segment provided by the most recent increase;
b. against the insurance segments provided by the next most recent increases
successively; and
c. against the insurance segment provided under the original application.
Any decrease will be subject to the deduction of Partial Surrender Charges from
the Policy Value. The Partial Surrender Charge deducted for each insurance
segment will be equal to:
a. the Surrender Charge shown on that insurance segment's Policy Schedule as
of the date of the decrease; multiplied by
b. the amount of the decrease applicable to that insurance segment; divided by
c. the original amount of that insurance segment.
The total Partial Surrender Charge deducted as of the date of the decrease will
be equal to the sum of the Partial Surrender charges for each insurance segment.
Following the date of the decrease, the Surrender Charges will be reduced. The
Surrender Charges remaining for each insurance segment will be equal to:
a. the Surrender Charges shown on that insurance segment's Policy Schedule
following the date of the decrease; multiplied by
b. the amount of insurance remaining in effect for that insurance segment
immediately following the most recent decrease; divided by
c. the original amount of that insurance segment.
Following the date of the decrease, the total Surrender Charges remaining will
be equal to the sum of the Surrender Charges remaining for each insurance
segment.
Decreases will be allowed only to the extent that the Policy Value equals or
exceeds the sum of all Partial Surrender Charges to be deducted as a result of
the decrease. We may limit the amount of any decrease that would result in this
Policy becoming disqualified as life insurance under Section 7702 of the
Internal Revenue Code of 1986, as amended. The Specified Amount after any
requested decrease may not be less than the Minimum Specified Amount shown on
the Policy Schedule.
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 next Monthly Charge, and the additional Surrender
Charges due to such increase.
<PAGE>
Any increase will become effective on the date described in the Effective Date
of Coverage provision.
APPLICATION FOR ADDITIONAL INSURANCE. Additional insurance on the lives 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
Charge. The new insurance will be provided by rider and will become effective on
the date described in the Effective Date of Coverage provision.
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
Date to the 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
the date of payment may be applied to any Payment Option.
CLAIMS OF CREDITORS. To the extent allowed by law, the 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 Payment Option We offer on the
Option Date. The Option Date is any date this Policy terminates under the
Termination provision. When Proceeds become payable under a Payment Option, a
Payment Contract will be issued to the payee in exchange for this Policy.
<PAGE>
Flexible Premium Variable Life Insurance Policy
Flexible Premiums Payable Until Death or Maturity Date
Adjustable Death Benefit
Death Benefit Payable at Death Prior to Maturity Date
Net Cash Surrender Value Payable at Maturity Date
Nonparticipating - No Dividends
If you have any questions concerning this Policy or if
anyone suggests that you change or replace this Policy,
please contact your Lincoln National Life agent or the
Home Office of the Company.
THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY
1300 SOUTH CLINTON STREET
P.O. BOX 1110
FORT WAYNE, INDIANA 46801
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 46801
Fax: 219-455-5135
Writer's Direct Dial
219-455-3018
June 17, 1994
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, IN 46801
Re: Lincoln Life Flexible Premium Variable Life Account J, a
Segregated Account of The Lincoln National Life Insurance Company -
Registration Under the Securities Act of 1933 on Form S-6.
Ladies and Gentlemen:
I have made such examination of law and have examined such records and documents
as I have deemed necessary to render the opinion expressed below.
I am of the opinion that upon acceptance by Lincoln Life Flexible Premium
Variable Life Account J (the "Fund"), a segregated account of The Lincoln
National Life Insurance Company (LNL), of contributions from a person pursuant
to an insurance policy issued in accordance with the prospectus contained in the
registration statement on Form S-6, and upon compliance with applicable law,
such person will have a legally issued interest in his or her individual account
with the Fund, and the securities issued will represent binding obligations of
LNL.
I consent to the filing of this Opinion as an exhibit to the Fund's
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6.
Very truly yours,
/s/ Jeremy Sachs
Jeremy Sachs
Assistant General Counsel
JS/ryj
V10N12LA
<PAGE>
April 15, 1998
Gentlemen:
This Opinion is furnished in connection with the filing of Post-Effective
Amendment #7 to Registration #33-76434 for the Lincoln Life Flexible Premium
Variable Life Account J. 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 # 7 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus contained in the Registration Statement.
Sincerely,
/s/ Denis G. Schwartz
- -----------------------
Denis G. Schwartz, FSA
Second Vice President
Business Engineering
<PAGE>
Exhibit 6
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
in the Post-Effective Amendment No. 7 to the Registration Statement
(Form S-6 No. 33-76434) and the related Statement of Additional
Information appearing therein and pertaining to Lincoln Life Flexible Premium
Variable Life Account J, and to the use therein of our reports
dated (a) February 5, 1998, with respect to the statutory-basis financial
statements of The Lincoln National Life Insurance Company, and
(b) April 8, 1998, with respect to the financial statements of Lincoln Life
Flexible Premium Variable Life Account J.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 21, 1998
<PAGE>
June 10, 1994
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES FOR
LINCOLN LIFE FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT J
Pursuant to Rule 6e-3(T)(b)(12)(iii)
And to Rule 6e-3(T)(b)(13)(v)(B)
This document describes the administrative procedures to be used by The Lincoln
National Life Insurance Company ("Lincoln Life") in the issuance of its
flexible premium variable life policy ("Policylt"), the transfer of assets held
thereunder, and the redemption by Owners of their interests in the Policy.
I. UNDERWRITING AND ISSUE
A. Application Process
Purchase of the Policy normally begins with the application process.
In this process, the applicant completes and signs an application that
has been filed and approved by the State Insurance Department. The
application contains questions on the identity and health of the
proposed insured, as well as other information used in the
underwriting and issue process. The application is also signed by the
agent, who is a licensed representative of Lincoln Life. In some
circumstances involving groups of individuals related by association,
employer, or some other affiliation, a shortened form of the
application may be used; such form contains fewer questions and the
underwriting is either done on a "simplified issue" or a "guaranteed
issue" basis.
The application may be submitted to Lincoln Life with or without a
premium payment (there are restrictions as to the maximum Specified
Amount that may be applied for when premium is accepted with the
application). When premium is accepted with the application, a
Conditional Receipt is given to the applicant.
B. Underwriting Process
The underwriting process consists of a thorough review of the
information contained in the application. In addition to this
information, the underwriting procedures establish certain other
underwriting requirements that must be met for various age and
Specified Amount combinations. Such additional requirements would
include any or all of such items as follows: inspection reports (by
telephone or in person), Medical Information Bureau reports, Attending
Physician Statements, Motor Vehicle Reports, and various levels of
physical examination by paramedical or medical personnel. The
underwriting process results in an evaluation by the underwriter of
the nature and degree of mortality risk associated with the proposed
insured. The underwriter assigns a classification ranging from
"preferred" to "declined," depending on the health, avocations and
other criteria of the proposed insured. Table ratings and temporary or
flat extra...premiums are used when appropriate. Insureds are also
classified on the basis of their tobacco use.
C. Issue Process
The issue process consists of "building" the policy on the computer
system that issues and administers the Policy, as well as the printing
and assembling of the policy itself. The underwriting class assigned
by the underwriter is reflected in the Cost of Insurance Charges used
in the policy. The policy reflects the Specified Amount, beneficiary,
and other relevant information contained on the application. The
policy is normally delivered by the agent to the applicant or owner;
if no premium was accepted with the application, the premium is
normally collected when the policy is delivered. In cases where the
premium is to be paid by the proceeds of a surrender of an existing
life insurance policy, the proceeds are normally paid directly to
Lincoln Life by the other insurance company.
The minimum Specified Amount that may be issued is $50,000; there is no stated
maximum Specified Amount allowable. Issue ages for the primary
insured may be from 0 to 80 inclusive.
D. Increases in specified Amount
The owner may apply for increases to the Specified Amount. The underwriting and
issue processes for such increases are analagous to those used for new issues,
except that if sufficient net cash surrender value exists in the policy to fund
the new surrender charges and monthly deductions associated with the increase,
no additional premium will be required for the increase.
E. Reinstatements
Policies that lapse due to insufficient premium payments or insufficient policy
value may be reinstated within 5 years of the date of lapse. An application
similar to that required for new issue is required and the proposed insured must
qualify for the same underwriting class as originally issued. Premiums
sufficient to make the next two Death Benefit Guarantee Monthly Premiums (if the
net cash surrender value is negative) or else the next two monthly deductions
are required to reinstate the Policy. The period from lapse to reinstatement
becomes a period of noncoverage.
II. PREMIUM PROCESSING
A. Initial Premium
Premiums may be paid annually, semi-annually, quarterly, or monthly
Automatic Bank Check. The minimum initial premium required to place the Policy
in force is the first modal premium (annual, semiannual, quarterly) or, for
Automatic Bank Check policies, the Death Benefit Guarantee Monthly Premium
(Minimum Premium) for the first two months of coverage. (The
Minimum Premium is based on the age, sex, classification, Specified Amount, and
number and amounts of any riders on the Policy. State insurance laws
may prohibit unfair discrimination among insureds but recognize that
premiums may be based upon factors such as age, sex, health, and
occupation.) Subject to the Minimum Premium requirements for the first
policy year and subject to Federal maximum premium limitations, premiums are
flexible and may be paid at any time and in any amount.
1
<PAGE>
Initial premiums are paid: 1) with the application, or 2) upon delivery of the
policy, or 3) by proceeds of surrender of a policy issued by another company.
All net premiums received prior to the Record Date (generally a date within
three business days of the later of the date the last requirement is received or
the date of underwriting approval) are allocated to the General Account as of
the later of the Policy Date or the date the premium is received. Interest is
credited to policy values from the date of allocation to the General Account
until the Record Date; the day after the Record Date, the value in the General
Account is reallocated to each of the funds and the General Account according to
the instructions of the individual (contained in the application or a supplement
to the application or any other suitable form). In cases where the initial
premium is received later than the Policy Date, the amount credited to the
General Account is net of Monthly Deductions (Cost of Insurance and Monthly
Charge) for monthly anniversaries preceding the date of receipt.
B. Minimum Premiums/Planned Periodic Premiums
The owner must pay sufficient premium to keep the Policy in force at all times.
During the first policy year, the Minimum Premium must be paid each month.
During the second and third policy year, payment of the Minimum Premium is
required only if the net cash surrender value is negative or if the owner wishes
to keep the Death Benefit Guarantee (the guarantee that the Policy will stay in
force despite negative cash surrender value). After the third policy year, the
owner must maintain sufficient net cash surrender value to meet monthly
deductions; whenever net cash surrender value is insufficient to meet those
deductions, the policy will enter into a 61 day grace period. During the grace
period, the owner must make a premium payment sufficient for two months, monthly
deductions, or the Policy will lapse at the end of the grace period.
Each owner also elects a planned periodic premium to be paid on a regular basis,
e.g. quarterly; the planned premium is the amount normally billed periodically.
The owner is not required to pay the planned premium as such and may pay greater
or smaller amounts at any time, subject to minimum and maximum limitations. The
planned periodic premium may be changed at any time by written request of the
owner. Planned premiums received prior to the Record Date are allocated to the
General Account in the same fashion as the initial premium; premiums received
after the Record Date are allocated to the General Account and each of the funds
according to the most recent allocation instructions provided by the owner.
C. Loan Repayments
Whenever a loan is outstanding on the Policy, the owner may make payments to
reduce the outstanding balance of the loan. The payments reduce the outstanding
loan balance by the amount of the loan repayment plus any unearned interest on
that amount. The total amount of loan reduction is immediately allocated to the
General Account and the funds according to the most recent premium allocation
instructions provided by the owner.
2
<PAGE>
D. Unscheduled Payments
Unscheduled payments are payments that are received by Lincoln Life but do not
match the planned periodic premium billed to the owner. If such payments are
designated as premium payments, they are allocated in the same fashion as
planned premiums. If the payments are not designated as premium payments, they
are first applied to repay any outstanding loan on the Policy and any excess is
then applied as an unscheduled premium.
E. Excess Premiums
Excess premiums can occur when a premium payment causes total premiums paid to
exceed the maximum Federal premium limitation under section 7702 of the Internal
Revenue Code of 1986, as amended. Also, when the owner has given Lincoln Life
instructions not to allow the Policy to become a Modified Endowment Contract
under section 7702(A) of the IRC of 1986, as amended, excess premiums can result
when a premium payment causes total premiums paid to exceed the 7-pay
limitation. In either case, Lincoln Life allocates as much premium as possible
to the Policy; any excess is then applied first to the repayment of any
outstanding loan on the Policy, and any further excess is refunded to the owner.
An exception occurs when premiums in excess of the 7-pay limitation or in excess
of the maximum Federal premium limitation are received within 15 days of the
policy anniversary and the owner has instructed Lincoln Life to hold the premium
until it may be paid into the policy on the next policy anniversary.
III. Redemptions
A. Surrenders
The owner may surrender the Policy in whole or in part at any time. Partial
surrenders are accomplished by requesting in writing a reduction in the
Specified Amount of the Policy; such reduction will result in partial Surrender
Charges being deducted from Policy Value. The deduction will be made from the
General Account and the funds in proportion to the value in each account. The
partial Surrender Charge consists of the Contingent Deferred Sales Charge and
the Contingent Deferred Administrative Charge. The remaining Surrender Charge is
reduced by the amount of this deduction from Policy Value. In determining the
amount of the Surrender Charge, decreases are allocated first to the most recent
increase, then to the next most recent increase, and so forth.
Full surrender is accomplished by requesting full surrender in writing on a form
suitable to Lincoln Life and results in the full Surrender Charge being deducted
from surrender proceeds. The full value in the General Account and each of the
funds is deducted from each account and the Surrender Charge is deducted from
the total of those amounts; the remaining net cash surrender value is paid to
the owner. For surrenders in the first two policy years, a calculation is
performed to determine whether any excess sales load has been deducted in the
surrender process; if so, the excess sales load is added to the amount of
surrender proceeds otherwise calculated and the total is paid to the owner.
3
<PAGE>
B. Lapse
If the owner fails to make required premium payments and the 61 day grace period
expires, the policy will lapse. In this case, the surrender Charge and any due
and unpaid monthly deductions are deducted from the Policy Value. The full value
in the General Account and each of the subaccounts is deducted from each account
and the Surrender Charge and other amounts due are deducted from the total of
those amounts. For lapses in the first two policy years, a calculation is
performed to determine whether any excess sales load has been deducted in the
lapse process; if so, the excess sales load is refunded to the owner.
C. Withdrawals
After the first policy year, the owner may make withdrawals from the Policy
Value once per policy year. The maximum withdrawal is 20% of the net cash
surrender value for each policy year when the Surrender Charge is greater than
zero; however, as a current practice, the 20% limitation is not enforced for
policy years following the tenth policy anniversary. The amount withdrawn is
subject to withdrawal charges (see below). The total amount of the withdrawal is
deducted from the General Account and each of the funds in proportion to the
value in each account, unless the owner has given special instructions to deduct
the amount in some other fashion and Lincoln Life has agreed to do so.
At any time that the Surrender Charge is greater than zero, withdrawals incur a
withdrawal charge which is currently 3% of the withdrawn amount; at other times,
the withdrawal charge is currently $10. The withdrawal charge is guaranteed not
to exceed the greater of $25 or 5% of the withdrawn amount when the Surrender
Charge is greater than zero, and guaranteed not to exceed $25 at other times.
The withdrawal charge consists of a processing fee and a possible early
withdrawal penalty. The processing fee is currently $10 (guaranteed not to
exceed $25) and the balance of the withdrawal charge (if any) constitutes the
early withdrawal penalty. The remaining Surrender Charge is reduced by the
amount of any early withdrawal penalty.
Withdrawals may affect the death benefit under the Policy. If the death benefit
option is type 1, any withdrawal reduces the Specified Amount by an equal
amount. In contrast, if the death benefit option is type 2, withdrawals do not
affect the Specified Amount. If the policy value is such that the death benefit
is determined by using one of the IRC-required percentages, any withdrawal may
reduce the death benefit by as much as the applicable percentage times the
amount of the withdrawal.
D. Loans
At any time, the owner may borrow amounts up to the total net cash surrender
value. Any amount borrowed bears interest of 6.0% in advance (6.38% annual
effective rate) and is credited a current interest rate no less than 4.0%.
Interest may be paid in cash or added to the loan, in which case the total
loaned amount is charged and credited interest as described above. The
total amount loaned is transfered from the General Account and each of the
funds in proportion to the value in each account, unless the owner has given
special instructions to deduct the amount in some other fashion and Lincoln
Life has agreed to do so; the amount of the loan is paid to the owner and
the amount of the loan reduces the net cash surrender value.
4
<PAGE>
E. Death Benefits
The Policy provides for the payment of the Death Benefit as defined in the
policy form upon the death of the insured. Two death benefit types are
available: type 1 pays the specified amount of the policy and type 2 pays the
specified amount of the policy plus the policy value. Under each death benefit
type, the actual death benefit may be larger if required under section 7702 of
the Internal Revenue Code of 1986, as amended. Death benefit proceeds are
reduced by the amount of any outstanding loan.
The exact amount of the death benefit is determined as of the date of the
insured's death. Effective that day, the policy value in the General Account
and each of the funds is valued and the results are used in the calculation of
the actual death benefit. Interest is paid on the death benefit from the date of
death until actual payment to the beneficiaries.
F. Accelerated Death Benefits
The owner may elect to attach the Accelerated Death Benefit Rider to the Policy.
If benefit claims occur under this rider, a lien is placed against the Policy
equal in amount to the benefit paid (increased with interest in arrears until
the date of death). The payment of the benefit has no effect on the policy
value in the General Account and in each of the funds. When the death benefit
is calculated, the amount of the lien (plus interest) is deducted from the
death proceeds under the terms of the rider.
III. Refund Procedures
A. Declines and Not-Taken-Outs
In cases where the application is declined by Lincoln Life or the policy is
Not-Taken-Out by the owner, all monies received are refunded to the owner
without interest; such monies would not have been invested in any of the
underlying funds, so no investment experience is possible.
B. Free Look Procedures
The Policy contains a Free Look provision that allows the owner to cancel the
Policy and receive a full refund of premiums paid. The Free Look period extends
to the latest of: 10 days from receipt of the Policy, 45 days from the signing
of Part 1 of the application, or 10 days from the mailing or personal delivery
of the Notice of Withdrawal Right. Where state insurance regulations so require,
the Free Look period may be extended to meet such requirements. If the owner
exercises the Free Look privilege, all policy value is removed from the General
Account and each of the funds and the full amount of all premiums paid is
refunded, without interest or investment experience.
C. Suicide
The Policy contains a suicide provision that limits Lincoln Life's liability if
the insured commits suicide within two years of the issue of the Policy and
again within two years of any reinstatement or any increase in Specified Amount.
If it is determined that the insured committed suicide within two
5
<PAGE>
years of initial policy issue, all policy value is removed from the General
Account and each of the funds and an amount (without interest or investment
experience) equal to the following is paid to the owner or beneficiary: all
premiums paid, minus any policy loan, plus any unearned loan interest, minus any
prior withdrawals, and minus the cost of any riders. Similarly, if suicide
occurs within two years of any reinstatement, an amount similarly calculated
(except that only premiums paid since the date of reinstatement are refunded)
is paid. If suicide occurs within two years of any increase in specified
Amount (and after two years from policy issue), the death benefit for the
original Specified Amount is processed normally and any Cost of Insurance
Deductions made for the increased Specified Amount are added to the death
benefit proceeds (the death benefit of the increased Specified Amount is not
paid).
D. Incontestibility
The Policy contains a Contestibility provision that allows Lincoln Life to
contest the validity of the Policy based on representations made in the
application, any supplement to the application, or any application for increase
in Specified Amount or any reinstatement application.
E. Incorrect Age or Sex
If there is a mistake in the age or sex of the insured that is determined, while
the insured is still living, the age and sex are corrected and an adjustment is
made to the policy values accordingly. If the mistake is determined in the
process of settling the death claim, the death benefit is adjusted to that
amount that would be purchased by the most recent cost of insurance at the
correct age and sex.
IV. Transfers
A. Transfers From the General Account to the Separate Account
The owner may request to transfer amounts from the General Account to the
Separate Account at any time. The maximum amount transferrable from the General
Account is 20% of the policy value in the General Account in any twelve
consecutive months. However, this limitation is currently waived for the first
six policy months. Amounts transferred from the General Account are paid into
each of the funds according to the instructions of the owner. Telephone
transfers are permitted if the owner has completed the necessary telephone
transfer authorization form and correctly identifies himself (based on
information contained in the authorization form) prior to making the transfer
request. Transfers may be made by other persons who can provide the required
authorization information. Transfers are subject to a transfer charge of as much
as $10; under current practice, the transfer charge is $0.
B. Transfers Between Funds and From the Separate Account to the General
Account
The owner may request to transfer amounts between the funds or from the Separate
Account to the General Account. A maximum of twelve~transfers is permitted per
year (including transfers from the General Account to the
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Separate Account). Amounts transferred between funds are redeemed from one fund
and purchased into the requested fund as of the day the request is received.
Telephone transfers are permitted, as described in the preceding section.
C. Transfer Privilege Under Rule 6e-3(T)(b)(v)(B)
At any time in the life of the Policy, the owner may transfer 100% of the value
in the funds to the General Account. By so doing, the owner effectively
eliminates the investment risks associated with the underlying funds and causes
the Policy to benefit from a guaranteed minimum interest crediting rate of 4%.
Accordingly, the death benefit and policy values of the Policy will no longer
depend on the investment experience of the Separate Account. On the date of
transfer of all values to the General Account, the death benefit,
net-amount-at-risk, and policy values require no special adjustments.
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