<PAGE>
As filed with the Securities and Exchange Commission on December 5, 1996
Registration No.: 33-27783
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 9 [X]
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
(Exact Name of Registrant)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
1300 South Clinton Street
Post Office Box 1110
Fort Wayne, Indiana 46801
- --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (219)455-2000
JACK D. HUNTER, ESQ.
200 East Berry Street
Post Office Box 1110
Fort Wayne, Indiana 46802
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. Pursuant to Rule 24f-2(b)(2), the Registrant filed a Rule 24f-2 Notice
for the last fiscal year (1995) on February 27, 1996.
It is proposed that this filing will become effective
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on ------, ------ 1996 pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on ------, ------ 1997 Pursuant to paragraph (a)(1) of Rule 485
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
CROSS REFERENCE SHEET
(PURSUANT TO RULE 495 OF REGULATION C
UNDER THE SECURITIES ACT OF 1933)
RELATING TO ITEMS REQUIRED BY FORM N-4
(POST-EFFECTIVE AMENDMENT NO. 9)
N-4 ITEM CAPTION IN PROSPECTUS (PART A)
- -------- ------------------------------
1. Cover Page
2. Special terms
3. (a) Expense Table
(b) Synopsis
(c) Synopsis
(d) Not Applicable
4. (a) Condensed Financial Information
(b) Condensed Financial Information
(c) Financial Statements
5. (a) Cover Page; The Lincoln National Life Insurance Company
(b) Variable Account; Investments of the Variable Account; Cover Page
(c) Investments of the Variable Account
(d) Cover Page
(e) Voting Rights
(f) Not Applicable
6. (a) Charges and Other Deductions
(b) Charges and Other Deductions
(c) Charges and Other Deductions
(d) The Contracts - Commissions
(e) Charges and Other Deductions
(f) Charges and Other Deductions
(g) Not Applicable
7. (a) The Contracts; Investments of the Variable Account; Annuity
Payments; Voting Rights; Return Privilege
(b) Investments of the Variable Account; The Contracts; Cover Page
(c) The Contracts
(d) The Contracts
<PAGE>
Supplement dated December 31, 1996
to the Prospectus Dated April 1, 1996 for
Lincoln National Variable Annuity Account H
American Legacy II Variable Annuity Contract
Lincoln National Life Insurance Company ("Lincoln Life") is offering an enhanced
guaranteed minimum death benefit ("EGMDB") with the American Legacy II variable
annuity contract (the "Contract") described in the attached prospectus. The
EGMDB will be available in most states beginning on or around January 1, 1997.
The EGMDB is an alternative to the guaranteed minimum death benefit ("GMDB")
described in the prospectus under the heading "Death benefit before the annuity
commencement date." Under the EGMDB, if the annuitant dies before the annuity
commencement date the death benefit payable is the amount equal to the greater
of: (1) Contract value as of the day on which Lincoln Life approves the payment
of the claim; or (2) the highest Contract value which the Contract attains on
any policy anniversary date between the time the EGMDB takes effect and the
annuitant's age 75, as adjusted for any withdrawals made or premium taxes
deducted after the date of the highest Contract value.
There is a daily charge for the EGMDB for so long as your election remains in
effect. This charge is at the annual rate of 0.15% of net asset value in
Variable Annuity Account H ("VAA"). THIS CHARGE IS IN ADDITION TO the charges
described in the Prospectus under the heading "Charges and other deductions" and
in the synopsis under the question "What charges are associated with this
contract?" See the Expense Table below for Contracts with the EGMDB for more
information.
Election Procedures. If you purchase a contract after January 1, 1997 you can
elect the EGMDB at purchase by selecting the benefit on your application, or at
any time in 1997 by sending a written request to Lincoln Life. The benefit will
take effect as of the time of fund valuation on the next policy anniversary date
following the election of this benefit, and we will begin deducting the charge
for the EGMDB as of that date. If this benefit is selected on the policy
anniversary date or at time of application, the EGMDB takes effect at the time
of fund valuation on that date. If you elect the EGMDB, you may discontinue the
benefit at any time by sending a written request to Lincoln Life. The benefit
will be discontinued effective at the time of fund valuation on the next policy
anniversary date after we receive the request, and we will cease deducting the
charge for the benefit as of that date. If the benefit is discontinued on the
policy anniversary date, the benefit and the charge will terminate at the time
of fund valuation on that date. If you discontinue the benefit, it cannot be
reinstated. If you do not elect the EGMDB or you discontinue the benefit after
electing it, the GMDB described in the prospectus under the heading "Death
benefit before the annuity commencement date" will apply instead and will
determine what death benefit is payable.
If you purchased a Contract prior to January 1, 1997, you can elect the EGMDB
during a limited period ending six months after the benefit is approved in your
state or ending December 31, 1997, whichever is later. Please see your
registered sales representative for assistance.
Expense Table for Contracts with the EGMDB. The prospectus includes an Expense
Table which shows the fees and charges applicable to a Contract without the
EGMDB. The same fees
<PAGE>
and charges apply to a Contract with the EGMDB, except that an additional charge
is deducted from VAA for this benefit. The annual expenses for VAA for a
Contract with the EGMDB are restated below to show all applicable VAA charges
and expenses:
Variable Annuity Account H annual expenses for EGMDB:
(As a percentage of average account value for each subaccount):
For each subaccount*
Mortality and expense risk fees 1.25%
EGMDB charge 0.15%
Account fees and expenses 0.10%
----
Total VAA annual expenses 1.50%
*The VAA is divided into eight separately-named subaccounts, each of which, in
turn, invests purchase payments in its respective fund.
Please see the Expense Table in the attached prospectus for a discussion of
other contract fees and charges, as well as fees and expenses for the eight
funds underlying VAA.
Examples. The following examples show fees and expenses for a Contract WITH THE
EGMDB, reflecting the expenses both of the VAA and of the eight funds shown in
the Expense Table in the prospectus.
If you purchase a Contract WITH THE EGMDB and surrender your contract at the end
of the applicable time period, you would pay the following expenses* on a $1,000
investment, assuming a 5% annual return:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
1. Growth $ $ $ $
- --------------------------------------------------------------------------------
2. International
- --------------------------------------------------------------------------------
3. Growth-Income
- --------------------------------------------------------------------------------
4. Asset Allocation
- --------------------------------------------------------------------------------
5. High-Yield Bond
- --------------------------------------------------------------------------------
6. Bond Fund**
- --------------------------------------------------------------------------------
7. U.S. Govt./AAA-Rated
Securities
- --------------------------------------------------------------------------------
8. Cash Management
If you purchase a Contract WITH THE EGMDB and do not surrender your contract,
you would pay the following expenses* on a $1,000 investment, assuming a 5%
annual return:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
1. Growth $ $ $ $
- --------------------------------------------------------------------------------
2. International
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
3. Growth-Income
- --------------------------------------------------------------------------------
4. Asset Allocation
- --------------------------------------------------------------------------------
5. High-Yield Bond
- --------------------------------------------------------------------------------
6. Bond Fund**
- --------------------------------------------------------------------------------
7. U.S. Govt./AAA-Rated
Securities
- --------------------------------------------------------------------------------
8. Cash Management
* These expenses, calculated as mandated by the SEC, reflect the annual
contract fee as the ratio of the total contract fees collected in the most
recent fiscal year to the total average net assets of the account.
** These expenses are estimated amounts for the fiscal year ended November 30,
1995.
These examples are provided to assist you in understanding the various costs and
expenses that you will bear directly or indirectly IF YOU ELECT THE EGMDB. Part
of the data used to produce the figures in the examples was supplied by the
underlying portfolio company (Series) through the VAA's principal underwriter,
American Funds Distributors, Inc. We have not independently verified this
information. For more complete descriptions of the various costs and expenses
involved, see Charges and other deductions in this Prospectus, and Fund
Organization and Management in the Prospectus for the Series. Premium taxes may
also be applicable, although they do not appear in the table. The examples
should not be considered a representation of past or future expenses. Actual
expenses may be more or less than those shown. The examples are unaudited.
Commissions. The commissions paid to dealers for sales of the Contracts are a
maximum of ___% of each purchase payment paid while the EGMDB is in effect, plus
an annual continuing commission equal to 0.30% of the value of contract purchase
payments invested for at least one year while the EGMDB is in effect. If the
EGMDB is not elected or is discontinued, the commissions paid to dealers are
those set forth in the prospectus under the heading "Commissions."
Please see the attached prospectus for more information about the Contract.
<PAGE>
American Legacy II
Lincoln National Variable Annuity Account H
individual variable annuity contracts
issued by:
Lincoln National Life Insurance Co.
1300 South Clinton Street
Fort Wayne, Indiana 46802
This Prospectus describes the individual flexible premium deferred variable
annuity contract (contract or variable annuity contract) issued by Lincoln
National Life Insurance Co. (Lincoln Life). It is for use with the following
retirement plans qualified for special tax treatment under the Internal Revenue
Code of 1986, as amended (the code):
1. Public school systems and certain tax-exempt organizations [403(b)];
2. Qualified corporate employee pension and profit-sharing trusts and qualified
annuity plans;
3. Corresponding plans of self-employed individuals (H.R. 10 or Keogh);
4. Individual retirement annuities (IRA);
5. Government deferred compensation plans (457); and
6. Simplified employee pension plans (SEP).
Section 403(b) business under number (1.) will normally be accepted only for
purchase payments qualifying as 403(b) lump sum transfers or rollovers.
The contract described in this Prospectus is also offered to plans established
by persons who are not entitled to participate in one of the previously
mentioned plans (nonqualified contracts).
The contract offers you the accumulation of contract value and payment of
periodic annuity benefits. These benefits may be paid on a variable or fixed
basis or a combination of both. Benefits start at an annuity commencement date
which you select and which must be on or before the annuitant's 85th birthday.
If the annuitant dies before the annuity commencement date, the greater of the
contract value or the guaranteed minimum death benefit (GMDB) will be paid to
the beneficiary.(See Death benefit before annuity commencement date)
The minimum initial purchase payment for the contract is:
1. $1,500 for a nonqualified plan and a 403(b) transfer/rollover or
2. $300 for a qualified plan.
The minimum subsequent purchase payment for the contract is $25 per payment,
subject to a $300 annual minimum.
All investments (purchase payments) for benefits on a variable basis will be
placed in Lincoln National Variable Annuity Account H (variable annuity account
[VAA]). The VAA is a segregated investment account of Lincoln Life, which is the
depositor. Based upon your instructions, the VAA invests purchase payments (at
net asset value) in shares of one or more specified funds of the American
Variable Insurance Series (series): Growth Fund, International Fund, Growth-
Income Fund, Asset Allocation Fund, High-Yield Bond Fund, Bond Fund, U.S.
Government/AAA-Rated Securities Fund, and Cash Management Fund. Both the value
of a contract before the annuity commencement date and the amount of payouts
afterward will depend upon the investment performance of the fund(s) selected.
Investments in these funds are neither insured
<PAGE>
nor guaranteed by the U.S. Government or by any other person or entity.
Purchase payments for benefits on a fixed basis will be placed in the fixed side
of the contract, which is part of our General Account. However, this Prospectus
deals only with those elements of the contracts relating to the VAA, except
where reference to the fixed side is made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus details the information regarding the VAA that you should know
before investing. This booklet also includes a current Prospectus of the series.
Both should be read carefully before investing and kept for future reference.
A statement of additional information (SAI), dated April 1, 1996, concerning the
VAA has been filed with the SEC and is incorporated by this reference into this
Prospectus. If you would like a free copy, complete and mail the enclosed card,
or call 1-800-942-5500, Ext. 4912. A table of contents for the SAI appears on
the last page of this Prospectus.
This Prospectus is dated April 1, 1996
Table of contents
Page
Special terms .................................................... 3
Expense tables ................................................... 4
Synopsis ......................................................... 6
Condensed financial information for the variable annuity account . 8
Investment results ............................................... 10
Financial statements ............................................. 10
Lincoln National Life Insurance Co. .............................. 10
Variable annuity account (VAA) ................................... 10
Investments of the variable annuity account ...................... 10
Charges and other deductions ..................................... 13
The contracts .................................................... 15
Table of contents
Page
Annuity payouts .................................................. 20
Federal tax status ............................................... 22
Voting rights .................................................... 24
<PAGE>
Distribution of the contracts ............................ 24
Return privilege ......................................... 25
State regulation ......................................... 25
Restrictions under the Texas Optional Retirement Program . 25
Records and reports ...................................... 25
Other information ........................................ 26
Statement of Additional Information table of contents for Separate Account H 19
Special terms
(Throughout this Prospectus, in order to make the following documents more
understandable to you, we have italicized the special terms.)
Account or variable annuity account (VAA)--The segregated investment account,
Account H, into which Lincoln Life sets aside and invests the assets for the
variable annuity contract offered in this Prospectus.
Accumulation unit--A measure used to calculate contract value for the variable
side of the contract before the annuity commencement date. See The contracts.
Advisor or investment advisor--Capital Research and Management Co. (CRMC), which
provides investment management services to the series. See Investment advisor.
Annuitant--The person to whom annuity payouts are or may be paid.
Annuity commencement date--The date you choose for annuity payouts to begin to
the annuitant.
Annuity option--One of the optional forms of payout of the annuity available
within the contract. See Annuity payouts.
Annuity payout--An amount paid at regular intervals under one of several options
available to the annuitant and/or any other payee. This amount may be paid on a
variable or fixed basis, or a combination of both.
Annuity unit--A measure used to calculate the amount of annuity payouts after
the annuity commencement date. See Annuity payouts.
Beneficiary--The person whom you designate to receive the death benefit, if any,
in case of the annuitant's death.
Cash surrender value--Upon surrender, the contract value less any applicable
charges, fees and taxes.
Code--The Internal Revenue Code of 1986, as amended.
Contract (variable annuity contract)--The agreement between you and us providing
a variable annuity for the annuitant.
Contractowner (you, your)--The person who has the ability to exercise the
rights within the contract (decides on investment allocations, transfers, payout
option, designates the beneficiary, etc.). Usually, but not always, the owner is
also the annuitant.
Contract value--At a given time, the total value of all accumulation units for a
contract plus the
<PAGE>
value of the fixed side of the contract.
Contract year--Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Death benefit--The amount payable to your designated beneficiary if the
annuitant dies before the annuity commencement date. See The contracts.
Depositor--Lincoln National Life Insurance Co.
Flexible premium deferred contract--An annuity contract with an initial purchase
payment, allowing additional purchase payments to be made, and with annuity
payouts beginning at a future date.
Fund--Any of the underlying investment options available in the series in which
your purchase payments are invested.
Home office--The headquarters of Lincoln National Life Insurance Co., located at
1300 South Clinton Street, Fort Wayne, Indiana 46802.
Lincoln Life (we, us, our)--Lincoln National Life Insurance Co.
Purchase payments--Amounts paid to purchase an annuity for an annuitant.
Series--American Variable Insurance Series (series), the funds in which purchase
payments are invested.
Statement of additional information (SAI)--A document required by the SEC to be
provided upon request to a prospective purchaser of a contract, you. This free
document gives more information about Lincoln Life, the VAA and the variable
annuity contract.
Subaccount--That portion of the VAA that reflects investments in accumulation
and annuity units of a particular fund. There is a separate subaccount which
corresponds to each fund.
Surrender--A contract right that allows you to terminate your contract and
receive your cash surrender value. See The contracts.
Valuation date--Each day the New York Stock Exchange (NYSE) is open for trading.
Valuation period--The period starting at the close of business on a particular
valuation date and ending at the close of business on the next valuation date.
Withdrawal--A contract right that allows you to obtain a portion of your cash
surrender value.
Expense tables
Contractowner transaction expenses:
. The maximum contingent deferred sales charge
(as a percentage of purchase payments surrendered/withdrawn): 6%
The contingent deferred sales charge percentage is reduced over time. The later
a redemption occurs, the lower the contingent deferred sales charge with respect
to those withdrawals. See Contingent deferred sales charges.
(Note: This charge may be waived in certain cases. See Contingent deferred sales
charges.)
Annual contract fee: $35
This is a single charge assessed against the contract value on the last
valuation date of each
<PAGE>
contract year and upon full surrender; it is not a separate charge for each
subaccount.
Variable Annuity Account H annual expenses:
(as a percentage of average account value for each subaccount):
<TABLE>
<CAPTION>
For each subaccount*
<S> <C>
Mortality and expense risk fees 1.25%
Account fees and expenses .10%
Total Account H annual expenses 1.35%
</TABLE>
Annual expenses of the funds:
(as a percentage of each fund's average net assets):
<TABLE>
<CAPTION>
Management Other Total
fees + expenses = expenses
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1. Growth .44% .03% .47%
- ----------------------------------------------------------------------------
2. International .65 .10 .75
- ----------------------------------------------------------------------------
3. Growth-Income .41 .03 .44
- ----------------------------------------------------------------------------
4. Asset Allocation .49 .03 .52
- ----------------------------------------------------------------------------
5. High-Yield Bond .51 .03 .54
- ----------------------------------------------------------------------------
6. Bond Fund .60 .05 .65
- ----------------------------------------------------------------------------
7. U.S. Govt./AAA-Rated Securities .51 .03 .54
- ----------------------------------------------------------------------------
8. Cash Management .46 .03 .49
- ----------------------------------------------------------------------------
</TABLE>
*The VAA is divided into eight separately-named subaccounts, each of which, in
turn, invests purchase payments in its respective fund.
Examples
(reflecting expenses both of the VAA and of the funds)
If you surrender your contract at the end of the applicable time period, you
would pay the following expenses* on a $1,000 investment, assuming a 5% annual
return:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Growth $79 $108 $129 $215
- ---------------------------------------------------------------------
2. International 82 117 145 247
- ---------------------------------------------------------------------
3. Growth-Income 78 107 128 213
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
4. Asset Allocation 79 109 131 219
- -------------------------------------------------------------------------------
5. High-Yield Bond 79 109 132 220
- -------------------------------------------------------------------------------
6. Bond Fund** 80 113 - -
- -------------------------------------------------------------------------------
7. U.S. Govt./AAA-Rated Securities 79 109 132 220
- -------------------------------------------------------------------------------
8. Cash Management 79 108 129 215
- -------------------------------------------------------------------------------
</TABLE>
If you do not surrender your contract, you would pay the following expenses* on
a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Growth $19 $58 $ 99 $215
- -------------------------------------------------------------------------------
2. International 22 67 115 247
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3. Growth-Income 18 57 98 213
- -------------------------------------------------------------------------------
4. Asset Allocation 19 59 101 219
- -------------------------------------------------------------------------------
5. High-Yield Bond 19 59 102 220
- -------------------------------------------------------------------------------
6. Bond Fund** 20 63 - -
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7. U.S. Govt./AAA-Rated Securities 19 59 102 220
- -------------------------------------------------------------------------------
8. Cash Management 19 58 99 215
- -------------------------------------------------------------------------------
</TABLE>
* These expenses, calculated as mandated by the SEC, reflect the annual
contract fee as the ratio of the total contract fees collected in the most
recent fiscal year to the total average net assets of the account.
** These expenses are estimated amounts for the fiscal year ended November 30,
1995.
All of the figures provided under the subheading Annual expenses of the funds
and part of the data used to produce the figures in the examples were supplied
by the underlying portfolio company (series) through the VAA's principal
underwriter, American Funds Distributors, Inc. We have not independently
verified this information.
This table is provided to assist you in understanding the various costs and
expenses that you will bear directly or indirectly. The table reflects expenses
both of the VAA and of the eight funds. For more complete descriptions of the
various costs and expenses involved, see Charges and other deductions in this
Prospectus, and Fund Organization and Management in the Prospectus for the
series. Premium taxes may also be applicable, although they do not appear in the
table. The examples should not be considered a representation of past or future
expenses. Actual expenses may be more or less than those shown. This table is
unaudited.
Synopsis
What type of contract am I buying? It is an individual annuity contract issued
by Lincoln Life. It may provide for a fixed annuity and/or a variable annuity.
This Prospectus is intended to provide disclosure only about the variable
portion of the contract. See The contracts.
What is the variable annuity account (VAA)? It is a segregated asset account
established under Indiana insurance law, and registered with the SEC as a unit
investment trust. The assets of the
<PAGE>
VAA are allocated to one or more subaccounts, according to your investment
choice. Those assets are not chargeable with liabilities arising out of any
other business which Lincoln Life may conduct. See Variable annuity account.
What are my investment choices? Through its various subaccounts, the VAA uses
your purchase payments to purchase series shares, at your direction, in one or
more of the following investment funds of the series: Growth, International,
Growth-Income, Asset Allocation, High-Yield Bond, Bond, U.S. Government/AAA-
Rated Securities, and Cash Management. In turn, each fund holds a portfolio of
securities consistent with its own particular investment policy. See Investments
of the variable annuity account and Description of the series.
Who invests my money? The investment advisor for the series is CRMC, Los
Angeles, California. CRMC is a long-established investment management
organization, and is registered as an investment advisor with the SEC. See
Investments of the variable annuity account and Investment advisor.
How does the contract work? Once we approve your application, you will be issued
your individual annuity contract. During the accumulation period, while you are
paying in, your purchase payments will buy accumulation units under the
contract. Should you decide to annuitize (that is, change your contract to a
payout mode rather than an accumulation mode), your accumulation units will be
converted to annuity units. Your periodic annuity payout will be based upon the
number of annuity units to which you became entitled at the time you decided to
annuitize and the value of each unit on the valuation date. See The contracts.
What charges are associated with this contract? At the end of each contract year
and at the time of surrender, we will deduct $35 from your contract value as a
maintenance charge.
Should you decide to withdraw contract value before your purchase payments have
been in your contract for a certain minimum period, you will incur a contingent
deferred sales charge of anywhere from 1% to 6%, depending upon how many full
contract years those payments have been in the contract. (Note: This sales
charge is not assessed upon annuitization, upon the death of the annuitant or
where total and permanent disability occurs after the contract effective date
and before the annuitant's 65th birthday.)
If your state assesses a premium tax with respect to your contract, then at the
time the tax is incurred (or at such other time as we may choose), we will
deduct those amounts from purchase payments or contract value, as applicable.
See Charges and other deductions and Deductions for premium taxes.
We assess an annual administrative charge of 0.10% against the daily net asset
value of the variable annuity account as a whole, including that portion of the
account attributable to your purchase payments. In addition, we assess an annual
charge of 0.80% of net asset value for the mortality risk guarantee given in the
contract, and 0.45% is made for administrative expense risks assumed by us. For
a complete discussion of the charges associated with the contract, see Charges
and other deductions.
The series pays a fee to its investment advisor, CRMC, based upon the average
daily net asset value of each fund in the series. See Investments of the
variable annuity account - Investment advisor. In addition, there are other
expenses associated with the daily operation of the series. These are more fully
described in the Prospectus for the series.
How much must I pay, and how often? Subject to the minimum and maximum payments
stated on the first page of the Prospectus, the amount and frequency of your
payments are completely flexible. See The contracts - Purchase payments.
<PAGE>
How will my annuity payouts be calculated? If you decide to annuitize, you elect
an annuity payout option. Once you have done so, your periodic payout will be
based upon a number of factors. If you participate in the VAA, the changing
values of the funds in which you have invested will be one factor. See Annuity
payouts. Remember that participants in the VAA benefit from any gain, and take a
risk of any drop, in the value of the securities in the funds' portfolios.
What happens if I die before I annuitize? If you are the annuitant and also the
contractowner, then the beneficiary whom you designate will receive either the
GMDB, or the then current value of the contract, whichever is greater. Your
beneficiary will have certain options for how the money is to be paid out. A
contractowner who is not also the annuitant is subject to certain special
rules. See The contracts-Death benefit before annuity commencement and Death of
contractowner.
May I transfer contract value between funds in the series? Yes; however, there
are limits on how often you may do so. See The contracts-Transfers of
accumulation units between subaccounts and Transfers on or following the annuity
commencement date.
May I transfer contract value from the fixed to the variable side of the
contract, and vice-versa? Yes, subject once again to specific restrictions in
the contract. See The contracts - Transfers of accumulation units to and from
the General Account.
May I surrender the contract or make a withdrawal? Yes, subject to contract
requirements and to restrictions imposed under certain retirement plans.
Contractowners under a public school system or tax-exempt institution
qualifying under Section 403(b) of the code are subject to special restrictions
upon surrender and withdrawal.
If you surrender the contract or make a withdrawal, certain charges may be
assessed, as discussed above and under Charges and other deductions. In
addition, the Internal Revenue Service (IRS) may assess a 10% premature
withdrawal penalty tax. A surrender or a withdrawal may be subject to 20%
withholding. See Federal tax status and withholding.
Do I get a free look at this contract? Yes. If within ten days (or a longer
period if required by law) of the date you first receive the contract you return
it, postage prepaid to the home office of Lincoln Life, it will be canceled.
However, except in some states, during this period, you assume the risk of a
market drop with respect to purchase payments which you allocate to the variable
side of the contract. See Return privilege.
Condensed financial information for the variable annuity account accumulation
unit values
The following information relating to accumulation unit values and number of
accumulation units for each of the seven years in the period ended December 31,
1995 comes from the VAA's financial statements. It should be read in conjunction
with the VAA's financial statements and notes which are all included in the SAI.
<PAGE>
<TABLE>
<CAPTION>
1989* 1990 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth subaccount
Accumulation unit value
.Beginning of period............. $1.000 1.009 .952 1.252 1.369 1.571 1.558
.End of period................... $1.009 .952 1.252 1.369 1.571 1.558 2.049
Number of accumulation units
.End of period (000's omitted)... 48,888 198,367 486,812 752,797 980,310 1,133,151 1,335,028
- ----------------------------------------------------------------------------------------------------------------
Growth-Income subaccount
Accumulation unit value
.Beginning of period............. 1.000 1.021 .982 1.202 1.280 1.418 1.428
.End of period .................. 1.021 .982 1.202 1.280 1.418 1.428 1.875
Number of accumulation units
.End of period (000's omitted)... 88,723 340,270 703,495 1,122,418 1,500,824 1,680,732 1,877,129
- ----------------------------------------------------------------------------------------------------------------
International subaccount**
Accumulation unit value
.Beginning of period ............ N/A 1.000 .947 1.044 1.021 1.354 1.361
.End of period .................. N/A .947 1.044 1.021 1.354 1.361 1.514
Number of accumulation units
.End of period (000's omitted)... N/A 78,763 200,309 360,734 697,520 984,460 1,078,152
- ----------------------------------------------------------------------------------------------------------------
Asset Allocation subaccount
Accumulation unit value
.Beginning of period............. 1.000 1.022 .998 1.200 1.284 1.399 1.377
.End of period .................. 1.022 .998 1.200 1.284 1.399 1.377 1.760
Number of accumulation units
.End of period (000's omitted)... 41,276 110,929 174,468 285,119 410,464 448,248 480,392
- ----------------------------------------------------------------------------------------------------------------
High-Yield Bond subaccount
Accumulation unit value
.Beginning of period............. 1.000 1.006 1.031 1.287 1.429 1.641 1.513
.End of period .................. 1.006 1.031 1.287 1.429 1.641 1.513 1.818
Number of accumulation units
.End of period (000's omitted)... 5,671 17,624 47,739 101,884 191,433 216,546 256,041
- ----------------------------------------------------------------------------------------------------------------
U.S. Government/AAA-Rated subaccount
Accumulation unit value
.Beginning of period............. 1.000 1.018 1.089 1.246 1.323 1.451 1.369
.End of period................... 1.018 1.089 1.246 1.323 1.451 1.369 1.559
Number of accumulation unit.
.End of period (000's omitted)... 13,695 59,506 139,710 212,716 282,851 282,879 296,349
- ----------------------------------------------------------------------------------------------------------------
Cash Management subaccount
Accumulation unit value
.Beginning of period............. 1.000 1.029 1.095 1.140 1.161 1.177 1.206
.End of period .................. 1.029 1.095 1.140 1.161 1.177 1.206 1.256
Number of accumulation units
.End of period (000's omitted)... 23,046 96,578 106,259 133,763 106,323 141,512 130,252
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*The VAA began operations on August 1, 1989, so the figures for 1989 represent
experience of less than one year.
**The International subaccount began operations on May 1, 1990, so the figures
for 1990 represent experience of less than one year.
There is a Bond Fund but it is not in the chart because it did not begin
activity until 1996.
<PAGE>
Investment results
At times, the VAA may compare its investment results to various unmanaged
indices or other variable annuities in reports to shareholders, sales literature
and advertisements. The results will be calculated on a total return basis for
various periods, with or without contingent deferred sales charges and contract
fees. Results calculated without contingent deferred sales charges or contract
fees will be higher. Total returns include the reinvestment of all
distributions, which are reflected in changes in unit value. See the SAI for
further information.
Financial statements
The financial statements for the VAA and Lincoln Life are located in the SAI. If
you would like a free copy, complete and mail the enclosed card, or call 1-800-
942-5500, Ext. 4912.
Lincoln National Life Insurance Co.
Lincoln Life was founded in 1905 and is organized under Indiana law. We are one
of the largest stock life insurance companies in the United States. We are owned
by Lincoln National Corp. (LNC) which is also organized under Indiana law. LNC's
primary businesses are insurance and financial services.
Variable annuity account (VAA)
On February 7, 1989, the VAA was established as an insurance company separate
account under Indiana law. It is registered with the SEC as a unit investment
trust under the provisions of the Investment Company Act of 1940 (1940 Act). The
SEC does not supervise the VAA or Lincoln Life. The VAA is a segregated
investment account, meaning that its assets may not be charged with liabilities
resulting from any other business that we may conduct. Income, gains and losses,
whether realized or not, from assets allocated to the VAA are, in accordance
with the applicable annuity contracts, credited to or charged against the VAA.
They are credited or charged without regard to any other income, gains or losses
of Lincoln Life. The VAA satisfies the
<PAGE>
definition of separate account under the federal securities laws. We do not
guarantee the investment performance of the VAA. Any investment gain or loss
depends on the investment performance of the funds. You assume the full
investment risk for all amounts placed in the VAA.
Investments of the variable annuity account
You decide the subaccount(s) to which you allocate purchase payments. There is a
separate subaccount which corresponds to each series fund. You may change
your allocation without penalty or charges. Shares of the funds will be sold at
net asset value with no initial sales charge to the VAA in order to fund the
contracts. The Series is required to redeem fund shares at net asset value upon
our request. We reserve the right to add, delete or substitute funds.
Investment advisor
The investment advisor for the series is CRMC, 333 South Hope Street, Los
Angeles, California 90071. CRMC is one of the nation's largest and oldest
investment management organizations. As compensation for its services to the
series, the investment advisor receives a fee from the series which is accrued
daily and paid monthly. This fee is based on the net assets of each fund, as
defined under Purchase and Redemption of Shares, in the Prospectus for the
series.
Description of the series
The series was organized as a Massachusetts business trust in 1983 and is
registered as a diversified, open-end management investment company under the
1940 Act. Diversified means not owning too great a percentage of the securities
of any one company. An open-end company is one which, in this case, permits
Lincoln Life to sell its shares back to the series when you make a withdrawal,
surrender the contract or transfer from one fund to another. Management
investment company is the legal term for a mutual fund. These definitions are
very general. The precise legal definitions for these terms are contained in the
1940 Act.
The series has eight separate portfolios of funds. The series' Board of Trustees
may at any time establish additional funds, which may or may not be available to
the VAA. The series offers shares to insurance company separate accounts only.
Lincoln National Life Insurance Co., for its separate account H, is a
shareholder of the series. Fund assets are segregated and a shareholder's
interest is limited to those funds in which the shareholder owns shares.
Following are brief summaries of the investment objectives and policies of the
funds. Each fund is subject to certain investment policies and restrictions
which may not be changed without a majority vote of shareholders of that fund.
More detailed information may be obtained from the current Prospectus for the
series which is included in this booklet. Please be advised that there is no
assurance that any of the funds will achieve their stated objectives.
1. Growth Fund -- This fund seeks to provide growth of capital. Whatever current
income is generated by the fund is likely to be incidental to the objective of
capital growth. Ordinarily, accomplishment of the fund's objective of capital
growth will be sought by investing primarily in common stocks or securities with
common stock characteristics.
2. International Fund -- The investment objective is long-term growth of capital
by investing primarily in securities of issuers domiciled outside the United
States.
3. Growth-Income Fund -- The investment objective is growth of capital and
income. In the selection of securities for investment, the possibilities of
appreciation and potential dividends are given more weight than current yield.
Ordinarily, the assets of the Growth-Income Fund
<PAGE>
consist principally of a diversified group of common stocks, but other types of
securities may be held when deemed advisable including preferred stocks and
corporate bonds, including convertible bonds.
4. Asset Allocation Fund -- This fund seeks total return (including income and
capital gains) and preservation of capital over the long-term by investing in a
diversified portfolio of securities. These securities can include common stocks
and other equity-type securities (such as convertible bonds and preferred
stocks), bonds and other intermediate and long-term fixed-income securities and
money market instruments (debt securities maturing in one year or less).
5. High-Yield Bond Fund -- The investment objective is a fully managed,
diversified bond portfolio. It seeks high current income and secondarily seeks
capital appreciation. This fund will generally be invested substantially in
intermediate and long-term corporate obligations, with emphasis on higher
yielding, higher risk, lower rated or unrated securities.
6. Bond Fund -- 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, loan
participations, U.S. Government Securities, mortgage-related securities, other
asset-backed securities and cash or money market instruments. Please note: As of
the date of this Prospectus, the Bond Fund is not yet available in all states.
Please consult your investment dealer for current information about the Bond
Fund's availability.
7. U.S. Government/AAA-Rated Securities Fund -- This 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
U.S. Government and other debt securities rated AAA or Aaa.
8. Cash Management Fund -- The investment objective is high yield while
preserving capital by investing in a diversified selection of money market
instruments.
Sale of fund shares by the series
We will purchase shares of the funds at net asset value and direct them to the
appropriate subaccounts of the VAA. We will redeem sufficient shares of the
appropriate funds to pay annuity payouts, death benefits, surrender/withdrawal
proceeds or for other purposes described in the contract. If you want to
transfer all or part of your investment from one subaccount to another, we may
redeem shares held in the first and purchase shares of the other. The shares are
retired, but they may be reissued later.
Shares of the funds are not sold directly to the general public. They are sold
to Lincoln Life, and may be sold to other insurance companies, for investment of
the assets of the subaccounts established by those insurance companies to fund
variable annuity and variable life insurance contracts.
When the series sells shares in any of its funds both to variable annuity and to
variable life insurance separate accounts, it is said to engage in mixed
funding. When the series sells shares in any of its funds to separate accounts
of unaffiliated life insurance companies, it is said to engage in shared
funding.
The series currently engages in mixed and shared funding. Therefore, due to
differences in redemption rates or tax treatment, or other considerations, the
interests of various contractowners participating in a fund could conflict. The
series Board of Trustees will monitor for the existence of any material
conflicts, and determine what action, if any, should be taken. See the
Prospectus for the series.
Reinvestment
<PAGE>
All dividend and capital gain distributions of the funds are automatically
reinvested in shares of the distributing funds at their net asset value on the
date of distribution. Dividends are not paid out to contractowners as
additional units, but are reflected as changes in unit values.
Addition, deletion or substitution of investments
We reserve the right, within the law, to make additions, deletions and
substitutions for the series and/or any funds within the series in which the VAA
participates. (We may substitute shares of other funds for shares already
purchased, or to be purchased in the future, under the contract. This
substitution might occur if shares of a fund should no longer be available, or
if investment in any fund's shares should become inappropriate, in the judgment
of our management, for the purposes of the contract.) No substitution of the
shares attributable to your account may take place without notice to you and
before approval of the SEC, in accordance with the 1940 Act.
Charges and other deductions
Maintenance and administrative charge
We will deduct a contract maintenance charge of $35 per contract year. This
charge will be deducted from the contract value on the last valuation date of
each contract year to compensate us for administrative services provided to you.
This charge will also be deducted from the contract value upon surrender. In
addition, we deduct from the VAA an amount, computed daily, which is equal to an
annual rate of .10% of the daily net asset value of the VAA, to compensate us
for our administrative services.
Among the administrative services which we provide to you are processing
applications for and issuing the contracts, processing purchases and redemptions
of fund shares as required (including automatic withdrawal services),
maintaining records, administering annuity payouts, furnishing accounting and
valuation services (including the calculation and monitoring of daily subaccount
values), reconciling and depositing cash receipts, providing contract
confirmations, providing toll-free inquiry services and furnishing telephone
fund transfer services.
Contingent deferred sales charge
A contingent deferred sales charge does apply (except as described below) to
surrenders and withdrawals of other purchase payments that have been invested
for the periods indicated as follows:
<TABLE>
<CAPTION>
Number of complete contract years that
a purchase payment has been invested
- -------------------------------------------------------------------
Less At
than least
2 years 2 3 4 5 6 7+
<S> <C> <C> <C> <C> <C> <C> <C>
Contingent deferred sales
charge as a percentage of
the surrendered or
withdrawn purchase payments 6% 5 4 3 2 1 0
</TABLE>
A contingent deferred sales charge does not apply to:
1. A surrender or withdrawal of purchase payments that have been invested at
least seven full contract years.
<PAGE>
2. The first withdrawal of contract value during a contract year to the extent
the withdrawal does not exceed 10% of the purchase payments (this 10% withdrawal
exception does not apply to a surrender of a contract);
3. Automatic withdrawals, not in excess of 10% of the purchase payments during a
contract year, made by non-trustee contractowners who are at least 59 1/2;
4. A surrender of a contract or withdrawal of contract value as a result of the
annuitant's permanent and total disability [as defined in section 22(e)(3) of
the code], after the effective date of the contract and before the annuitant's
65th birthday;
5. A surrender of a contract or withdrawal of contract value of a contract
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 upon the contractowner's
status at the time the contract was purchased); and
6. A surrender of the contract as a result of the death of the annuitant.
However, these charges are not waived for withdrawals except as provided in
No. 1 above, nor are they waived as a result of the death of a contractowner
who is not the annuitant.
The contingent deferred sales charge is calculated separately for each contract
year's purchase payments to which a charge applies. (For purposes of calculating
this charge, we assume that purchase payments are withdrawn on a first in-first
out basis, and that all purchase payments are withdrawn before any earnings are
withdrawn.) The contingent deferred sales charges associated with surrender or
withdrawal are paid to us to compensate us for the loss we experience on
contract distribution costs when contractowners surrender or withdraw before
distribution costs have been recovered.
Deductions from the VAA for assumption of mortality and expense risks
We deduct from the VAA an amount, computed daily, which is equal to an annual
rate of 1.25% of the daily net asset value, to compensate us for our assumption
of certain risks described below. This charge is made up of two parts: (1) Our
assumption of mortality risks (0.80%) and (2) Our assumption of expense risks
(0.45%). The level of this charge is guaranteed and will not change.
Our assumption of mortality risks guarantees that the annuity payouts made to
our contractowners will not be affected by the mortality experience (life span)
either of persons receiving those payouts or of the general population. We
assume this mortality risk through guaranteed annuity rates incorporated into
the contract which cannot be changed. We also assume the mortality risk inherent
in the death benefit before the annuity commencement date.
We anticipate that the charges for administrative expenses, which cannot be
increased by us, will cover administrative costs; however, we assume the expense
risk that those charges will be insufficient to cover those costs. See
Maintenance and administrative charge for a partial list of the administrative
services provided. As indicated, we do not intend to profit from the stated
administrative charges. If the charges prove to be insufficient, the excess
costs will be absorbed by us.
We expect to profit from the daily deduction for mortality and expense risks.
This profit, as well as any other profit realized by us and held in the General
Account (which supports insurance and annuity obligations), would be available
for any proper corporate purpose, including, but not limited to, payment of
sales and distribution expenses. (Based on our actuarial determination, we do
not anticipate that the contingent deferred sales charge will cover all sales
expenses which we will incur in connection with the contract.)
Deductions for premium taxes
<PAGE>
Any premium tax or other tax levied by any governmental entity as a result of
the existence of the contracts or the VAA will be deducted from the contract
value when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation or by judicial action. These premium taxes
generally depend upon the law of your state of residence. The tax ranges from
0.5% to 4.0%.
Other charges and deductions
There are deductions from and expenses paid out of the assets of the underlying
series that are described in the Prospectus for the series.
Additional information
Participants in the Texas Optional Retirement Program should refer to
Restrictions under the Texas Optional Retirement Program, later in this
Prospectus booklet.
The administrative and contingent deferred sales charges described previously
may be reduced or eliminated for any particular contract. However, these charges
will be reduced only to the extent that we anticipate lower distribution and/or
administrative expenses, or that we perform fewer sales or administrative
services than those originally contemplated in establishing the level of those
charges. Lower distribution and administrative expenses may be the result of
economies associated with (1) the use of mass enrollment procedures, (2) the
performance of administrative or sales functions by the employer, (3) the use by
an employer of automated techniques in submitting deposits or information
related to deposits on behalf of its employees or (4) any other circumstances
which reduce distribution or administrative expenses. The exact amount of
administrative and contingent deferred sales charges applicable to a particular
contract will be stated in that contract.
The contracts
Purchase of contracts
If you wish to purchase a contract, you must apply for it through a sales
representative authorized by us. The completed application is sent to us and we
decide whether to accept or reject it. If the application is accepted, a
contract is prepared and executed by our legally authorized officers. The
contract is then sent to you through your sales representative. See Distribution
of the contracts.
If a completed application and all other information necessary for processing a
purchase order are received, an initial purchase payment will be priced no later
than two business days after we receive the order. While attempting to finish an
incomplete application, we may hold the initial purchase payment for no more
than five business days. If the incomplete application cannot be completed
within those five days, you will be informed of the reasons, and the purchase
payment will be returned immediately (unless you specifically authorize us to
keep it until the application is complete). Once the application is complete,
the initial purchase payment must be priced within two business days.
Who can invest
To apply for a contract, you must be of legal age in a state where the contracts
may be lawfully sold and also be eligible to participate in any of the qualified
or nonqualified plans for which the contracts are designed. The annuitant cannot
be older than age 85.
Purchase payments
Purchase payments are payable to us at a frequency and in an amount selected by
you in the
<PAGE>
application. The minimum initial purchase payment is $1,500 for nonqualified
contracts and Section 403(b) transfers/rollovers; and $300 for qualified
contracts. The minimum annual amount for subsequent purchase payments is $300
for nonqualified and qualified contracts, with a minimum of $25 per payment.
Purchase payments in total may not exceed $1 million for each annuitant. If you
stop making purchase payments, the contract will remain in force as a paid-up
contract as long as the total contract value is at least $300. Payments may be
resumed at any time until the annuity commencement date, the surrender of the
contract or the death of the annuitant, whichever comes first.
Valuation date
Accumulation and annuity units will be valued once daily at the close of trading
(currently 4:00 p.m., New York time) on each day the New York Stock Exchange is
open (valuation date). On any date other than a valuation date, the accumulation
unit value and the annuity unit value will not change.
Allocation of purchase payments
Purchase payments are placed into the VAA's subaccounts, each of which invests
in shares of its corresponding fund of the series, according to your
instructions.
The minimum amount of any purchase payment which can be put into any one
subaccount is $20 under the contract. Upon allocation to the appropriate
subaccount, purchase payments are converted into accumulation units. The number
of accumulation units credited is determined by dividing the amount allocated to
each subaccount by the value of an accumulation unit for that subaccount on the
valuation date on which the purchase payment is received at our home office if
received before 4:00 p.m., E.S.T. If the purchase payment is received at or
after 4:00 p.m., E.S.T., we will use the accumulation unit value computed on the
next valuation date. The number of accumulation units determined in this way
shall not be changed by any subsequent change in the value of an accumulation
unit. However, the dollar value of an accumulation unit will vary depending not
only upon how well the investments perform, but also upon the expenses of the
VAA and the underlying funds.
Valuation of accumulation units
Accumulation units for each subaccount are valued separately. Initially, the
value of each accumulation unit was set at $1.00. Thereafter, the value of an
accumulation unit in any subaccount on any valuation date equals the value of an
accumulation unit in that subaccount as of the preceding valuation date
multiplied by the net investment factor of that subaccount for the current
valuation period.
To determine the net investment factor, first we calculate a gross investment
rate for each fund for the valuation period. This rate is equal to (a) the
investment income of the fund for the valuation period (plus capital gains and
minus capital losses for the period, realized or unrealized); minus (b) a daily
charge against net assets for investment advisory services and other expenses
accrued by the fund for each day of the valuation period; then (c) the remainder
is divided by the net asset value of the fund at the beginning of the valuation
period. This gross investment rate may be positive or negative.
Once the gross investment rate is determined, we then derive the net investment
rate for each subaccount. That rate is equal to the gross investment rate for
the fund minus a daily charge at an annual rate of 1.35% for each day of the
valuation period.
Finally, to obtain the net investment factor for each subaccount, we add
1.000000 to its net investment rate for the valuation period.
Transfers between subaccounts before the annuity commencement date
You may transfer all or a portion of your investment from one subaccount to
another. A transfer
<PAGE>
involves the surrender of accumulation units in one subaccount and the purchase
of accumulation units in the other subaccount. A transfer will be done using the
respective accumulation unit values as of the valuation date immediately
following receipt of the transfer request. There is no charge to you for a
transfer. However, we reserve the right to impose a charge in the future for
transfers between subaccounts, subject to approval of the SEC.
Transfers between subaccounts are restricted to six times every contract year.
We reserve the right to waive this six-time limit. The minimum amount which may
be transferred between subaccounts is $300 (or the entire amount in the
subaccount, if less than $300). If the transfer from a subaccount would leave
you with less than $300 in the subaccount, we may transfer the total balance of
the subaccount. A transfer may be made by writing to our home office or, if a
Telephone Exchange Authorization form (available from us) is on file with us, by
a toll-free telephone call.
Transfers to and from the General Account before the annuity
commencement date
You may transfer all or any part of the contract value from the subaccount(s) to
the fixed side of the contract. These transfers cannot be elected more than six
times every contract year. We reserve the right to waive this six-time limit.
The minimum amount which can be transferred to the fixed side is $300 or the
total amount in the subaccount, if less than $300. However, if a transfer from a
subaccount would leave you with less than $300 in the subaccount, we may
transfer the total amount to the fixed side. There is no charge to you for a
transfer. However, we reserve the right to impose a charge in the future for any
transfers to and from the General Account, subject to approval of the SEC.
You may also transfer all or any part of the contract value from the fixed side
of your contract to the various subaccount(s) subject to the following
restrictions: (1) no more than 25% of the value of the fixed side may be
transferred to the subaccount(s) in any 12 month period; (2) the minimum amount
which can be transferred is $300 or the amount in the fixed account; and (3)
this transfer cannot be made during the first 30 days after the issue date of
the contract and cannot be elected more than six times every contract year. We
reserve the right to waive any of these restrictions.
When thinking about a transfer of contract value, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that a transfer will be made at an inopportune time.
Transfers on or following the annuity commencement date
You may transfer all or a portion of your investment in one subaccount to
another subaccount or to the fixed side of the contract. Those transfers will be
limited to three times per contract year. However, on or after the annuity
commencement date, no transfers are allowed from the fixed side of the contract
to the subaccounts.
Death benefit before the annuity commencement date
You may designate a beneficiary during the life of the annuitant and change the
beneficiary by filing a written request with our home office. Each change of
beneficiary revokes any previous designation. We reserve the right to request
that you send us the contract for endorsement of a change of beneficiary.
If the annuitant dies before the annuity commencement date, a death benefit
equal to the greater of: (1) The GMDB; or (2) The current value of the contract,
will be paid to your designated beneficiary.
The value of the death benefit will be determined as of the date on which the
death claim is approved for payment. This payment will occur upon receipt of:
(1) Proof, satisfactory to us, of
<PAGE>
the death of the annuitant; (2) Written authorization for payment; and (3) Our
receipt of all required claim forms, fully completed.
The GMDB is equal to the sum of all purchase payments plus any attributable
gain, minus any withdrawals, partial annuitizations and premium taxes incurred.
We determine the attributable gain separately for each contract year on its
seventh anniversary (once its surrender charge period has expired). The
attributable gain consists of the earnings on a contract year's net purchase
payment(s) [purchase payment(s) minus any withdrawals and partial
annuitizations, applied on a first-in first-out basis] as of the valuation date
just before its seventh anniversary. This amount will then be included in the
GMDB calculation.
If contract conditions are met, the GMDB will be increased automatically by us
according to the prescribed formula based upon the contract's internal rate of
return. For this to occur, the annuitant, as of the seventh anniversary of each
eligible contract year, must still be living and must be less than 81 years of
age. For more information about GMDB calculations, please refer to the SAI.
At any time during a 60-day period beginning at the time due proof of the
death of the annuitant is received by us, the beneficiary may elect to receive
payment either in the form of a lump sum settlement or an annuity payout.
If a lump sum settlement is requested, the proceeds will be mailed within seven
days of receipt of satisfactory claim documentation as discussed previously,
subject to the laws and regulations governing payment of death benefits. If an
election has not been made by the end of the 60-day period, a lump sum
settlement will be made to the beneficiary at that time. This payment may be
postponed as permitted by the 1940 Act.
If an annuity payout is elected, the annuity commencement date shall be the date
specified in the request but no later than 60 days after we receive satisfactory
claim documentation as discussed previously. Payment will be made in accordance
with applicable laws and regulations governing payment of death benefits.
Unless otherwise provided in the beneficiary designation, one of the following
procedures will take place on the death of a beneficiary:
1. If any beneficiary dies before the annuitant, that beneficiary's interest
will go to any other beneficiaries named, according to their respective
interests (There are no restrictions on the beneficiary's use of the proceeds.);
and/or
2. If no beneficiary survives the annuitant, the proceeds will be paid to the
contractowner or to the contractowner's estate, as applicable.
Joint/contingent ownership
If a joint owner is named in the application, the joint owners shall be treated
as having equal undivided interests in the contract. Either owner, independently
of the other, may exercise any ownership rights in this contract.
A contingent owner may exercise ownership rights in this contract only after the
contractowner dies.
Death of contractowner
If the contractowner of a nonqualified contract dies before the annuity
commencement date, then, in compliance with the code, the cash surrender value
of the contract will be paid as follows:
1. Upon the death of a nonannuitant contractowner, the proceeds shall be paid
to any surviving joint or contingent owner(s). If no joint or contingent owner
has been named, then the proceeds shall be paid to the annuitant named in the
contract; and
<PAGE>
2. Upon the death of a contractowner, who is also the annuitant, the death will
be treated as death of the annuitant and the provisions of this contract
regarding death of annuitant will control. If the recipient of the proceeds is
the surviving spouse of the contractowner, the contract may be continued in the
name of that spouse as the new contractowner.
The code requires that any distribution be paid within five years of the death
of the contractowner unless the beneficiary begins receiving, within one year
of the contractowner's death, the distribution in the form of a life annuity or
an annuity for a period certain not exceeding the beneficiary's life expectancy.
Surrenders and withdrawals
Before the annuity commencement date (but not after), we will allow the
surrender of the contract or a withdrawal of the contract value upon your
written request.
Special restrictions on surrenders/withdrawals apply if your contract is
purchased as part of a retirement plan of a public school system or 501(c)(3)
organization under Section 403(b) of the code. Beginning January 1, 1989, in
order for a contract to retain its tax-qualified status, Section 403(b)
prohibits a withdrawal from a 403(b) contract of post-1988 contributions (and
earnings on those contributions) pursuant to a salary reduction agreement.
However, this restriction does not apply if the annuitant (a) attains age
59 1/2, (b) separates from service, (c) dies, (d) becomes totally and
permanently disabled and/or (e) experiences financial hardship (in which event
the income attributable to those contributions may not be withdrawn).
Pre-1989 contributions and earnings through December 31, 1988, are not subject
to the previously stated restriction. Funds transferred to the contract from a
403(b)(7) custodial account will be subject to the restrictions.
The contract value available upon surrender/withdrawal is the value of the
contract at the end of the valuation period during which the written request for
surrender/withdrawal is received at the home office. Unless a request for
withdrawal specifies otherwise, withdrawals will be made from all subaccounts
within the VAA and from the General Account in the same proportion that the
amount of withdrawal bears to the total contract value. The minimum amount which
can be withdrawn is $300, and the remaining contract value must be at least
$300. Where permitted by contract, surrender/withdrawal payments will be mailed
within seven days after we receive a valid written request at the home office.
The payment may be postponed as permitted by the 1940 Act.
There are charges associated with surrender of a contract or withdrawal of
contract value before the annuity commencement date. See Charges and other
deductions.
The tax consequences of a surrender/withdrawal are discussed later in this
booklet. See Federal tax status.
If the total contract value is less than $300, and if no purchase payments have
been made for at least two years, we reserve the right to terminate the
contract.
Reinvestment privilege
You may elect to make a reinvestment purchase with any part of the proceeds of a
surrender/withdrawal, and we will recredit the surrender/withdrawal charges
previously deducted. This election must be made within 30 days of the date of
the surrender/withdrawal, and the repurchase must be of a contract covered by
this Prospectus. A representation must be made that the proceeds being used to
make the purchase have retained their tax-favored status under an arrangement
for which the contracts offered by this Prospectus are designed. The number of
accumulation units which will be credited when the proceeds are reinvested will
be based on the value of the accumulation unit(s) on the next valuation date.
This computation will occur following receipt of the proceeds and request for
reinvestment at the home office. You may
<PAGE>
utilize the reinvestment privilege only once. For tax reporting purposes, we
will treat a surrender/withdrawal and a subsequent reinvestment purchase as
separate transactions. You should consult a tax advisor before you request a
surrender/withdrawal or subsequent reinvestment purchase.
Amendment of contract
We reserve the right to amend the contract to meet the requirements of the 1940
Act or other applicable federal or state laws or regulations. You will be
notified in writing of any changes, modifications or waivers.
Commissions
The commissions paid to dealers are a maximum of 4.7% (or 5.6% during certain
special sales promotions) of each purchase payment; plus an annual continuing
commission equal to 0.25% of the value of contract purchase payments invested
for at least 15 months; plus an annual persistency bonus equal to 0.50% of each
contract year's increased GMDB, paid over a period of eight years. At times,
additional sales incentives (up to 0.25% of purchase payments) may be provided
to dealers maintaining certain sales volume levels. In addition, the equivalent
of 4.7% of contract value can be paid to dealers upon annuitization. These
commissions are not deducted from purchase payments or contract value; they are
paid by us.
Ownership
As contractowner, you have all rights under the contract. According to Indiana
law, the assets of the VAA are held for the exclusive benefit of all
contractowners and their designated beneficiaries. The assets of the VAA are not
chargeable with liabilities arising from any other business that we may conduct.
Qualified contracts may not be assigned or transferred except as permitted by
the Employee Retirement Income Security Act (ERISA) of 1974 and upon written
notification to us. We assume no responsibility for the validity or effect of
any assignment. Consult your tax advisor about the tax consequences of an
assignment.
Contractowner questions
The obligations to purchasers under the contracts are those of Lincoln Life.
Your questions and concerns should be directed to us at 1-800-942-5500.
Annuity payouts
When you apply for a contract, you may select any annuity commencement date
permitted by law; however, this date can not be any later than the annuitant's
85th birthday. (PLEASE NOTE THE FOLLOWING EXCEPTION: Contracts issued under
qualified employee pension and profit-sharing trusts [described in Section
401(a) and tax exempt under Section 501(a) of the code] and qualified annuity
plans [described in Section 403(a) of the code], including H.R.10 trusts and
plans covering self-employed individuals and their employees, provide for
annuity payouts to start at the date and under the option specified in the
plan.)
The contract provides optional forms of payouts of annuities (annuity options),
each of which is payable on a variable basis, a fixed basis or a combination of
both. The contract provides that all or part of the contract value may be used
to purchase an annuity.
You may elect annuity payouts in monthly, quarterly, semiannual or annual
installments. If the payouts from any subaccount would be or become less than
$50, we have the right to reduce their frequency until the payouts are at least
$50 each. Following are explanations of the annuity options available.
Annuity options
Life Annuity. This option offers a periodic payout during the lifetime of the
annuitant and ends
<PAGE>
with the last payout before the death of the annuitant. This option offers the
highest periodic payout since there is no guarantee of a minimum number of
payouts or provision for a death benefit for beneficiaries. However, there is
the risk under this option that the annuitant would receive no payouts if he/she
dies before the date set for the first payout; only one payout if death occurs
before the second scheduled payout, and so on.
Life Income with Payouts Guaranteed for Designated Period. This option
guarantees periodic payouts during a designated period, usually 10 or 20 years,
and then continues throughout the lifetime of the annuitant. The designated
period is selected by the annuitant.
Joint-and-Survivor Annuity. This option offers a periodic payout during the
joint lifetime of the annuitant and a designated joint annuitant. The payouts
continue during the lifetime of the survivor.
Joint-and-Two-Thirds Survivor Annuity. This option provides a periodic payout
during the joint lifetime of the annuitant and a designated joint annuitant.
When one of the joint annuitants dies, the survivor, during their lifetime,
receives two thirds of the periodic payout made when both were alive.
Unit Refund Life Annuity. This option offers a periodic payout during the
lifetime of the annuitant with the guarantee that upon death a payout will be
made of the value of the number of annuity units (see Variable annuity payouts)
equal to the excess, if any, of: (a) the total amount applied under this option
divided by the annuity unit value for the date payouts begin, divided by (b) the
annuity units represented by each payout to the annuitant multiplied by the
number of payouts paid before death. The value of the number of annuity units is
computed on the date the home office receives written notice of the annuitant's
death if received before 4:00 p.m. E.S.T. Otherwise, the computation shall be
made on the next valuation date.
Other options, with or without withdrawal features, may be made available by us.
The mortality and expense risk charge and the charge for administrative services
will be assessed on all annuity payouts, including those that do not have a life
contingency and therefore no mortality risk.
You may change your annuity commencement date, change your annuity option or
change the allocation of your investment among subaccounts up to 30 days before
your scheduled annuity commencement date, upon written notice to the home
office. You must give us at least 30 days notice before the date on which you
want payouts to begin. If proceeds become available to a beneficiary in a lump
sum, the beneficiary may choose any annuity payout option.
Unless you select another option, the contract automatically provides for a life
annuity (on a fixed, variable or combination fixed and variable basis, in
proportion to the account allocations at the time of annuitization) with 120
monthly payouts guaranteed, except when a joint and survivor payout is required
by law. Under any option providing for guaranteed payouts, the number of payouts
which remain unpaid at the date of the annuitant's death will be paid to your
beneficiary as payouts become due.
The contract contains no provision under which an annuitant or a beneficiary may
surrender their contract or make a withdrawal and receive a lump-sum settlement
once annuity payouts have begun. See Surrenders and withdrawals. Options are
only available to the extent they are consistent with the requirements of
Section 72(s) of the code, if applicable.
Variable annuity payouts
Variable annuity payouts will be determined using:
1. The contract value before the annuity commencement date;
2. The annuity tables contained in the contract;
3. The annuity option selected; and
<PAGE>
4. The investment performance of the fund(s) selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the annuitant with a fixed number of annuity units equal to the first
periodic payout divided by the annuity unit value; and
3. Calculate the value of the annuity units each month thereafter.
We assume an investment return of 4% per year, as applied to the applicable
mortality table. The amount of each payout after the initial payout will depend
upon how the underlying fund(s) perform, relative to the 4% assumed rate. There
is a more complete explanation of this calculation in the SAI.
Federal tax status
This section is a discussion of the Federal income tax rules applicable to the
contracts as of the date of this Prospectus. More information is provided in the
SAI. THESE DISCUSSIONS AND THOSE IN THE SAI ARE NOT INTENDED AS TAX ADVICE. This
section does not discuss the Federal tax consequences resulting from every
possible situation. No attempt has been made to consider any applicable state,
local, or foreign tax law, other than the imposition of any state premium taxes
(See Deductions for premium taxes). If you are concerned about the tax
implications with respect to the contracts, you should consult a tax advisor.
The following discussion is based upon our understanding of the present Federal
income tax laws as they are currently interpreted by the IRS. No representation
is made about the likelihood of continuation of the present Federal income tax
laws or their current interpretations by the IRS.
Taxation of nonqualified contracts
You are generally not taxed on increases in the value of your contract until a
distribution occurs. This distribution can be in the form of a lump sum payout
received by requesting all or part of the cash surrender value (i.e.
surrenders/withdrawals) or as annuity payouts. For this purpose, the assignment
or pledge of, or the agreement to assign or pledge, any portion of the value of
a contract will be treated as a distribution. A transfer of ownership of a
contract, or designation of an annuitant (or other beneficiary) who is not also
the contractowner, may also result in tax consequences. The taxable portion of
a distribution (in the form of a lump sum payout or an annuity) is taxed as
ordinary income. For purchase payments made after February 28, 1986, a contract
owner who is not a natural person (for example, a corporation) [subject to
limited exceptions] will be taxed on any increase in the contract's cash value
over the investment in the contract during the taxable year, even if no
distribution occurs. (See Section 72(u) of the code.) The next discussion
applies to Contracts owned by natural persons.
In the case of a surrender under the contract or withdrawal of contract value,
generally amounts received are first treated as taxable income to the extent
that the cash value of the contract immediately before the surrender exceeds the
investment in the contract at that time. Any additional amount withdrawn is not
taxable. The investment in the contract generally equals the portion, if any, of
any purchase payment made by or on behalf of an individual under a contract
which is not excluded from the individual's gross income.
Even though the tax consequences may vary depending on the form of annuity
payout selected under the contract, the Contractowner of an annuity payout
generally is taxed on the portion of the annuity payout that exceeds the
investment in the contract. For variable annuity payouts, the taxable portion is
determined by a formula that establishes a specific dollar amount of each payout
that is not taxed. The dollar amount is determined by dividing the investment in
the contract by the total number of expected periodic payouts. For fixed annuity
payouts, there generally is no tax
<PAGE>
on the portion of each payout that represents the same ratio that the investment
in the contract bears to the total expected value of payouts for the term of the
annuity; the remainder of each payout is taxable. For individuals whose annuity
starting date is after December 31, 1986, the entire distribution (whether fixed
or variable) will be fully taxable once the recipient is deemed to have
recovered the dollar amount of the investment in the contract.
There may be imposed a penalty tax on distributions equal to 10% of the amount
treated as taxable income. The penalty tax is not imposed in certain
circumstances, which generally are distributions:
1. Received on or after the Contractowner attaining age 59 1/2;
2. Made as a result of death or disability of the Contractowner;
3. Received in substantially equal periodic payments such as a life annuity
(subject to special recapture rules if the series of payouts is subsequently
modified);
4. Under a qualified funding asset in a structured settlement;
5. Under an Immediate Annuity Contract as defined in the code; and/or
6. Under a contract purchased in connection with the termination of certain
retirement plans.
Qualified contracts
The contracts may be purchased in connection with the following types of tax-
favored retirement plans:
1. Contracts purchased for employees of public school systems and certain tax-
exempt organizations, qualified under Section 403(b) of the code (normally for
transfers or rollovers only);
2. Pension and profit-sharing plans of self-employed individuals (H.R. 10 or
Keogh plans) or corporations, qualified under Section 401(a) or 403(a) of the
code;
3. IRAs, qualified under Section 408 of the code;
4. Deferred compensation plans of state or local governments, qualified under
Section 457 of the code; and/or
5. SEPs, qualified under Section 408(k) of the code.
The tax rules applicable to these plans, including restrictions on contributions
and benefits, taxation of distributions and any tax penalties, vary according to
the type of plan and its terms and conditions. Participants under such plans, as
well as contractowners, annuitant and beneficiaries, should be aware that the
rights of any person to any benefits under such plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the contracts. Purchasers of contracts for use with any qualified
plan, as well as plan participants and beneficiaries, should consult counsel and
other advisors as to the suitability of the contracts to their specific needs,
and as to applicable code limitations and tax consequences.
Multiple contracts
All contracts entered into after October 21, 1988, and issued by the same
insurance company (or its affiliates) to the same contractowner during any
calendar year will be treated as a single contract for tax purposes.
Investor control
The Treasury Department has indicated that guidelines may be issued under which
a variable
<PAGE>
annuity contract will not be treated as an annuity contract for tax purposes if
the contractowner has excessive control over the investments underlying the
contract. The issuance of those guidelines may require us to impose limitations
on your right to control the investment. We do not know whether any such
guidelines would have a retroactive effect.
Withholding
Generally, pension and annuity distributions are subject to withholding for the
recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Under the Unemployment Compensation Amendments of 1992 (UCA), 20%
income tax withholding may apply to eligible rollover distributions. All taxable
distributions from qualified plans and Section 403(b) annuities are eligible
rollover distributions, except (1) annuities paid out over life or life
expectancy, (2) installments paid for a period spanning 10 years or more, and
(3) required minimum distributions. The UCA imposes a mandatory 20% income tax
withholding on any eligible rollover distribution that the contractowner does
not elect to have paid in a direct rollover to another qualified plan, Section
403(b) annuity or individual retirement account. Distributions from Section 457
plans are subject to the general wage withholding rules.
Voting rights
As required by law, we will vote the series shares held in the VAA at meetings
of the shareholders of the series. The voting will be done according to the
instructions of contractowners who have interests in any subaccounts which
invest in funds of the series. If the 1940 Act or any regulation under it should
be amended or if present interpretations should change, and if as a result we
determine that we are permitted to vote the series shares in our own right, we
may elect to do so.
The number of votes which you have the right to cast will be determined by
applying your percentage interest in a subaccount to the total number of votes
attributable to the subaccount. In determining the number of votes, fractional
shares will be recognized.
Series shares held in a subaccount for which no timely instructions are received
will be voted by us in proportion to the voting instructions which are received
for all contracts participating in that subaccount. Voting instructions to
abstain on any item to be voted on will be applied on a pro-rata basis to reduce
the number of votes eligible to be cast.
Whenever a shareholders meeting is called, each person having a voting interest
in a subaccount will receive proxy voting material, reports and other materials
relating to the series. Since the series engages in shared funding, other
persons or entities besides Lincoln Life may vote series shares. See Sale of
fund shares by the series.
Distribution of the contracts
American Funds Distributors, Inc. (AFD), 333 South Hope Street, Los Angeles, CA
90071, is the distributor and principal underwriter of the contracts. They will
be sold by properly licensed registered representatives of independent broker-
dealers which in turn have selling agreements with AFD and have been licensed by
state insurance departments to represent us. AFD is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-
<PAGE>
dealer and is a member of the National Association of Securities Dealers (NASD).
Lincoln Life will offer contracts in all states where it is licensed to do
business.
Return privilege
Within the free-look period after you receive the contract, you may cancel it
for any reason by delivering or mailing it postage prepaid, to the home office
at P.O. Box 2348, 1300 South Clinton Street, Fort Wayne, Indiana, 46801. A
contract canceled under this provision will be void. With respect to the fixed
portion of a contract, we will return purchase payments. With respect to the
VAA, except as explained in the following paragraph, we will return the contract
value as of the date of receipt of the cancellation, plus any contract
maintenance and administrative fees and any premium taxes which had been
deducted. No contingent deferred sales charge will be made. A purchaser who
participates in the VAA is subject to the risk of a market loss during the free-
look period.
For contracts written in those states whose laws require that we assume this
market risk during the free-look period, a contract may be canceled, subject to
the conditions explained before, except that we will return only the purchase
payment(s).
State regulation
As a life insurance company organized and operated under Indiana law, we are
subject to provisions governing life insurers and to regulation by the Indiana
Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Indiana
Insurance Department at all times. A full examination of our operations is
conducted by that Department at least every five years.
Restrictions under the Texas Optional Retirement Program
Title 8, Section 830.105 of the Texas Government Code, consistent with prior
interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interest in a variable annuity contract issued under the ORP only upon:
1. Termination of employment in all institutions of higher education as defined
in Texas law;
2. Retirement; or
3. Death.
Accordingly, a participant in the ORP will be required to obtain a certificate
of termination from their employer before accounts can be redeemed.
Records and reports
As presently required by the 1940 Act and applicable regulations, we will
maintain all records and accounts relating to the VAA. We will mail to you, at
your last known address of record at the home office, at least semiannually
after the first contract year, reports containing information required by that
Act or any other applicable law or regulation.
<PAGE>
Other information
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the contracts being offered here. This Prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further information
about the VAA, Lincoln Life and the contracts offered. Statements in this
Prospectus about the content of contracts and other legal instruments are
summaries. For the complete text of those contracts and instruments, please
refer to those documents as filed with the SEC.
Lincoln National Variable Annuity Account E and Lincoln Life Flexible
Premium Variable Life Accounts F, G and J (all registered as investment
companies under the 1940 Act) and Lincoln National Flexible Premium Group
Variable Annuity Accounts 50, 51 and 52 are all segregated investment accounts
of Lincoln National Life Insurance Co. (Lincoln Life) which also invest in the
series. The series also offers shares of the funds to other segregated
investment accounts.
Statement of Additional Information table of contents for Separate Account H
Item
General Information and History of Lincoln Life................................
Special Terms..................................................................
Services.......................................................................
Purchase of Securities Being Offered...........................................
Underwriters...................................................................
Item...........................................................................
Calculation of Investment Results..............................................
Annuity Payments...............................................................
Federal Tax Status.............................................................
Automatic Increase in the Guaranteed Minimum Death Benefit.....................
Advertising and Sales Literature...............................................
Financial Statements...........................................................
For a free copy of the SAI please see page one of this booklet.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
THE AMERICAN LEGACY II
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
(REGISTRANT)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(DEPOSITOR)
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Variable Annuity Account H dated April 1, 1996.
You may obtain a copy of the Account H Prospectus on request and without charge.
Please write Kim Oakman, The Lincoln National Life Insurance Company, P.O. Box
2348, Fort Wayne, Indiana 46801 or call 1-800-942-5500, Extension 4912.
____________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
TABLE OF CONTENTS
ITEM PAGE
General Information and History of Lincoln Life B-2
Special Terms B-2
Services B-2
Purchase of Securities Being Offered B-2
Underwriters B-2
Calculation of Investment Results B-3
Annuity Payments B-5
Federal Tax Status B-5
Automatic Increase in the Guaranteed Minimum
Death Benefit B-8
Advertising and Sales Literature B-9
Financial Statements B-10
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS APRIL 1, 1996.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
GENERAL INFORMATION AND HISTORY OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (Lincoln Life)
The Lincoln National Life Insurance Company (Lincoln Life), organized in 1905,
is an Indiana stock insurance corporation, engaged primarily in the direct
insurance of life and health insurance contracts and annuities, and is also a
professional reinsurer. Lincoln Life is wholly owned by Lincoln National
Corporation (LNC), a publicly held insurance and financial services holding
company domiciled in Indiana.
SPECIAL TERMS
The special terms used in this SAI are the ones defined in the Prospectus. In
connection with the term, "Valuation Date", the New York Stock Exchange is
currently closed on weekends and on these holidays: New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day. If any of these holidays occurs on a weekend day, the
Exchange may also be closed on the business day occurring just before or just
after the holiday.
CUSTODIAN
The custodian for the securities purchased by the Series is State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02101. Custodian, as
authorized by the Series, will hold, transfer, exchange, deliver or loan the
Series' securities, and will maintain certain cash accounts in support of those
functions.
INDEPENDENT AUDITORS
The financial statements of the Variable Account and the consolidated financial
statements and schedules of Lincoln Life appearing in this Statement of
Additional Information and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon also
appearing elsewhere herein and in the Registration Statement. Such financial
statements and schedules have been included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
KEEPER OF RECORDS
All accounts, books, records and other documents which are required to be
maintained for the Variable Account are maintained by Lincoln Life or by third
parties responsible to Lincoln Life. No separate charge against the assets of
the Variable Account is made by Lincoln Life for this service.
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc. (AFD), 333 South Hope St., Los Angeles,
California 90071, is the principal underwriter for the Variable Annuity
Contracts.
<PAGE>
PURCHASE OF SECURITIES BEING OFFERED
The Variable Annuity Contracts are offered to the public through certain
securities broker/dealers who have entered into selling agreements with AFD and
whose personnel are legally authorized to sell annuity products. Although there
are no special purchase plans for any class of prospective buyers, the
contingent deferred sales charge normally assessed upon surrender or withdrawal
of contract value will be waived for officers, directors or bona fide full time
employees of LNC, The Capital Group, Inc., their affiliated or managed
companies, and certain other persons. See "Contingent Deferred Sales Charges" in
the Prospectus.
Both before and after the Annuity Commencement Date, there are exchange
privileges between sub-accounts, and from the Variable Account to the General
Account, subject to restrictions set out in the Prospectus. See "The Contracts",
in the Prospectus. No exchanges are permitted between the Variable Account and
other separate accounts.
UNDERWRITERS
Lincoln Life has contracted with AFD, a licensed broker-dealer, to distribute
the Variable Contracts through certain legally authorized sales persons and
organizations (Brokers). AFD and its Brokers are compensated under a standard
Compensation Schedule.
The offering of the Contracts is continuous.
CALCULATION OF INVESTMENT RESULTS
(a) Average Annual Total Return:
The tables below show, for the various Sub-Accounts of the Variable Account, an
Average Annual Total Return as of the stated periods, based upon a hypothetical
initial purchase payment of $1,000, calculated according to the formula set out
after the tables. The average Annual Total Return has been calculated to show
the Average Annual Total Return for a hypothetical contract with the Enhanced
Guaranteed Minimum Death Benefit ("EGMDB") and without it. Although the
Variable Account commenced activity in 1989 and the EGMDB did not become
available until 1997, these figures are calculated as if the Account had
commenced activity at the same time as the underlying Funds.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1995
<TABLE>
<CAPTION>
1-YEAR PERIOD 5-YEAR PERIOD 10-YEAR PERIOD
<S> <C> <C> <C> <C> <C> <C>
Without EGMDB With EGMDB Without EGMDB With EGMDB Without EGMDB With EGMDB
------------- ---------- ------------- ---------- ------------- ----------
Growth Sub-account 25.45% % 16.26% % 15.02% %
(as if commenced activity 2/8/84)
International Sub-account 5.11 9.49 7.26*
(commenced activity 5/1/90)
Growth-Income Sub-account 25.17 13.50 11.80
(as if commenced activity 2/8/84)
Asset Allocation Sub-account 21.78 11.68 9.03*
(commenced activity 8/1/89)
High-Yield Bond Sub-account 14.08 11.69 10.43
(as if commenced activity 2/8/84
U.S. Gov't./AAA Sub-account 7.78 7.06 6.89
(as if commenced activity 12/1/85)
Cash Management Sub-account 1.93 2.34 4.19
(as if commenced activity 2/8/84)
</TABLE>
*The lifetime of this sub-account is less than the complete period indicated.
See the date the sub-account commenced activity under its name.
<PAGE>
The length of the periods and the last day of each period used in the above
table are set out in the table heading and in the footnotes above. The Average
Annual Total Return for each period was determined by finding the average annual
compounded rate of return over each period that would equate the initial amount
invested to the ending redeemable value for that period, according to the
following formula--
n
P(1 + T) = ERV
Where:P = a hypothetical initial purchase payment of $1,000
T = average annual total return for the period in question
n = number of years
ERV = redeemable value (as of the end of the period in question) of a
hypothetical $1,000 purchase payment made at the beginning of the 1-year, 5-
year, or 10-year period in question (or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been charged to
Contractowner accounts; 2) all applicable non-recurring charges are deducted at
the end of the period in question; and 3) there will be a complete redemption at
the end of the period in question. The results shown in the table above relate
to the contract form containing the highest level of charges.
b) Non-Standardized Investment Results:
The Variable Account may illustrate its results over various periods and compare
its results to indices and other variable annuities in sales materials including
advertisements, brochures and reports. Such results may be computed on a
"cumulative" and/or "annualized" basis.
"Cumulative" quotations are arrived at by calculating the change in the
Accumulation Unit Value between the first and last day of the base period being
measured, and expressing the difference as a percentage of the Unit Value at the
beginning of the base period.
"Annualized" quotations are arrived at by applying a formula which determines
the level rate of return which, if earned over the entire base period, would
produce the cumulative return.
<PAGE>
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT RESULTS
SUB-ACCOUNTS OF ACCOUNT H*
$10,000 invested in ...would have grown to this amount on
this fund through December 31, 1995**
American Legacy II
this many years ago...
Without EGMDB*
--------------
Growth Growth-Income High-Yield Bond Cash Management
------------------ ----------------- ----------------- -----------------
Number Compound Compound Compound Compound
of Growth Growth Growth Growth
Years Periods Amount Rate Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/94-12/31/95 $13,152 31.52% $13,124 31.24% $12,016 20.16% $10,414 4.14%
2 12/31/93-12/31/95 13,040 14.19 13,218 14.97 11,079 5.25 10,673 3.31
3 12/31/92-12/31/95 14,967 14.39 14,646 13.56 12,727 8.37 10,811 2.63
4 12/31/91-12/31/95 16,360 13.09 15,596 11.75 14,124 9.02 11,010 2.43
5 12/31/90-12/31/95 21,515 16.56 19,096 13.81 17,641 12.02 11,467 2.78
6 12/31/89-12/31/95 20,300 12.52 18,360 10.66 18,014 10.37 12,208 3.38
Lifetime of fund 2/8/84-12/31/95 48,740 14.25 44,891 13.46 36,668 11.54 17,199 4.26
With EGMDB
----------
Growth Growth-Income High-Yield Bond Cash Management
------------------ ----------------- ----------------- -----------------
Number Compound Compound Compound Compound
of Growth Growth Growth Growth
Years Periods Amount Rate Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/94-12/31/95 $ % $ % $ % $ %
2 12/31/93-12/31/95
3 12/31/92-12/31/95
4 12/31/91-12/31/95
5 12/31/90-12/31/95
6 12/31/89-12/31/95
Lifetime of fund 2/8/84-12/31/95
</TABLE>
<TABLE>
Without EGMDB With EGMDB
------------- ----------
U.S. Govt/AAA U.S. Govt/AAA
------------------ ------------------
Compound Compound
Growth Growth
Amount Rate Amount Rate
------------------ ------------------
<S> <C> <C> <C> <C> <C>
1 12/31/94-12/31/95 $11,385 13.85% $ %
2 12/31/93-12/31/95 10,745 3.56
3 12/31/92-12/31/95 11,786 5.63
4 12/31/91-12/31/95 12,513 5.76
5 12/31/90-12/31/95 14,315 7.44
6 12/31/89-12/31/95 15,314 7.36
Lifetime of fund 12/1/85-12/31/95 20,472 7.34
Asset Allocation Asset Allocation
------------------ ------------------
Compound Compound
Growth Growth
Amount Rate Amount Rate
------------------ ------------------
1 12/31/94-12/31/95 $12,785 27.85% $ %
2 12/31/93-12/31/95 12,578 12.15
3 12/31/92-12/31/95 13,704 11.07
4 12/31/91-12/31/95 14,671 10.06
5 12/31/90-12/31/95 17,634 12.01
6 12/31/89-12/31/95 17,218 9.48
Lifetime of fund 8/1/89-12/31/95 17,601 9.21
International International
------------------ ------------------
Compound Compound
Growth Growth
Amount Rate Amount Rate
------------------ ------------------
1 12/31/94-12/31/95 $11,118 11.18% $ %
2 12/31/93-12/31/95 11,180 5.74
3 12/31/92-12/31/95 14,821 14.01
4 12/31/91-12/31/95 14,500 9.73
5 12/31/90-12/31/95 15,990 9.84
Lifetime of fund 5/1/89-12/31/95 15,136 7.59
</TABLE>
*Enhanced Guaranteed Minimum Death Benefit ("EGMDB")
<PAGE>
*Although the Variable Account commenced activity in 1989, these figures are
calculated as if the Account had commenced activity at the same time as the
underlying Funds.
**For purposes of determining these investment results, American Legacy II's
1.35% annual asset charge and administrative fee have been taken into account.
However, the annual maintenance fee of $35 is not reflected and these examples
do not assume redemption at the end of the period.
<PAGE>
ANNUITY PAYMENTS
VARIABLE ANNUITY PAYMENTS
Variable annuity payments will be determined on the basis of: (1) the value of
the Contract prior to the Annuity Commencement Date; (2) the annuity tables
contained in the Contract; (3) the type of Annuity Option selected; and (4) the
investment results of the Fund(s) selected. In order to determine the amount of
variable annuity payments, Lincoln Life makes the following calculation: first,
it determines the dollar amount of the first monthly payment; and third, it
calculates the value of the Annuity Units each month thereafter. These steps are
explained below.
The dollar amount of the first monthly variable annuity payment is determined by
applying the total value of the Accumulation Units credited under the Contract
valued as of the fourteenth day prior to the Annuity Commencement Date (less any
premium taxes) to the annuity tables contained in the Contract. Amounts shown in
the tables are based on the 1971 Individual Annuity Mortality Tables, modified,
with an assumed investment return at the rate of 4% per annum. The first annuity
payment is determined by multiplying the benefit per $1,000 of value shown in
the Contract tables by the number of thousands of dollars of value accumulated
under the Contract. These annuity tables vary according to the form of annuity
selected and the age of the Annuitant at the Annuity Commencement Date. The 4%
interest rate stated above is the measuring point for subsequent annuity
payments. If the actual Net Investment Rate (annualized) exceeds 4%, the payment
will increase at a rate equal to the amount of such excess. Conversely, if the
actual rate is less than 4%, annuity payments will decrease. If the assumed rate
of interest were to be increased, annuity payments would start at a higher level
but would decrease more rapidly or increase more slowly.
Lincoln Life may use sex distinct annuity tables in Contracts that are not
associated with employer sponsored plans and not prohibited by law.
At an Annuity Commencement Date, the Annuitant is credited with Annuity Units
for each sub-account on which variable annuity payments are based. The number of
Annuity Units to be credited is determined by dividing the amount of the first
monthly payment by the value of an Annuity Unit in each sub-account selected.
Although the number of Annuity Units is fixed by this process, the value of such
units will vary with the value of the underlying Fund. The amount of the second
and subsequent annuity payments is determined by multiplying the Contractowner's
fixed number of Annuity Units in each sub-account by the appropriate Annuity
Unit value for the
<PAGE>
Valuation Date ending 14 days prior to the date that payment is due.
The value of each sub-account Annuity Unit will be set initially at $1.00. The
Annuity Unit value for each sub-account at the end of any Valuation Date is
determined by multiplying the sub-account Annuity Unit value for the immediately
preceding Valuation Date by the product of:
(a) The net investment factor of the sub-account for the Valuation Period for
which the Annuity Unit value is being determined, and
(b) A factor to neutralize the assumed investment return in the annuity table.
The value of the Annuity Units is determined as of a Valuation Date 14 days
prior to the payment date in order to permit calculation of amounts of annuity
payments and mailing of checks in advance of their due dates. Such checks will
normally be issued and mailed at least three days before the due date.
PROOF OF AGE, SEX AND SURVIVAL
Lincoln Life may require proof of age, sex, or survival of any payee upon whose
age, sex, or survival payments depend.
FEDERAL TAX STATUS
GENERAL
The operations of the Variable Account form a part of, and are taxed with, the
operations of Lincoln Life under the Internal Revenue Code of 1986, as amended
(the "Code"). Investment income and realized net capital gains on the assets of
the Variable Account are reinvested and taken into account in determining the
accumulation and annuity unit values. As a result, such investment income and
realized net capital gain are automatically retained as part of the reserves
under the Contract. Under existing federal income tax law, Lincoln Life believes
that the Variable Account investment income and realized net capital gain are
not taxed to the extent they are retained as part of the reserves under the
Contract. Accordingly, Lincoln Life does not anticipate that it will incur any
federal income tax liability attributable to the Variable Account, and therefore
it does not intend to make any provision for such taxes. However, if changes in
the federal tax laws or interpretations thereof result in Lincoln Life's being
taxed on income or gain attributable to the Variable Account, then Lincoln Life
may impose a charge against the Variable Account (with respect to some or all
<PAGE>
Contracts) in order to make provision for payment of such taxes.
TAX STATUS OF NON-QUALIFIED CONTRACTS
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund the shares of which are owned by separate accounts
of insurance companies) underlying the Contract be "adequately diversified" in
accordance with Treasury regulations in order for the Contract to qualify as an
annuity contract under Section 72 of the Code. The Variable Account, through
each of the funds, intends to comply with the diversification requirements
prescribed in regulations, which affect how the assets in each of the Funds in
which the Variable Account invests may be invested. Capital Research and
Management Company is not affiliated with Lincoln Life and Lincoln Life does not
have control over the Series, or its investments. However, Lincoln Life believes
that each Fund in which the Variable Account owns shares will meet the
diversification requirements and that therefore the Contracts will be treated as
annuities under the Code.
The regulations relating to diversification requirements do not provide guidance
concerning the extent to which Contractowners may direct their investments to
particular sub-accounts of a separate account. When guidance is provided, the
Contract may need to be modified to comply with that guidance. For these
reasons, Lincoln Life reserves the right to modify the Contract as necessary to
prevent the Contractowner from being considered the owner of the assets of the
Variable Account.
In addition to the requirements of Section 817(h), Code Section 72(s) provides
that Contracts will not be treated as annuity contracts for purposes of Section
72 unless the Contract provides that (1) if any Contractowner dies on or after
the annuity starting date prior to the time the entire interest in the Contract
has been distributed, the remaining portion of such interest must be distributed
at least as rapidly as under the method of distribution in effect at the time of
the Contractowner's death; and (2) if any Contractowner dies prior to the
annuity starting date, the entire interest must be distributed within five years
after the death of the Contractowner. These requirements are considered
satisfied if any portion of the Contractowner's interest that is payable to or
for the benefit of a "designated beneficiary" is distributed over that
designated beneficiary's life, or a period not extending beyond the designated
beneficiary's life expectancy, and if that distribution begins within one year
of the Contractowner's death. The "designated beneficiary" must be a natural
person. No regulations interpreting these
<PAGE>
requirements have yet been issued. Thus, no assurance can be given that the
provisions contained in Contracts satisfy all such Code requirements. However,
Lincoln Life believes that such provisions in such Contracts meet these
requirements. Lincoln Life intends to review such provisions and modify them as
necessary to assure that they comply with the requirements of Section 72(s) when
clarified by Regulations or otherwise.
ANNUITIES FUNDING PLANS GENERALLY
The rules governing the tax treatment of contributions and distributions under
such plans, as set forth in the Code and applicable rulings and regulations, are
complex and subject to change. These rules also vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, no attempt is
made herein to provide more than general information about the use of Contracts
with the various types of plans, based on Lincoln Life's understanding of the
current federal tax laws as interpreted by the Internal Revenue Service.
Purchasers of Contracts for use with such a plan and plan participants and
beneficiaries should consult counsel and other competent advisers as to the
suitability of the plan and the Contract to their specific needs, and as to
applicable Code limitations and tax consequences. Participants under such plans,
as well as Contractowners, annuitants, and beneficiaries, should also be aware
that the rights of any person to any benefits under such plans may be subject to
the terms and conditions of the plans themselves regardless of the terms and
conditions of the Contract.
Following are brief descriptions of the various types of plans and of the use of
Contracts in connection therewith.
PUBLIC SCHOOL SYSTEMS AND 501(C)(3) ORGANIZATIONS (SECTION 403(b) PLANS)
Payments made to purchase annuity contracts by public school systems or Code
Section 501(c)(3) organizations for their employees are excludable from the
gross income of the employee to the extent that aggregate payments for the
employee do not exceed the "exclusion allowance" provided by Section 403(b) of
the Code, the over-all limits for excludable contributions of Section 415 of the
Code or the limit on elective contributions. Furthermore, the investment results
of the Fund credited to the account are not taxable until benefits are received
either in the form of annuity payments or in a single sum.
If an employee's individual account is surrendered, usually the full amount
received would be includable in income for that year at ordinary rates.
<PAGE>
QUALIFIED CORPORATE EMPLOYEE'S PENSION AND PROFIT-SHARING TRUSTS
AND QUALIFIED ANNUITY PLANS (SECTION 401(a) PLANS)
Payments made by a corporate employer and the increments on all payments for
qualified corporate plans are not taxable as income to the employee until
distributed. However, the employee may be required to include these amounts in
gross income prior to distribution if the qualified plan or trust loses its
qualification. Corporate plans qualified under Sections 401(a) or 403(a) of the
Code are subject to extensive rules, including limitations on maximum
contributions or benefits.
Distributions of amounts in excess of non-deductible employee contributions are
generally taxable as ordinary income. If an employee or beneficiary receives a
"lump-sum distribution," that is, if the employee or beneficiary receives in a
single tax year the total amounts payable with respect to that employee, and the
benefits are paid as a result of the employee's death or separation from service
or after the employee attains 59-1/2, taxable gain may be eligible for special
"lump sum averaging" treatment. These special tax rules are not available in all
cases.
SELF-EMPLOYED INDIVIDUALS (H.R. 10 OR KEOGH)
Under Code provisions, self-employed individuals may establish plans commonly
known as "H.R. 10" or "Keogh plans" for themselves and their employees. The tax
consequences to participants under such plans depend upon the plan itself. Such
plans are subject to special rules in addition to those applicable to qualified
corporate plans; therefore, purchasers of the Contracts for use with H.R. 10
plans should seek competent advice as to suitability of plan documents and the
funding contracts.
INDIVIDUAL RETIREMENT ANNUITIES (IRA)
Under Section 408 of the Code, individuals may participate in a retirement
program known as Individual Retirement Annuity (IRA). An individual may make an
annual IRA contribution of up to the lesser of $2,000 (or $2,250 if IRAs are
maintained for both the individual and his nonworking spouse) or 100% of
compensation. However, IRA contributions may be non-deductible in whole or in
part if (1) the individual or his spouse is an active participant in certain
other retirement programs and (2) the income of the individual (or of the
individual and his spouse) exceeds a specified amount. Distributions from
certain other IRA plans or qualified plans may be "rolled over" to an IRA on a
tax deferred basis without regard to the limit on contributions, provided
certain requirements are met. Distributions from IRA's are subject to certain
restrictions. Deductible
<PAGE>
IRA contributions and all IRA earnings will be taxed as ordinary income when
distributed. The failure to satisfy certain Code requirements with respect to an
IRA may result in adverse tax consequences.
DEFERRED COMPENSATION PLANS (457 PLANS)
Under the Code provisions, employees and independent contractors (participants)
performing services for state and local governments and certain tax-exempt
organizations may establish deferred compensation plans. While participants in
such plans may be permitted to specify the form of investment in which their
plan accounts will participate, all such investments are owned by the sponsoring
employer and are subject to the claims of its creditors. The amounts deferred
under a plan which meet the requirements of Section 457 of the Code are not
taxable as income to the participant until paid or otherwise made available to
the participant or beneficiary. Deferrals are taxed as compensation from the
employer when they are actually or constructively received by the employee. As a
general rule, the maximum amount which can be deferred in any one year is the
lesser of $7,500 or 33-1/3% of the participant's includable compensation.
However, in limited circumstances, up to $15,000 may be deferred in each of the
last three years before retirement.
SIMPLIFIED EMPLOYEE PENSION PLANS (SECTION 408(k))
An employer may make contributions on behalf of employees to a simplified
Employee Pension Plan ("SEPP") as provided by Section 408(k) of the Code. The
contributions and distribution dates are limited by the Code provisions. All
distributions from the plan will be taxed as ordinary income. Any distribution
before the employee attains age 59-1/2 (except in the event of death or
disability) or the failure to satisfy certain other Code requirements may result
in adverse tax consequences.
TAX ON DISTRIBUTIONS FROM QUALIFIED CONTRACTS
The following rules generally apply to distributions from Contracts purchased in
connection with the plans discussed above, other than 457 plans.
The portion, if any, of any contribution under a Contract made by or on behalf
of an individual which is not excluded from the employee's gross income
(generally, the employee's own non-deductible contributions) constitutes his
"investment in the Contract." If a distribution is made in the form of annuity
payments, the employee's "investment in the Contract"
<PAGE>
(adjusted for certain refund provisions) divided by his life expectancy (or
other period for which annuity payments are expected to be made) constitutes a
return of capital each year. The dollar amount of annuity payments received in
any year in excess of such return is taxable as ordinary income. However, for
employees whose annuity starting date is after December 31, 1986, all
distributions will be fully taxable once the employee is deemed to have
recovered the dollar amount of his investment in the Contract. Notwithstanding
the above, if the employee's annuity starting date was on or before July 1, 1986
and if his investment in the Contract will be recovered within three years of
his annuity starting date, no amount is included in income until he has fully
recovered such investment. For amounts distributed after 1986, new rules
generally provide that all distributions which are not received as an annuity
will be taxed as a pro rata distribution of taxable and non-taxable amounts
(rather than as a distribution first of non-taxable amounts).
If a surrender of or withdrawal from the Contract is effected and a distribution
is made in a single payment, the proceeds may qualify for special "lump-sum
distribution" treatment under certain qualified plans, as discussed above.
Otherwise, the amount by which the payment exceeds the "investment in the
Contract" (adjusted for any prior withdrawals) allocated to that payment, if
any, will be taxed as ordinary income in the year of receipt.
Distributions from Section 401(a) Plans, Section 403(b) Plans, IRAs, SEPPs and
Keoghs will be subject to (1) a 10% penalty tax if made before age 59-1/2 unless
certain other exceptions apply, and (2) a 15% penalty tax on combined annual
distributions in excess of $150,000, subject to various special rules. Failure
to meet certain minimum distribution requirements for the above plans, as well
as for Section 457 plans, will result in a 50% excise tax. Various other adverse
tax consequences may also be potentially applicable in certain circumstances to
these types of plans.
Upon an Annuitant's death, the taxation of benefits payable to his beneficiary
generally follow these same principles, subject to a variety of special rules.
In particular, tax on death benefits paid as a lump-sum may be deferred if,
within 60 days after the lump-sum becomes payable, the beneficiary instead
elects to receive annuity payments.
OTHER CONSIDERATIONS
It should be understood that the foregoing comments about the federal tax
consequences under these Contracts are not exhaustive and that special rules are
provided with respect to other tax situations not discussed herein. Further, the
foregoing discussion does not address any applicable
<PAGE>
state, local, or foreign tax laws. In recent years, numerous changes have been
made in the federal income tax treatment of Contracts and retirement plans,
which are not fully discussed above. Before an investment is made in any of the
above plans, a tax adviser should be consulted.
AUTOMATIC INCREASE IN THE GUARANTEED MINIMUM DEATH BENEFIT
Subject to the following terms and conditions, once a contract has been in force
for a certain period, Lincoln National Life Insurance Company (Lincoln Life)
will automatically increase the Guaranteed Minimum Death Benefit (GMDB):
Lincoln Life will automatically increase the GMDB, separately for each Contract
Year's Purchase Payment(s), effective upon the seventh anniversary of each
eligible Contract Year in which those payments were made (as the contingent
deferred sales charge expires on those payments).
The Attributable Gain (AG), used to increase the GMDB, will be calculated based
on the Contract Value at the close of business on the last Valuation Date
preceding the seventh anniversary of the Contract Year for which the increase is
made. The AG will be the amount which results from allocating the total
appreciation in the Contract to each Contract Year's Purchase Payments (Adjusted
by withdrawals on a first-in-first out (FIFO) basis based on Lincoln Life's
internal rate of return (IRR) calculation (as described below).
If a single Purchase Payment was deposited or multiple deposits were made in the
first Contract Year only, then, upon adjustment, the increased GMDB will be the
Contract Value on the seventh contract anniversary. If on the seventh contract
anniversary, the Contract Value is less than Net Purchase Payments, the GMDB
will not be adjusted.
If Purchase Payments have been deposited in multiple Contract Years, then, upon
adjustment, the increased GMDB will be the sum of all Purchase Payments plus an
Attributable Gain, as calculated for each Contract Year which has reached its
seventh anniversary, miuus any Withdrawals, partial annuitizations, and premium
taxes incurred.
The IRR is the level compound rate of return, calculated by Lincoln Life, at
which Purchase Payments less withdrawals will accumulate to the Contract Value
on the Contract anniversary beginning with the seventh anniversary. The
application of the IRR methodology to any particular Contract Year could
allocate gain, if any, in a manner which does not precisely correlate with the
Contract's actual investment experience for a particular Contract
<PAGE>
Year or Sub-Account. The calculation of the IRR assumes all Purchase Payments
and withdrawals occur at the beginning of the year in which they were made. Once
the IRR has been determined, the gain attributable to each Contract Year is
calculated by applying the IRR to the Purchase Payments, less any withdrawals
applied on a FIFO basis.
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, Lincoln Life may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM is designed to evaluate the various factors affecting
the overall performance of an insurance company in order to provide an opinion
as to an insurance company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of each company. A.M. Best also provides certain rankings, to
which Lincoln Life intends to refer.
DUFF & PHELPS insurance company claims paying ability (CPA) service provides
purchasers of insurance company policies and contracts with analytical and
statistical information on the solvency and liquidity of major U.S. licensed
insurance companies, both mutual and stock.
EAFE Index is prepared by Morgan Stanley Capital International (MSCI). It
measures performance of securities in Europe, Australia and the Far East. The
index reflects the movements of world stock markets by representing the
evolution of an unmanaged portfolio. The EAFE Index offers international
diversification with over 1000 companies across 18 different countries.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a publisher
of statistical data covering the investment company industry in the United
States and overseas. Lipper is recognized as the leading source of data on open-
end and closed-end funds. Lipper currently tracks the performance of over 5,000
investment companies and publishes numerous specialized reports, including
reports on performance and portfolio analysis, fee and expense analysis.
MOODY'S insurance claims-paying rating is a system of rating insurance company's
financial strength, market leadership, and ability to meet financial
obligations. The purpose of Moody's ratings is to provide investors with a
simple system of gradation by which the relative quality of insurance companies
may be noted.
<PAGE>
MORNINGSTAR is an independent financial publisher offering comprehensive
statistical and analytical coverage of open-end and closed-end funds and
variable annuities.
STANDARD & POOR's insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. The likelihood of a timely flow
of funds from the insurer to the trustee for the bondholders is a key element in
the rating determination for such debt issues.
VARDS (Variable Annuity Research Data Service) provides a comprehensive guide to
variable annuity contract features and historical fund performance. The service
also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
STANDARD & POOR'S INDEX--broad-based measurement of changes in stock-market
conditions based on the average performance of 500 widely held common stocks;
commonly known as the Standard & Poor's 500 (S&P 500). The selection of stocks,
their relative weightings to reflect differences in the number of outstanding
shares, and publication of the index itself are services of Standard & Poor's
Corporation, a financial advisory, securities rating, and publishing firm. The
index tracks 400 industrial company stocks, 20 transportation stocks, 40
financial company stocks, and 40 public utilities.
NASDAQ-OTC Price Index--this index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA)--price-weighted average of 30 actively
traded blue chip stocks, primarily industrials but including American Express
Company and American Telephone and Telegraph Company. Prepared and Published by
Dow Jones & Company, it is the oldest and most widely quoted of all the market
indicators. The average is quoted in points, not dollars.
In its advertisements and other sales literature for the Variable Account and
the Series Funds, Lincoln Life intends to illustrate the advantages of the
Contracts in a number of ways:
<PAGE>
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of the
variable annuity contract. For example, but not by way of illustration, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the Variable Account over the fixed account; and the
compounding effect when a client makes regular deposits to its Account.
DOLLAR-COST AVERAGING ILLUSTRATIONS. These illustrations will generally discuss
the price-leveling effect of making regular purchases in the same Sub-Accounts
over a period of time, to take advantage of the trends in market prices of the
portfolio securities purchased for those Sub-Accounts.
AUTOMATIC WITHDRAWAL SERVICE. A service provided by Lincoln Life, through which
a Contractowner may take any distribution allowed by Code Section 401(a)(9) in
the case of qualified contracts, or permitted under Code Section 72 in the case
of non-qualified contracts, by way of an automatically generated payment.
EARNINGS SWEEP. A service provided by Lincoln Life which allows a client to
designate one of the variable Sub-Accounts or the Fixed Account as a holding
account, and to transfer earnings from that account to any other variable Sub-
Account. The Contractowner chooses a specific fund as the holding account. At
specific intervals, account value in the holding account fund that exceeds a
certain designated baseline amount is automatically transferred to another
specific fund(s). The minimum account value required for the Earnings Sweep
feature is 10.000.
Lincoln Life's CUSTOMERS. Sales literature for the Variable Account and the
Series Funds may refer to the number of employers and the number of individual
annuity clients which Lincoln Life serves. As of the date of this Statement of
Additional Information, Lincoln Life was serving over 9,500 employers and had
more than 750,000 annuity clients.
Lincoln Life's ASSETS, SIZE. Lincoln Life may discuss its general financial
condition (see, for example, the reference to A.M. Best Company, above); it may
refer to its assets; it may also discuss its relative size and/or ranking among
companies in the industry or among any sub-classification of those companies,
based upon recognized evaluation criteria (see reference to A.M. Best Company
above). For example, at year-end 1994 Lincoln Life was the tenth largest U.S.
life insurance company based upon overall assets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
STATEMENT OF ASSETS AND LIABILITY
December 31, 1995
Percent Growth- Asset
of Net Income Growth Allocation
ASSETS Assets Combined Account Account Account
------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Investments in American Variable Insurance Series at
net asset value:
Growth-Income Fund-
116,492,132 shares at $30.29 per share
(cost-$2,848,095,725) ........................... 35.9% $3,528,546,666 $3,528,546,666
Growth Fund-
72,475,234 shares at $37.82 per share
(cost-$2,206,521,918) ........................... 27.9 2,741,013,364 $2,741,013,364
Asset Allocation Fund-
63,577,260 shares at $13.35 per share
(cost-$723,654,993) ............................. 8.6 848,756,416 $848,756,416
High-Yield Bond Fund-
33,566,440 shares at $13.91 per share
(cost-$467,981,087) ............................. 4.7 466,770,086
U.S. Government/AAA-Rated Securities Fund-
40,435,574 shares at $11.47 per share
(cost-$456,463,632) ............................. 4.7 463,796,030
Cash Management Fund-
14,921,700 shares at $11.01 per share
(cost-$165,381,700) ............................. 1.7 164,287,916
International Fund-
120,037,420 shares at $13.63 per share
(cost-$1,458,552,905) ........................... 16.6 1,636,110,037
----- -------------- -------------- -------------- ------------
TOTAL INVESTMENTS AND TOTAL ASSETS (Cost-$8,326,651,960) 100.1 9,849,280,515 3,528,546,666 2,741,013,364 848,756,416
LIABILITY-Payable to The Lincoln National Life Insurance
Company ...................................... 0.1 11,185,955 4,013,464 3,120,549 964,249
----- -------------- -------------- -------------- ------------
NET ASSETS 100.0% $9,838,094,560 $3,524,533,202 $2,737,892,815 $847,792,167
===== ============== ============== ============== ============
Net assets are represented by:
Units in accumulation period .................................................. 1,877,129,424 1,335,027,962 480,391,844
Annuity reserves units .................................................. 2,822,010 1,376,628 1,281,924
Unit value .................................................. $1.875 $2.049 $1.760
Value in accumulation period .................................................. $3,519,242,498 $2,735,072,516 $845,535,858
Annuity reserves .................................................. 5,290,704 2,820,299 2,256,309
-------------- --------------- ------------
$3,524,533,202 $2,737,892,815 $847,792,167
============== =============== ============
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
STATEMENT OF ASSETS AND LIABILITY
December 31, 1995 U.S.
Government/
High-Yield AAA-Rated Cash
Bond Securities Management International
ASSETS Account Account Account Account
Investments in American Variable Insurance Series at net asset ------- ------- ------- -------
value:
Growth-Income Fund-
116,492,132 shares at $30.29 per share
(cost-$2,848,095,725) ..............................
Growth Fund-
72,475,234 shares at $37.82 per share
(cost-$2,206,521,918) ..............................
Asset Allocation Fund-
63,577,260 shares at $13.35 per share
(cost-$723,654,993) ...............................
High-Yield Bond Fund-
33,566,440 shares at $13.91 per share
(cost-$467,981,087) ................................ $466,770,086
U.S. Government/AAA-Rated Securities Fund-
40,435,574 shares at $11.47 per share
(cost-$456,463,632) ............................... $463,796,030
Cash Management Fund-
14,921,700 shares at $11.01 per share
(cost-$165,381,700) ............................... $164,287,916
International Fund-
120,037,420 shares at $13.63 per share
(cost-$1,458,552,905) ............................. $1,636,110,037
------------ ------------ ------------ --------------
TOTAL INVESTMENTS AND TOTAL ASSETS (Cost-$8,326,651,960) 466,770,086 463,796,030 164,287,916 1,636,110,037
LIABILITY-Payable to The Lincoln National Life Insurance
Company.......................................... 527,565 525,637 187,964 1,846,527
------------ ------------ ------------ --------------
NET ASSETS $466,242,521 $463,270,393 $164,099,952 $1,634,263,510
============ ============ ============ ==============
Net assets are represented by:
Units in accumulation period ........................... 256,040,854 296,348,892 130,252,214 1,078,152,221
Annuity reserves units ........................... 359,431 791,307 436,657 1,634,225
Unit value ........................... $1.818 $1.559 $1.256 $1.514
Value in accumulation period ........................... $465,588,927 $462,036,668 $163,551,662 $1,631,790,100
Annuity reserves ........................... 653,594 1,233,725 548,290 2,473,410
------------ ------------ ------------ --------------
$466,242,521 $463,270,393 $164,099,952 $1,634,263,510
============ ============ ============ ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<TABLE>
<CAPTION>
U.S.
Government/
Growth- Asset High-Yield AAA-Rated
Income Growth Allocation Bond Securities
Combined Account Account Account Account Account
------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income:
Dividends from investment income $244,205,773 $76,905,451 $20,008,624 $29,035,528 $39,725,168 $31,304,463
Dividends from net realized gains
on investments 427,747,793 139,810,907 225,020,071 29,128,050 - -
Mortality and expense guarantees (113,786,063) (39,788,356) (30,994,669) (9,817,882) (5,440,821) (5,773,580)
------------- ------------ ------------ ------------ ----------- -----------
NET INVESTMENT INCOME 558,167,503 176,928,002 214,034,026 48,345,696 34,284,347 25,530,883
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) on
investments 46,801,547 10,994,999 25,641,473 2,491,208 (707,578) (438,504)
Net change in unrealized appreciation
or depreciation on investments 1,225,286,412 594,578,736 344,000,760 125,365,119 38,118,567 30,274,816
-------------- ------------ ------------ ------------ ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS 1,272,087,959 605,573,735 369,642,233 127,856,327 37,410,989 29,836,312
-------------- ------------ ------------ ------------ ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,830,255,462 $782,501,737 $583,676,259 $176,202,023 $71,695,336 $55,367,195
============== ============ ============ ============ =========== ===========
Cash
Management International
Account Account
---------- -------------
<S> <C> <C>
Net Investment Income:
Dividends from investment income $9,568,945 $37,657,594
Dividends from net realized gains
on investments - 33,788,765
Mortality and expense guarantees (2,263,289) (19,707,466)
---------- ------------
NET INVESTMENT INCOME 7,305,656 51,738,893
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) on
investments 540,337 8,279,612
Net change in unrealized appreciation
or depreciation on investments (1,040,563) 93,988,977
---------- ------------
NET GAIN (LOSS) ON INVESTMENTS (500,226) 102,268,589
---------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,805,430 $154,007,482
========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Growth- Asset High-Yield
Income Growth Allocation Bond
Combined Account Account Account Account
-------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1994 $6,044,827,824 $2,131,554,398 $1,541,151,355 $575,331,220 $314,798,246
Changes from operations:
Net investment income 288,501,054 126,851,427 34,538,135 28,027,898 26,057,153
Net realized gain (loss) on
investments 43,972,798 5,968,146 23,741,072 942,958 (822,971)
Net change in unrealized appreciation
or depreciation on investments (389,392,315) (117,390,912) (71,865,407) (38,638,571) (51,788,919)
-------------- -------------- -------------- ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS (56,918,463) 15,428,661 (13,586,200) (9,667,715) (26,554,737)
Net increase from unit transactions 1,031,397,282 257,472,945 239,015,839 52,935,162 40,144,117
-------------- -------------- -------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 974,478,819 272,901,606 225,429,639 43,267,447 13,589,380
-------------- -------------- -------------- ------------ ------------
NET ASSETS AT DECEMBER 31, 1994 7,019,306,643 2,404,456,004 1,766,580,994 618,598,667 328,387,626
Changes from operations:
Net investment income 558,167,503 176,928,002 214,034,026 48,345,696 34,284,347
Net realized gain (loss) on
investments 46,801,547 10,994,999 25,641,473 2,491,208 (707,578)
Net change in unrealized appreciation
or depreciation on investments 1,225,286,412 594,578,736 344,000,760 125,365,119 38,118,567
-------------- -------------- -------------- ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,830,255,462 782,501,737 583,676,259 176,202,023 71,695,336
Net increase (decrease) from unit
transactions 988,532,455 337,575,461 387,635,562 52,991,477 66,159,559
-------------- -------------- -------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,818,787,917 1,120,077,198 971,311,821 229,193,500 137,854,895
-------------- -------------- -------------- ------------ ------------
NET ASSETS AT DECEMBER 31, 1995 $9,838,094,560 $3,524,533,202 $2,737,892,815 $847,792,167 $466,242,521
============== ============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
U.S.
Government/
AAA-Rated Cash
Securities Management International
Account Account Account
------------ ------------ --------------
<S> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1994 $411,468,379 $125,197,402 $ 945,326,824
Changes from operations:
Net investment income 21,086,783 3,652,499 48,287,159
Net realized gain (loss) on investments (615,677) 327,416 14,431,854
Net change in unrealized appreciation
or depreciation on investments (43,811,059) 239,066 (66,136,513)
------------ ------------ --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (23,339,953) 4,218,981 (3,417,500)
Net increase from unit transactions 364,812 41,455,465 400,008,942
------------ ------------ --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (22,975,141) 45,674,446 396,591,442
------------ ------------ --------------
NET ASSETS AT DECEMBER 31, 1994 388,493,238 170,871,848 1,341,918,266
Changes from operations:
Net investment income $ 25,530,883 $7,305,656 $51,738,893
Net realized gain (loss) on investments (438,504) 540,337 8,279,612
Net change in unrealized appreciation
or depreciation on investments 30,274,816 (1,040,563) 93,988,977
------------ ------------ --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 55,367,195 6,805,430 154,007,482
Net increase (decrease) from unit transactions 19,409,960 (13,577,326) 138,337,762
------------ ------------ --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 74,777,155 (6,771,896) 292,345,244
------------ ------------ --------------
NET ASSETS AT DECEMBER 31, 1995 $463,270,393 $164,099,952 $1,634,263,510
============ ============ ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ACCOUNTING POLICIES
The Account:
Lincoln National Variable Annuity Account H (the Variable Account) is a
segregated investment account of The Lincoln National Life Insurance Company
(the Company) and is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust.
Investments:
The Variable Account invests in the American Variable Insurance Series (AVIS)
which consists of seven funds; Growth-Income Fund, Growth Fund, Asset Allocation
Fund, High-Yield Bond Fund, U.S. Government/AAA-Rated Securities Fund, Cash
Management Fund, and International Fund (the Funds). Investments in the Funds
are stated at the closing net asset value per share on December 31, 1995. 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 Variable Account are automatically reinvested in shares of
the Funds on the payable date.
Federal Income Taxes:
Operations of the Variable Account form a part of and are taxed with
operations of the Company, 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 Variable Account's net investment income and the net
realized gain on investments.
Annuity Reserves:
Reserves on contracts not involving life contingencies are calculated using an
assumed investmenet rate of 4%. Reserves on contracts involving life
contingencies are calculated using a modification of the 1971 Individual
Annuitant Mortality Table and an assumed investment rate of 4%.
2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATE
Amounts are paid to the Company for mortality and expense guarantees at the rate
of .0036986% of the current value of the Variable Account per day (1.35% on an
annual basis). In addition, amounts retained by the Company from the proceeds of
the sales of annuity contracts for contract charges and for surrender charges
were as follows during 1995:
Growth-Income Account ............................... $ 4,190,200
Growth Account ...................................... 3,313,173
Asset Allocation Account ............................ 1,084,050
High-Yield Bond Account ............................. 605,907
U.S. Government/AAA-Rated Securities Account ........ 617,036
Cash Management Account ............................. 535,551
International Account ............................... 1,985,779
-----------
$12,331,696
===========
Accordingly, the Company is responsible for all sales, general, and
administrative expenses applicable to the Variable Account.
3. NET ASSETS
Net Assets at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Growth- Asset High-Yield
Income Growth Allocation Bond
Combined Account Account Account Account
-------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unit Transactions:
Accumulation units $6,948,893,070 $2,353,306,481 $1,816,926,963 $592,428,218 $371,816,768
Annuity reserves 11,645,104 3,715,332 2,089,237 1,721,923 528,984
-------------- -------------- -------------- ------------ ------------
6,960,538,174 2,357,021,813 1,819,016,200 594,150,141 372,345,752
Accumulated net investment
income 1,226,504,025 465,528,375 305,435,880 124,631,531 94,752,972
Accumulated net realized gain
(loss) on investments 128,423,806 21,532,073 78,949,289 3,909,072 354,798
Net unrealized appreciation
(depreciation) on investments 1,522,628,555 680,450,941 534,491,446 125,101,423 (1,211,001)
-------------- -------------- -------------- ------------ ------------
$9,838,094,560 $3,524,533,202 $2,737,892,815 $847,792,167 $466,242,521
============== ============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
U.S.
Government/
AAA-Rated Cash
Securities Management International
Account Account Account
------------ ------------ --------------
<S> <C> <C> <C>
Unit Transactions:
Accumulation units $364,316,966 $138,954,278 $1,311,143,396
Annuity reserves 1,031,628 515,641 2,042,359
------------ ------------ --------------
365,348,594 139,469,919 1,313,185,755
Accumulated net investment income 90,615,624 24,936,584 120,603,059
Accumulated net realized gain
(loss) on investments (26,223) 787,233 22,917,564
Net unrealized appreciation or
depreciation on investments 7,332,398 (1,093,784) 177,557,132
------------ ------------ --------------
$463,270,393 $164,099,952 $1,634,263,510
============ ============ ==============
</TABLE>
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
NOTES TO FINANCIAL STATEMENTS (Continued)
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
----------------------------- ------------------------------
Units Amount Units Amount
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Growth-Income Account
Accumulation Units:
Contract purchases 385,390,093 $ 647,988,912 363,356,341 $ 515,881,531
Terminated contracts and transfers to annuity reserves (188,992,677) (310,925,032) (183,447,866) (259,184,036)
------------ ------------- ------------ --------------
196,397,416 337,063,880 179,908,475 256,697,495
Annuity Reserves:
Transfers from accumulation units and between accounts 820,366 1,280,881 925,509 1,298,758
Annuity Payments (517,281) (815,536) (366,197) (507,540)
Receipt (reimbursement) of mortality guarantee adjustment 29,918 46,236 (11,038) (15,768)
------------ ------------- ------------ --------------
333,003 511,581 548,274 775,450
Growth Account
Accumulation Units:
Contract purchases 426,597,921 798,976,148 394,823,467 611,893,488
Terminated contracts and transfers to annuity reserves (224,720,522) (412,118,502) (241,983,044) (373,392,285)
------------ ------------- ------------ --------------
201,877,399 386,857,646 152,840,423 238,501,203
Annuity Reserves:
Transfers from accumulation units and between accounts 707,309 1,295,235 517,396 773,860
Annuity Payments (288,125) (521,189) (182,752) (254,657)
Receipt (reimbursement) of mortality guarantee adjustment 3,294 3,870 (2,932) (4,567)
------------ ------------- ------------ --------------
422,478 777,916 331,712 514,636
Asset Allocation Account
Accumulation Units:
Contract purchases 89,466,387 141,915,536 103,837,322 143,009,284
Terminated contracts and transfers to annuity reserves (57,322,585) (89,201,319) (66,053,612) (90,659,710)
------------ ------------- ------------ --------------
32,143,802 52,714,217 37,783,710 52,349,574
Annuity Reserves:
Transfers from accumulation units and between accounts 435,686 658,350 627,521 810,094
Annuity Payments (254,690) (374,470) (207,820) (228,896)
Receipt (reimbursement) of mortality guarantee adjustment (5,151) (6,620) 3,189 4,390
------------ ------------- ------------ --------------
175,845 277,260 422,890 585,588
High-Yield Bond Account
Accumulation Units:
Contract purchases 95,779,226 160,602,539 92,910,764 146,920,605
Terminated contracts and transfers to annuity reserves (56,284,453) (94,297,060) (67,797,328) (106,916,532)
------------ ------------- ------------ --------------
39,494,773 66,305,479 25,113,436 40,004,073
Annuity Reserves:
Transfers from accumulation units and between accounts 49,490 32,701 180,696 251,433
Annuity Payments (134,657) (178,831) (92,985) (111,323)
Receipt (reimbursement) of mortality guarantee adjustment 130 210 (44) (66)
------------ ------------- ------------ --------------
(85,037) (145,920) 87,667 140,044
U.S. Government/AAA-Rated Securities Account
Accumulation Units:
Contract purchases 91,667,759 133,440,225 78,207,019 107,780,482
Terminated contracts and transfers to annuity reserves (78,197,874) (113,990,072) (78,179,343) (107,563,496)
------------ ------------- ------------ --------------
13,469,885 19,450,153 27,676 216,986
Annuity Reserves:
Transfers from accumulation units and between accounts 111,078 159,394 246,782 330,892
Annuity Payments (149,233) (218,967) (138,050) (173,437)
Receipt (reimbursement) of mortality guarantee adjustment 14,142 19,380 (7,032) (9,629)
------------ ------------- ------------ --------------
(24,013) (40,193) 101,700 147,826
Cash Management Account
Accumulation Units:
Contract purchases 299,743,238 365,095,920 379,248,222 447,282,818
Terminated contracts and transfers to annuity reserves (311,002,759) (378,960,644) (344,059,570) (405,962,601)
------------ ------------- ------------ --------------
(11,259,521) (13,864,724) 35,188,652 41,320,217
Annuity Reserves:
Transfers from accumulation units and between accounts 344,875 428,522 132,439 157,800
Annuity Payments (116,047) (143,909) (18,473) (22,256)
Receipt (reimbursement) of mortality guarantee adjustment 2,237 2,785 (246) (296)
------------ ------------- ------------ --------------
231,065 287,398 113,720 135,248
International Account
Accumulation Units:
Contract purchases 301,858,508 430,264,442 475,779,166 657,423,717
Terminated contracts and transfers to annuity reserves (208,166,176) (292,419,209) (188,839,241) (258,120,502)
------------ ------------- ------------ --------------
93,692,332 137,845,233 286,939,925 399,303,215
Annuity Reserves:
Transfers from accumulation units and between accounts 561,618 770,706 664,501 897,724
Annuity Payments (229,919) (296,241) (145,552) (185,203)
Receipt (reimbursement) of mortality guarantee adjustment 13,665 18,064 (4,991) (6,794)
------------ ------------- ------------ --------------
345,364 492,529 513,958 705,727
------------- --------------
NET INCREASE FROM UNIT TRANSACTIONS $ 988,532,455 $1,031,397,282
============= ==============
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1995:
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
-------------- ------------
<S> <C> <C>
Growth-Income Account $ 589,400,344 $ 73,607,980
Growth Account 718,386,617 115,570,446
Asset Allocation Account 129,082,420 27,485,133
High-Yield Bond Account 126,471,627 25,869,109
U.S. Government/AAA-Rated Securities Account 99,228,074 54,204,242
Cash Management Account 212,275,794 218,566,118
International Account 292,950,691 102,542,733
------------- ------------
$2,167,795,567 $617,845,761
============= ============
</TABLE>
6. NEW INVESTMENT FUND
Effective January 1, 1996, the AVIS Bond Fund became available as an investment
option for Variable Account contractowners.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors of The Lincoln National Life Insurance Company and
Contractowners of Lincoln National Variable Annuity Account H
We have audited the accompanying statement of assets and liability of Lincoln
National Variable Annuity Account H (Variable Account) as of December 31, 1995,
and the related statement of operations for the year then ended and the
statements of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of the Variable
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lincoln National Variable
Annuity Account H at December 31, 1995, the results of its operations for the
year then ended, and the changes in its net assets for each of the two years in
the period then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Fort Wayne, Indiana
March 6, 1996
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Assets
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost: 1995-$18,852,837;
1994-$18,193,928) $20,414,785 $17,692,214
Equity (cost: 1995-$480,261; 1994-$416,351) 598,435 456,333
Mortgage loans on real estate 3,147,783 2,795,914
Real estate 746,023 679,512
Policy loans 565,325 528,731
Other investments 241,219 158,196
Total investments 25,713,570 22,310,900
Cash and invested cash 802,743 990,880
Property and equipment 53,830 54,989
Deferred acquisition costs 953,834 1,736,526
Premiums and fees receivable 117,634 123,494
Accrued investment income 352,301 367,370
Assets held in separate accounts 18,461,629 13,000,540
Federal income taxes -- 134,463
Amounts recoverable from reinsurers 2,940,976 2,069,292
Goodwill 5,149 3,385
Other assets 185,398 233,708
Total assets $49,587,064 $41,025,547
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31
1995 1994
(000's omitted)
<S> <C> <C>
Liabilities and shareholder's equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits, claims and
claims expenses $ 8,435,019 $ 7,540,772
Unearned premiums 55,174 61,472
Total policy liabilities and accruals 8,490,193 7,602,244
Contractholder funds 18,171,822 17,028,628
Liabilities related to separate accounts 18,461,629 13,000,540
Federal income taxes 166,430 --
Short-term debt 124,783 153,656
Long-term debt 40,827 54,794
Other liabilities 1,412,534 1,264,730
Total liabilities 46,868,218 39,104,592
Shareholder's equity:
Common stock, $2.50 par value:
Authorized, issued and outstanding
shares-10 million (owned by Lincoln
National Corporation) 25,000 25,000
Additional paid-in capital 809,557 791,605
Retained earnings 1,440,994 1,428,969
Net unrealized gain (loss) on
securities available-for-sale 443,295 (324,619)
Total shareholder's equity 2,718,846 1,920,955
Total liabilities and shareholder's equity $49,587,064 $41,025,547
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Revenue:
Insurance premiums $ 846,873 $1,099,480 $1,972,630
Insurance fees 450,423 390,384 425,083
Net investment income 1,899,630 1,673,981 1,823,459
Realized gain (loss) on investments 136,195 (138,522) 92,150
Gain (loss) on sale of affiliates -- 68,954 (98,500)
Other 3,405 20,946 35,781
Total revenue 3,336,526 3,115,223 4,250,603
Benefits and expenses:
Benefits and settlement expenses 2,122,616 2,194,047 3,033,139
Underwriting, acquisition,
insurance and other expenses 764,346 660,363 881,703
Interest expense 67 615 96
Total benefits and expenses 2,887,029 2,855,025 3,914,938
Income before Federal income taxes
and cumulative effect of
accounting change 449,497 260,198 335,665
Federal income taxes 127,472 40,400 142,544
Income before cumulative
effect of accounting change 322,025 219,798 193,121
Cumulative effect of accounting
change (postretirement benefits) -- -- 45,582
Net income $ 322,025 $ 219,798 $ 147,539
Earnings per share:
Income before cumulative
effect of accounting change $ 32.20 $ 21.98 $ 19.31
Cumulative effect of accounting
change (postretirement benefits) -- -- (4.56)
Net income $ 32.20 $ 21.98 $ 14.75
</TABLE>
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Shareholder's Equity
Year ended December 31
1995 1994 1993
(000's omitted)
Common stock-balance
at beginning and end of year $ 25,000 $ 25,000 $ 25,000
Additional paid-in capital:
Balance at beginning of year 791,605 791,444 791,223
Contribution from Lincoln
National Corporation 17,952 161 221
Balance at end of year 809,557 791,605 791,444
Retained earnings:
Balance at beginning of year 1,428,969 1,334,171 1,198,632
Net income 322,025 219,798 147,539
Dividends declared (310,000) (125,000) (12,000)
Balance at end of year 1,440,994 1,428,969 1,334,171
Net unrealized gain (loss) on
securities available-for-sale:
Balance at beginning of year (324,619) 621,161 47,303
Cumulative effect of
accounting change -- -- 564,153
Other change during the year 767,914 (945,780) 9,705
Balance at end of year 443,295 (324,619) 621,161
Total shareholder's equity
at end of year $2,718,846 $1,920,955 $2,771,776
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from operating activities
Net income $ 322,025 $ 219,798 $ 147,539
Adjustments to reconcile net income
to net cash provided
by operating activities:
Deferred acquisition costs 124,526 (171,063) (92,183)
Premiums and fees receivable 6,082 10,755 80,582
Accrued investment income 15,069 (54,434) (18,827)
Policy liabilities and accruals 621,603 114,038 345,142
Contractholder funds 1,335,625 1,769,240 1,248,058
Amounts recoverable from reinsurers (883,425) (884,388) (700,622)
Federal income taxes 95,745 8,364 (130,308)
Provisions for depreciation 39,089 38,870 41,516
Amortization of discount and premium (86,653) 7,928 (100,274)
Realized loss (gain) on investments (244,995) 219,682 (115,881)
Loss (gain) on sale of affiliates -- (68,954) 98,500
Cumulative effect of
accounting change -- -- 45,582
Other 458,542 (4,599) 51,369
Net adjustments 1,481,208 985,439 752,654
Net cash provided by
operating activities 1,803,233 1,205,237 900,193
Cash flows from investing activities
Securities available-for-sale:
Purchases (13,549,807) (12,100,213) (7,171,684)
Sales 12,163,673 9,326,809 7,139,781
Maturities 929,018 958,065 42,707
Fixed maturity securities
held for investment:
Purchases -- -- (5,903,805)
Sales -- -- 2,805,980
Maturities -- -- 1,639,739
Purchases of other investments (1,711,427) (1,421,321) (1,936,013)
Sale or maturity of other investments 1,198,536 1,457,157 1,142,872
Sale of affiliates -- 520,340 --
Decrease in cash collateral
on loaned securities (39,681) (163,872) (40,454)
Other (213,708) (37,606) 83,751
Net cash used in
investing activities (1,223,396) (1,460,641) (2,197,126)
<PAGE>
The Lincoln National Life Insurance Company
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1995 1994 1993
(000's omitted)
Cash flows from financing activities
Principal payments on long-term debt $ (13,967) $ (200) $ (1,138)
Issuance of long-term debt -- -- 10,314
Net increase (decrease) in
short-term debt (28,873) 3,629 13,047
Universal life and investment
contract deposits 1,716,239 2,381,829 2,418,037
Universal life and
investment contract withdrawals (2,149,325) (1,604,450) (1,503,105)
Capital contribution from
Lincoln National Corporation 17,952 161 221
Dividends paid to shareholder (310,000) (125,000) (12,000)
Net cash provided by
(used in) financing activities (767,974) 655,969 925,376
Net increase (decrease) in cash (188,137) 400,565 (371,557)
Cash at beginning of year 990,880 590,315 961,872
Cash at end of year $ 802,743 $ 990,880 $ 590,315
See accompanying notes.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include The Lincoln National
Life Insurance Company ("Company") and its majority-owned subsidiaries. The
Company and its subsidiaries operate multiple insurance businesses. Operations
are divided into two business segments (see Note 9). These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles.
Use of Estimates
The nature of the insurance business requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investments
The Company classifies its fixed maturity securities and equity securities
(common and non-redeemable preferred stocks) as available-for-sale and,
accordingly, such securities are carried at fair value. The cost of fixed
maturity securities is adjusted for amortization of premiums and discounts.
The cost of fixed maturity and equity securities is adjusted for declines in
value that are other than temporary.
For the mortgage-backed securities portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When estimates of prepayments change, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the securities. This adjustment is reflected in net investment
income.
Mortgage loans on real estate are carried at outstanding principal balances
less unaccrued discounts and net of reserves for declines that are other than
temporary. Investment real estate is carried at cost less allowances for
depreciation. Such real estate is carried net of reserves for declines in
value that are other than temporary. Real estate acquired through foreclosure
proceedings is recorded at fair value on the settlement date which establishes
a new cost basis. If
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
a subsequent periodic review of a foreclosed property indicates the fair
value, less estimated costs to sell, is lower than the carrying value at the
settlement date, the carrying value is adjusted to the lower amount. Policy
loans are carried at the aggregate unpaid balances. Any changes to the
reserves for mortgage loans on real estate and real estate are reported as a
realized gain (loss) on investments.
Cash and invested cash are carried at cost and include all highly liquid debt
instruments purchased with a maturity of three months or less, including
participation in a short-term investment pool administered by Lincoln National
Corporation ("LNC"), the Company's parent.
Realized gain (loss) on investments is recognized in net income, net of
related amortization of deferred acquisition costs, using the specific
identification method. Changes in the fair values of securities carried at
fair value are reflected directly in shareholder's equity after deductions for
related adjustments for deferred acquisition costs and amounts required to
satisfy policyholder commitments that would have been recorded if these
securities would have been sold at their fair value, and after deferred taxes
or credits to the extent deemed recoverable.
Derivatives
The Company hedges certain portions of its exposure to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risk by entering into derivative
transactions. A description of the Company's accounting for its hedge of such
risks is discussed in the following two paragraphs.
The premium paid for an interest rate cap is deferred and amortized to net
investment income on a straight-line basis over the term of the interest rate
cap. Any settlement received in accordance with the terms of the interest
rate caps is recorded as investment income. Spread-lock agreements, interest
rate swaps and financial futures, which hedge fixed maturity securities
available-for-sale, are carried at fair value with the change in fair value
reflected directly in shareholder's equity. Realized gain (loss) from the
settlement of such derivatives is deferred and amortized over the life of the
hedged assets as an adjustment to the yield. Foreign exchange forward
contracts, foreign currency options and foreign currency swaps, which hedge
some of the foreign exchange risk of investments in fixed maturity securities
denominated in foreign currencies, are carried at fair value with the change
in fair value reflected in earnings. Realized gain (loss) from the settlement
of such derivatives is also reflected in earnings.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate fluctuations,
the widening of bond yield spreads over comparable maturity U.S. Government
obligations and foreign exchange risk; and the derivatives used are designated
as a hedge and reduce the indicated risk by having a high correlation of
changes in the value of the derivatives and the items being hedged at both the
inception of the hedge and throughout the hedge period. Should such criteria
not be met, the change in value of the derivatives is included in net income.
Property and Equipment
Property and equipment owned for company use is carried at cost less
allowances for depreciation.
Premiums and Fees
Revenue for universal life and other interest-sensitive life insurance policies
consists of policy charges for cost of insurance, policy initiation and
administration, and surrender charges that have been assessed. Traditional
individual life-health and annuity premiums are recognized as revenue over the
premium-paying period of the policies. Group health premiums are prorated over
the contract term of the policies.
Assets Held in Separate Accounts/Liabilities Related to Separate Accounts
These assets and liabilities represent segregated funds administered and
invested by the Company for the exclusive benefit of pension and variable life
and annuity contractholders. The fees received by the Company for
administrative and contractholder maintenance services performed for these
separate accounts are included in the Company's consolidated statements of
income.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
Deferred Acquisition Costs
Commissions and other costs of acquiring universal life insurance, variable
universal life insurance, traditional life insurance, annuities and group
health insurance which vary with and are primarily related to the production
of new business, have been deferred to the extent recoverable. Acquisition
costs for universal and variable universal life insurance policies are being
amortized over the lives of the policies in relation to the incidence of
estimated gross profits from surrender charges and investment, mortality and
expense margins, and actual realized gain (loss) on investments. That
amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of policies are revised. The
traditional life-health and annuity acquisition costs are amortized over the
premium-paying period of the related policies using assumptions consistent
with those used in computing policy reserves.
Expenses
Expenses for universal and variable universal life insurance policies include
interest credited to policy account balances and benefit claims incurred
during the period in excess of policy account balances. Interest crediting
rates associated with funds invested in the Company's general account during
1993 through 1995 ranged from 6.1% to 8.25%.
Goodwill
The cost of acquired subsidiaries in excess of the fair value of net assets
(goodwill) is amortized using the straight-line method over periods that
generally correspond with the benefits expected to be derived from the
acquisitions. Goodwill is amortized over 40 years. The carrying value of
goodwill is reviewed periodically for indicators of impairment in value.
Policy Liabilities and Accruals
The liabilities for future policy benefits and expenses for universal and
variable universal life insurance policies consist of policy account balances
that accrue to the benefit of the policyholders, excluding surrender charges.
The liabilities for future policy benefits and expenses for traditional life
policies and immediate and deferred paid-up annuities are computed using a net
level premium method and assumptions for investment yields, mortality and
withdrawals based principally on Company experience projected at the time of
policy issue, with provision for possible adverse deviations. Interest
assumptions for traditional direct individual life reserves for all policies
range from 2.3% to 11.7% graded to 5.7% after 30 years depending on time of
policy issue. Interest rate assumptions for reinsurance reserves range from
5.0% to 11.0% graded to 8.0% after 20 years. The interest assumptions for
immediate and deferred paid-up annuities range from 4.5% to 8.0%.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
With respect to its policy liabilities and accruals, the Company carries on a
continuing review of its 1) overall reserve position, 2) reserving techniques
and 3) reinsurance arrangements, and as experience develops and new
information becomes known, liabilities are adjusted as deemed necessary. The
effects of changes in estimates are included in the operating results for the
period in which such estimates occur.
Reinsurance
The Company enters into reinsurance agreements with other companies in the
normal course of their business. The Company may assume reinsurance from
unaffiliated companies and/or cede reinsurance to such companies.
Assets/liabilities and premiums/benefits from certain reinsurance contracts
which grant statutory surplus to other insurance companies have been netted on
the balance sheets and income statements, respectively, since there is a right
of offset. All other reinsurance agreements are reported on a gross basis.
Depreciation
Provisions for depreciation of investment real estate and property and
equipment owned for Company use are computed principally on the straight-line
method over the estimated useful lives of the assets.
Postretirement Medical and Life Insurance Benefits
The Company accounts for its postretirement medical and life insurance
benefits using the full accrual method.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company and eligible subsidiaries have elected to file consolidated
Federal and state income tax returns with their parent, LNC. Pursuant to an
intercompany tax sharing agreement with LNC, the Company and its eligible
subsidiaries provide for income taxes on a separate return filing basis. The
tax sharing agreement also provides that the Company and eligible subsidiaries
will receive benefit for net operating losses, capital losses and tax credits
which are not usable on a separate return basis to the extent such items may
be utilized in the consolidated income tax returns of LNC.
The Company uses the liability method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax return purposes. The Company
establishes a valuation allowance for any portion of its deferred tax assets
which are unlikely to be realized.
2. Changes in Accounting Principles and Changes in Estimates
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company changed its method of accounting for
postretirement medical and life insurance benefits for its eligible employees
and agents from a pay-as-you-go method to a full accrual method in accordance
with Financial Accounting Standards No. 106 entitled "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("FAS 106"). This full
accrual method recognizes the estimated obligation for retired employees and
agents and active employees and agents who are expected to retire in the
future. The effect of the change was to increase net periodic postretirement
benefit cost by $7,800,000 and decrease income before cumulative effect of
accounting change by $5,100,000 ($0.51 per share). The implementation of FAS
106 resulted in a one-time charge to the first quarter 1993 net income of
$45,600,000 or $4.56 per share ($69,000,000 pre-tax) for the cumulative effect
of the accounting change. See Note 6 for additional disclosures regarding
postretirement benefits other than pensions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Accounting by Creditors for Impairment of a Loan
Financial Accounting Standards No. 114 entitled "Accounting by Creditors for
Impairment of a Loan" ("FAS 114") issued in May 1993, was adopted by the
Company effective January 1, 1993. FAS 114 requires that if an impaired
mortgage loan's fair value as described in Note 3 is less than the recorded
investment in the loan, the difference is recorded in the mortgage loan
allowance for losses account. The adoption of FAS 114 resulted in additions
to the mortgage loan allowance for losses account and reduced first quarter
1993 income before cumulative effect of accounting change and net income by
$37,700,000 or $3.77 per share ($57,200,000 pre-tax). See Note 3 for further
mortgage loan disclosures. Most of the effect of this change in accounting
was within the Life Insurance and Annuities business segment.
Accounting for Certain Investments in Debt and Equity Securities
Financial Accounting Standards No. 115 entitled "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115") issued in May 1993, was
adopted by the Company as of December 31, 1993. In accordance with the rules,
the prior year financial statements have not been restated to reflect the
change in accounting principle. Under FAS 115, securities can be classified
as available-for-sale, trading or held-to-maturity according to the holder's
intent. The Company classified its entire fixed maturity securities portfolio
as "available-for-sale." Securities classified as available-for-sale are
carried at fair value and unrealized gains and losses on such securities are
carried as a separate component of shareholder's equity. The ending balance
of shareholder's equity at December 31, 1993 was increased by $564,200,000
(net of $377,500,000 of related adjustments to deferred acquisition costs,
$50,700,000 of policyholder commitments and $303,700,000 in deferred income
taxes, all of which would have been recognized if those securities would have
been sold at their fair value, net of amounts applicable to Security-
Connecticut Corporation) to reflect the net unrealized gain on fixed maturity
securities classified as available-for-sale previously carried at amortized
cost. Prior to the adoption of FAS 115, the Company carried a portion of its
fixed maturity securities at fair value with unrealized gains and losses
carried as a separate component of shareholder's equity. The remainder of
such securities were carried at amortized cost.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Changes in Accounting Principles and Changes in Estimates (continued)
Change in Estimate for Net Investment Income Related to Mortgage-Backed
Securities
At December 31, 1993, the Company had $5,942,100,000 invested in mortgage-
backed securities. As indicated in Note 1, the Company recognizes income on
these securities using a constant effective yield based on anticipated
prepayments. With the implementation of new investment software in December
1993, the Company was able to significantly refine its estimate of the
effective yield on such securities to better reflect actual prepayments and
estimates of future prepayments. This resulted in an increase in the
amortization of purchase discount on these securities of $58,000,000 and,
after related amortization of deferred acquisition costs ($18,300,000) and
income taxes ($14,300,000), increased 1993's income before cumulative effect
of accounting change and net income by $25,500,000 or $2.55 per share. Most
of the effect of this change in estimate was within the Life Insurance and
Annuities business segment.
Change in Estimate for Disability Income Reserves
During the fourth quarter of 1993, income before cumulative effect of
accounting change and net income decreased by $15,500,000 or $1.55 per share
as the result of strengthening reinsurance disability income reserves by
$23,900,000. The need for this reserve increase within the Reinsurance
segment was identified as the result of management's assessment of current
expectations for morbidity trends and the impact of lower investment income
due to lower interest rates.
During the fourth quarter of 1995, the Company completed an in-depth review of
the experience of its disability income business. As a result of this study,
and based on the assumption that recent experience will continue in the
future, income before cumulative effect of accounting change and net income
decreased by $33,500,000 or $3.35 per share ($51,500,000 pre-tax) as a result
of strengthening disability income reserves by $15,200,000 and writing-off
deferred acquisition costs of $36,300,000 in the Reinsurance segment.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $1,549.4 $1,357.4 $1,497.6
Equity securities 8.9 7.4 4.3
Mortgage loans on real estate 268.3 271.3 294.2
Real estate 110.0 97.8 75.2
Policy loans 35.4 32.7 36.0
Invested cash 55.4 46.4 24.8
Other investments 15.8 7.3 8.0
Investment revenue 2,043.2 1,820.3 1,940.1
Investment expenses 143.6 146.3 116.6
Net investment income $1,899.6 $1,674.0 $1,823.5
</TABLE>
The realized gain (loss) on investments is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Gross gain $239.6 $ 69.6 $ 91.1
Gross loss (87.8) (294.1) (8.4)
Equity securities available-for-sale:
Gross gain 82.3 50.2 88.3
Gross loss (31.3) (50.5) (33.7)
Fixed maturity securities held for investment:
Gross gain -- -- 209.9
Gross loss -- -- (69.5)
Other investments 42.2 5.1 (161.8)
Related restoration or amortization
of deferred acquisition costs and
provision for policyholder
commitments (108.8) 81.2 (23.7)
Total $136.2 $(138.5) $ 92.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Provisions (credits) for write-downs and net changes in provisions for losses,
which are included in realized gain (loss) on investments shown above, are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities $10.4 $14.2 $ 55.6
Equity securities 3.3 6.8 --
Mortgage loans on real estate 14.7 19.5 136.7
Real estate (7.2) 13.0 21.8
Other long-term investments (1.5) .3 3.9
Guarantees (2.2) 4.3 1.7
Total $17.5 $58.1 $219.7
</TABLE>
The change in unrealized appreciation (depreciation) on investments in fixed
maturity and equity securities is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Fixed maturity securities
available-for-sale $2,063.7 $(1,903.7) $1,387.1
Equity securities available-for-sale 78.1 (26.0) 9.2
Fixed maturity securities
held for investment -- -- (959.7)
Total $2,141.8 $(1,929.7) $ 436.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost, gross unrealized gain and loss and fair value of securities
available-for-sale are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $12,412.1 $1,141.0 $28.7 $13,524.4
U.S. Government bonds 569.6 83.9 .1 653.4
Foreign governments bonds 927.9 70.3 .6 997.6
Mortgage-backed securities:
Mortgage pass-through securities 1,072.5 41.0 3.2 1,110.3
Collateralized mortgage obligations 3,816.3 262.5 7.4 4,071.4
Other mortgage-backed securities 2.8 .3 -- 3.1
State and municipal bonds 12.3 .1 -- 12.4
Redeemable preferred stocks 39.3 2.9 -- 42.2
Total fixed maturity securities 18,852.8 1,602.0 40.0 20,414.8
Equity securities 480.3 123.6 5.5 598.4
Total $19,333.1 $1,725.6 $45.5 $21,013.2
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Unrealized Fair
Cost Gain Loss Value
(in millions)
<S> <C> <C> <C> <C>
Corporate bonds $11,519.3 $143.3 $514.4 $11,148.2
U.S. Government bonds 1,048.4 6.9 25.5 1,029.8
Foreign governments bonds 541.2 4.7 12.5 533.4
Mortgage-backed securities:
Mortgage pass-through securities 1,176.8 3.0 44.1 1,135.7
Collateralized mortgage obligations 3,835.5 85.8 148.6 3,772.7
Other mortgage-backed securities 5.0 .1 .1 5.0
State and municipal bonds 16.3 .4 -- 16.7
Redeemable preferred stocks 51.4 .2 .9 50.7
Total fixed maturity securities 18,193.9 244.4 746.1 17,692.2
Equity securities 416.3 56.4 16.4 456.3
Total $18,610.2 $300.8 $762.5 $18,148.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Future maturities of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Fair
Cost Value
(in millions)
<S> <C> <C>
Due in one year or less $ 278.4 $ 282.6
Due after one year through five years 2,955.7 3,102.1
Due after five years through ten years 4,918.2 5,265.9
Due after ten years 5,808.9 6,579.4
Subtotal 13,961.2 15,230.0
Mortgage-backed securities 4,891.6 5,184.8
Total $18,852.8 $20,414.8
</TABLE>
The foregoing data is based on stated maturities. Actual maturities will
differ in some cases because borrowers may have the right to call or pre-pay
obligations.
At December 31, 1995, the current par, amortized cost and estimated fair value
of investments in mortgage-backed securities summarized by interest rates of
the underlying collateral are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Current Fair
Par Cost Value
(in millions)
<S> <C> <C> <C>
Below 7% $ 292.6 $ 290.5 $ 293.6
7%-8% 1,302.8 1,276.9 1,318.2
8%-9% 1,607.0 1,564.7 1,669.8
Above 9% 1,810.5 1,759.5 1,903.2
Total $5,012.9 $4,891.6 $5,184.8
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The quality ratings of fixed maturity securities available-for-sale are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
<S> <C>
Treasuries and AAA 34.1%
AA 8.0
A 25.9
BBB 24.5
BB 3.9
Less than BB 3.6
100.0%
</TABLE>
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When the Company determines that a loan is impaired, a provision
for loss is established for the difference between the carrying value of the
mortgage loan and the estimated value. Estimated value is based on either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral. The provision for losses is reported as realized gain (loss) on
investments. Mortgage loans deemed to be uncollectible are charged against
the provision for losses and subsequent recoveries, if any, are credited to
the provision for losses.
The provision for losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the provision for losses is based on the
Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of the
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently
subjective as it requires estimating the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Impaired loans along with the related allowance for losses are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Impaired loans with allowance for losses $144.7 $246.0
Allowance for losses (28.5) (56.6)
Impaired loans with no allowance for losses 2.1 2.2
Net impaired loans $118.3 $191.6
</TABLE>
Impaired loans with no allowance for losses are a result of direct write-downs
or for collateral dependent loans where the fair value of the collateral is
greater than the recorded investment in such loans.
A reconciliation of the mortgage loan allowance for losses for these impaired
mortgage loans is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Balance at beginning of year $56.6 $220.7 $129.1
Provisions for losses 14.7 19.5 79.5
Provision for adoption of FAS 114 -- -- 57.2
Releases due to write-downs (12.0) -- --
Releases due to sales (15.9) (164.7) (12.2)
Releases due to foreclosures (14.9) (18.9) (32.9)
Balance at end of year $28.5 $ 56.6 $220.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Average recorded investment in impaired loans $181.7 $467.5 $703.6
Interest income recognized on impaired loans 16.6 36.1 47.3
</TABLE>
All interest income on impaired loans was recognized on the cash basis of
income recognition.
As of December 31, 1995 and 1994, the Company had restructured loans of
$62,500,000 and $36,200,000, respectively. The Company recorded $6,300,000
and $800,000 interest income on these restructured loans in 1995 and 1994,
respectively. Interest income in the amount of $6,600,000 and $3,900,000
would have been recorded on these loans according to their original terms in
1995 and 1994, respectively. As of December 31, 1995 and 1994, the Company
had no outstanding commitments to lend funds on restructured loans.
As of December 31, 1995, the Company's investment commitments for fixed
maturity securities (primarily private placements), mortgage loans on real
estate and real estate were $543,100,000.
Fixed maturity securities available-for-sale, mortgage loans on real estate
and real estate with a combined carrying value at December 31, 1995 of
$1,300,000 were non-income producing for the year ended December 31, 1995.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The cost information for mortgage loans on real estate, real estate and other
long-term investments are net of allowances for losses. The balance sheet
account for other liabilities includes a reserve for guarantees of third-party
debt. The amount of allowances and a reserve for such items is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Mortgage loans on real estate $28.5 $56.6
Real estate 46.6 65.2
Other long-term investments 11.8 13.5
</TABLE>
Details underlying the balance sheet caption "Net Unrealized Gain (Loss) on
Securities Available-for-Sale," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Fair value of securities available-for-sale $21,013.2 $18,148.5
Cost of securities available-for-sale 19,333.1 18,610.2
Unrealized gain (loss) 1,680.1 (461.7)
Adjustments to deferred acquisition costs (492.1) 158.2
Amounts required to satisfy
policyholder commitments (510.1) 8.6
Deferred income credits (taxes) (234.6) 105.9
Valuation allowance for deferred tax assets -- (135.6)
Net unrealized gain (loss) on
securities available-for-sale $ 443.3 $ (324.6)
</TABLE>
Adjustments to deferred acquisition costs and amounts required to satisfy
policyholder commitments are netted against the Deferred Acquisition Costs
asset account and included with the Future Policy Benefits, Claims and Claims
Expense liability account on the balance sheet, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes
The Federal income tax expense (benefit) before cumulative effect of
accounting change is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Current $172.5 $(93.4) $261.3
Deferred (45.0) 133.8 (118.8)
Total $127.5 $ 40.4 $142.5
</TABLE>
Cash paid for Federal income taxes in 1995, 1994 and 1993 was $27,500,000,
$41,400,000 and $272,600,000, respectively. The cash paid in 1995 is net of a
$146,900,000 cash refund related to the carryback of 1994 capital losses to
prior years.
The effective tax rate on pre-tax income before cumulative effect of
accounting change is lower than the prevailing corporate Federal income tax
rate. A reconciliation of this difference is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Tax rate times pre-tax income $157.3 $91.1 $117.5
Effect of:
Tax-exempt investment income (22.0) (21.5) (16.2)
Participating policyholders' share 5.4 3.4 4.1
Loss (gain) on sale of affiliates -- (24.1) 34.5
Other items (13.2) (8.5) 2.6
Provision for income taxes $127.5 $40.4 $142.5
Effective tax rate 28.4% 15.5% 42.5%
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Federal income tax recoverable (liability) is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Current $ (25.0) $118.2
Deferred (141.4) 16.3
Total $(166.4) $134.5
</TABLE>
Significant components of the Company's net deferred tax asset (liability) are
as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Deferred tax assets:
Policy liabilities and accruals
and contractholder funds $ 694.5 $430.9
Loss on investments -- 16.8
Net unrealized loss on
securities available-for-sale -- 161.6
Postretirement benefits other than pensions 25.3 24.2
Other 39.5 34.6
Total deferred tax assets 759.3 668.1
Valuation allowance for deferred tax assets -- (135.6)
Net deferred tax assets 759.3 532.5
Deferred tax liabilities:
Deferred acquisition costs 218.8 475.5
Net unrealized gain on
securities available-for-sale 579.6 --
Gain on investments 7.7 --
Other 94.6 40.7
Total deferred tax liabilities 900.7 516.2
Net deferred tax (liability) asset $(141.4) $ 16.3
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Federal Income Taxes (continued)
The Company is required to establish a "valuation allowance" for any portion
of its deferred tax assets which are unlikely to be realized. At December 31,
1994, $161,600,000 of deferred tax assets relating to net unrealized capital
losses on fixed maturity and equity securities available-for-sale were
available to be recorded in shareholder's equity before considering a
valuation allowance. For Federal income tax purposes, capital losses may only
be used to offset capital gains in the current year or during a three year
carryback and five year carryforward period. Due to these restrictions, and
the uncertainty at that time of future capital gains, these deferred tax
assets were substantially offset by a valuation allowance of $135,600,000. By
December 31, 1995, the fair values of fixed maturity and equity securities
available-for-sale were greater than the cost basis resulting in unrealized
capital gains. Accordingly, no valuation allowance was established as of
December 31, 1995 since management believes it is more likely than not that
the Company will realize the benefit of its deferred tax assets.
Prior to 1984, a portion of the life companies' current income was not subject
to current income tax, but was accumulated for income tax purposes in a
memorandum account designated as "policyholders' surplus." The total of the
life companies' balances in their respective "policyholders' surplus" accounts
at December 31, 1983 of $204,800,000 was "frozen" by the Tax Reform Act of
1984 and, accordingly, there have been no additions to the accounts after that
date. That portion of current income on which income taxes have been paid
will continue to be accumulated in a memorandum account designated as
"shareholder surplus," and is available for dividends to the shareholder
without additional payment of tax. The December 31, 1995 total of the life
companies' account balances for their "shareholder surplus" was
$1,554,000,000. Should dividends to the shareholder for each life company
exceed its respective "shareholder surplus," amounts would need to be
transferred from its respective "policyholders' surplus" and would be subject
to Federal income tax at that time. In connection with the 1993 sale of a
life insurance affiliate (see Note 10), $8,800,000 was transferred from
policyholders' surplus to shareholder surplus and current income tax of
$3,100,000 was paid. Under existing or foreseeable circumstances, the Company
neither expects nor intends that distributions will be made from the remaining
balance in "policyholders' surplus" of $196,000,000 that will result in any
such tax. Accordingly, no provision for deferred income taxes has been
provided by the Company on its "policyholders' surplus" account. In the event
that such excess distributions are made, it is estimated that income taxes of
approximately $68,600,000 would be due.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data
The balance sheet captions, "Real Estate," "Other Investments" and "Property
and Equipment," are shown net of allowances for depreciation as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate $ 51.6 $ 37.0
Other investments 14.6 12.2
Property and equipment 100.7 104.7
</TABLE>
Details underlying the balance sheet caption, "Contractholder Funds," are as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Premium deposit funds $17,886.9 $16,770.3
Undistributed earnings on participating business 91.9 63.6
Other 193.0 194.7
Total $18,171.8 $17,028.6
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
Details underlying the balance sheet captions, "Short-term and Long-term
Debt," are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Short-term debt:
Short-term notes $123.5 $150.8
Current portion of long-term debt 1.3 2.9
Total short-term debt $124.8 $153.7
Long-term debt less current portion:
7% mortgage note payable, due 1996 $ -- $ 4.9
9.48% mortgage note payable, due 1996 -- 7.7
12% mortgage note payable, due 1996 -- .2
8.42% mortgage note payable, due 1997 7.0 7.2
8.25% mortgage note payable, due 1997 10.1 10.2
8% mortgage note payable, due 1997 2.1 --
8.75% mortgage note payable, due 1998 18.4 18.8
9.75% mortgage note payable, due 2002 3.2 5.8
Total long-term debt $ 40.8 $ 54.8
</TABLE>
Future maturities of long-term debt are as follows (in millions):
1996 -- $ 1.3 1998 -- $18.4 2000 -- $ --
1997 -- 19.2 1999 -- -- Thereafter -- 3.2
Cash paid for interest for 1995, 1994 and 1993 was $67,000, $615,000 and
$96,000, respectively.
Reinsurance transactions included in the income statement caption, "Insurance
Premiums," are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Insurance assumed $777.6 $910.8 $807.5
Insurance ceded 441.7 716.7 568.6
Net reinsurance premiums $335.9 $194.1 $238.9
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Supplemental Financial Data (continued)
The income statement caption, "Benefits and Settlement Expenses," is net of
reinsurance recoveries of $456,000, $524,000 and $438,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The income statement caption, "Underwriting, Acquisition, Insurance and Other
Expenses," includes amortization of deferred acquisition costs of
$399,700,000, $115,200,000 and $241,000,000 for the years ended December 31,
1995, 1994 and 1993, respectively. An additional $(85,200,000), $81,200,000
and ($23,700,000) of deferred acquisition costs was restored (amortized) and
netted against "Realized Gain (Loss) on Investments" for the years ended
December 31, 1995, 1994 and 1993, respectively.
6. Employee Benefit Plans
Pension Plans
LNC maintains funded defined benefit pension plans for most of its employees
and, prior to January 1, 1995, full-time agents. The benefits for employees
are based on total years of service and the highest 60 months of compensation
during the last 10 years of employment. The benefits for agents were based on
a percentage of each agent's yearly earnings. The plans are funded by
contributions to tax-exempt trusts. The Company's funding policy is
consistent with the funding requirements of Federal laws and regulations.
Contributions are intended to provide not only the benefits attributed to
service to date, but also those expected to be earned in the future. Plan
assets consist principally of listed equity securities and corporate
obligations and government bonds.
All benefits applicable to the funded defined benefit plan for agents were
frozen as of December 31, 1994. The curtailment of this plan did not have a
significant effect on net pension cost for 1994. Effective January 1, 1995,
pension benefits for agents have been provided by a new defined contribution
plan. Contributions to this plan will be based on 2.3% of an agent's earnings
up to the social security wage base and 4.6% of any excess.
LNC also administers two types of unfunded, nonqualified, defined benefit
plans for certain employees and agents. A supplemental retirement plan
provides defined benefit pension benefits in excess of limits imposed by
Federal tax law. A salary continuation plan provides certain officers of the
Company defined pension benefits based on years of service and final monthly
salary upon death or retirement.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The status of the funded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(162.1) $(130.5)
Nonvested benefits (9.2) (7.3)
Accumulated benefit obligation (171.3) (137.8)
Effect of projected future compensation increases (37.2) (24.3)
Projected benefit obligation (208.5) (162.1)
Plan assets at fair value 196.4 159.3
Projected benefit obligations in
excess of plan assets (12.1) (2.8)
Unrecognized net loss (gain) 12.6 (.5)
Unrecognized prior service cost 1.2 1.1
Prepaid (accrued) pension cost
included in other liabilities $ 1.7 $ (2.2)
</TABLE>
The status of the unfunded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $(7.0) $(5.4)
Nonvested benefits (1.5) (1.0)
Accumulated benefit obligation (8.5) (6.4)
Effect of projected future compensation increases (2.4) (2.5)
Projected benefit obligation (10.9) (8.9)
Unrecognized transition obligation -- --
Unrecognized net loss (gain) 1.0 (.3)
Unrecognized prior service cost .8 .8
Accrued pension costs included in other liabilities $(9.1) $(8.4)
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The determination of the projected benefits obligation for the defined benefit
plans was based on the following assumptions:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 8.0% 7.0%
Rate of increase in compensation:
Salary continuation plan 6.0 6.5 6.0
All other plans 5.0 5.0 5.0
Expected long-term rate of return on plan assets 9.0 9.0 9.0
</TABLE>
The components of net pension cost for the defined benefit pension plans are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 5.0 $ 8.9 $ 8.5
Interest cost on projected benefit obligation 13.2 12.9 12.4
Actual return on plan assets (36.3) 4.7 (20.1)
Net amortization (deferral) 22.9 (18.6) 6.1
Net pension cost $ 4.8 $ 7.9 $ 6.9
</TABLE>
401(k)
LNC and the Company sponsor contributory defined contribution plans for
eligible employees and agents. The Company's contributions to the plans are
equal to each participant's pre-tax contribution, not to exceed 6% of base
pay, multiplied by a percentage, ranging from 25% to 150%, which varies
according to certain incentive criteria as determined by LNC's Board of
Directors. Expense for these plans amounted to $8,000,000, $13,200,000 and
$11,800,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
Postretirement Medical and Life Insurance Benefit Plans
LNC sponsors unfunded defined benefit plans that provide postretirement
medical and life insurance benefits to full-time employees and agents who,
depending on the plan, have worked for the Company 10 to 15 years and attained
age 55 to 60. Medical benefits are also available to spouses and other
dependents of employees and agents. For medical benefits, limited
contributions are required from individuals retired prior to November 1, 1988;
contributions for later retirees, which can be adjusted annually, are based on
such items as years of service at retirement and age at retirement. The life
insurance benefits are noncontributory, although participants can elect
supplemental contributory benefits.
The status of the postretirement medical and life insurance benefit plans and
the amounts recognized on the balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(39.8) $(34.9)
Fully eligible active plan participants (9.9) (7.0)
Other active plan participants (20.8) (15.0)
Accumulated postretirement benefit obligation (70.5) (56.9)
Unrecognized net gain (.8) (5.5)
Accrued plan cost included in other liabilities $(71.3) $(62.4)
</TABLE>
The components of periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost $1.5 $1.7 $2.6
Interest cost 4.4 4.2 4.6
Amortization cost (credit) (.8) .1 --
Net periodic postretirement benefit cost $5.1 $6.0 $7.2
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Employee Benefit Plans (continued)
The calculation of the accumulated postretirement benefit obligation assumes a
weighted-average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) of 9.5% for 1996 gradually
decreasing to 5.5% by 2004 and remaining at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point each year would increase the accumulated postretirement
benefit obligation as of December 1995 and 1994 by $5,100,000 and $4,100,000,
respectively, and the aggregate of the estimated service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1995 by $488,000. The calculation assumes a long-term rate of
increase in compensation of 5.0% for both December 31, 1995 and 1994. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 8.0% at December 31, 1995 and
1994, respectively.
7. Restrictions, Commitments and Contingencies
Shareholder's Equity Restrictions
Net income as determined in accordance with statutory accounting practices for
the Company and its insurance subsidiaries in 1995, 1994 and 1993 was
$284,500,000, $366,700,000 and $237,000,000, respectively. The Company's
shareholder's equity as determined in accordance with statutory accounting
practices at December 31, 1995 and 1994 was $1,732,900,000 and $1,679,700,000,
respectively.
The Company is subject to certain insurance department regulatory restrictions
as to the transfer of funds and payments of dividends to LNC. In 1996, the
Company can transfer up to $284,500,000 without seeking prior approval from
the insurance regulators.
Disability Income Claims
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1995 and 1994 is a net
liability of $602,600,000 and $441,700,000, respectively, excluding deferred
acquisition costs. The bulk of the increase to this liability relates to the
assumption of a large block of disability claim reserves and related assets
during the third quarter of 1995. In addition, as indicated in Note 2, the
Company strengthened its disability income reserves and wrote off certain
related deferred acquisition costs in the fourth quarter of 1995. The
reserves were established on the assumption that the recent experience will
continue in the future. If incidence levels or claim termination rates vary
significantly from these assumptions, further adjustments to reserves may be
required in the future. It is not possible to provide a meaningful estimate
of a range of possible outcomes at this time. The Company reviews and updates
the level of these reserves on an on-going basis.
Compliance of Qualified Annuity Plans
Tax authorities continue to focus on compliance of qualified annuity plans
marketed by insurance companies. If sponsoring employers cannot demonstrate
compliance and the insurance company is held responsible due to its marketing
efforts, the Company and other insurers may be subject to potential liability.
It is not possible to provide a meaningful estimate of the range of potential
liability at this time. Management continues to monitor this matter and to
take steps to minimize any potential liability.
Group Pension Annuities
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold, are supported by a single portfolio of assets
which attempts to match the duration of these liabilities. Due to the very
long-term nature of group pension annuities and the resulting inability to
exactly match cash flows, a risk exists that future cash flows from
investments will not be reinvested at rates as high as currently earned by the
portfolio. This situation could cause losses which would be recognized at
some future time.
Leases
The Company and certain of its subsidiaries lease their home office properties
through sale-leaseback agreements. The agreements provide for a 25 year lease
period with options to renew for six additional terms of five years each. The
agreements also provide the Company with the right of first refusal to
purchase the properties during the term of the lease, including renewal
periods, at a price as defined in the agreements. In addition, the Company
has the option to purchase the leased properties at fair market value as
defined in the agreements on the last day of the initial 25 year lease period
ending in 2009 or the last day of any of the renewal periods.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Total rental expense under operating leases in 1995, 1994 and 1993 was
$24,400,000, $21,700,000 and $27,100,000. Future minimum rental commitments
are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 20.9
1997 19.5
1998 18.3
1999 18.3
2000 17.7
Thereafter 172.4
Total $267.1
</TABLE>
Insurance Ceded and Assumed
The Company cedes insurance to other companies, including certain affiliates.
The portion of risks exceeding each companys retention limit is reinsured
with other insurers. The Company seeks reinsurance coverage within the
business segment that sells life insurance that limits its liabilities on an
individual insured to $3,000,000. To cover products other than life
insurance, the Company acquires other insurance coverages with retentions and
limits which management believes are appropriate for the circumstances. The
accompanying financial statements reflect premiums, benefits and settlement
expenses and deferred acquisition costs, net of insurance ceded (see Note 5).
The Company and its subsidiaries remain liable if their reinsurers are unable
to meet their contractual obligations under the applicable reinsurance
agreements.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1995, the Company has provided $92,700,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receivables
from the ceding company, which are secured by future profits on the reinsured
business. However, the Company is subject to the risk that the ceding company
may become insolvent and the right of offset would not be permitted.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Vulnerability from Concentrations
At December 31, 1995, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
Also at December 31, 1995, the Company did not have a concentration of 1)
business transactions with a particular customer, lender or distributor, 2)
revenues from a particular product of service, 3) sources of supply of labor
or services used in the business or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a serve
impact to the Company's financial condition.
Other Contingency Matters
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In some
instances, these proceedings include claims for punitive damages and similar
types of relief in unspecified or substantial amounts, in addition to amounts
for alleged contractual liability or requests for equitable relief. After
consultation with counsel and a review of available facts, it is management's
opinion that these proceedings ultimately will be resolved without materially
affecting the consolidated financial statements of the Company.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or rehabilitated
companies. Mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. The Company has accrued for
expected assessments net of estimated future premium tax deductions.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Guarantees
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent credit exposure. Outstanding guarantees with off-balance-
sheet risks, shown in notional or contract amounts, are as follows:
<TABLE>
<CAPTION>
Notional or
Contract Amounts
December 31
1995 1994
(in millions)
<S> <C> <C>
Real estate partnerships $ 3.3 $17.6
Mortgage loan pass-through certificates 63.6 78.2
Total $66.9 $95.8
</TABLE>
The Company has invested in real estate partnerships that use conventional
mortgage loans. In some cases, the terms of these arrangements involve
guarantees by each of the partners to indemnify the mortgagor in the event a
partner is unable to pay its principal and interest payments. In addition,
the Company has sold commercial mortgage loans through grantor trusts which
issued pass-through certificates. The Company has agreed to repurchase any
mortgage loans which remain delinquent for 90 days at a repurchase price
substantially equal to the outstanding principal balance plus accrued interest
thereon to the date of repurchase. It is management's opinion that the value
of the properties underlying these commitments is sufficient that in the event
of default the impact would not be material to the Company. Accordingly, both
the carrying value and fair value of these guarantees is zero at December 31,
1995 and 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Derivatives
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risks. In addition, the Company
is subject to the risks associated with changes in the value of its
derivatives; however, such changes in the value generally are offset by
changes in the value of the items being hedged by such contracts. Outstanding
derivatives with off-balance-sheet risks, shown in notional or contract
amounts along with their carrying value and estimated fair values, are as
follows:
<TABLE>
<CAPTION>
Assets (Liabilities)
Notional or Carrying Fair Carrying Fair
Contract Amounts Value Value Value Value
December 31 December 31 December 31
1995 1994 1995 1995 1994 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate
cap agreements $5,110.0 $4,400.0 $22.7 $5.3 $23.3 $34.4
Spread-lock
agreements 600.0 1,300.0 (.9) (.9) 3.2 3.2
Financial
futures contracts -- 382.5 -- -- (7.5) (7.5)
Interest rate swaps 5.0 5.0 .2 .2 .2 .2
5,715.0 6,087.5 22.0 4.6 19.2 30.3
Foreign currency
derivatives:
Foreign exchange
forward contracts 15.7 21.2 (.6) (.6) .2 .2
Foreign currency
options 99.2 -- 1.9 1.4 -- --
Foreign currency
swaps 15.0 -- .4 .4 -- --
129.9 21.2 1.7 1.2 .2 .2
$5,844.9 $6,108.7 $23.7 $5.8 $19.4 $30.5
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts is as follows:
<TABLE>
<CAPTION>
Interest Rate Caps Spread Locks
December 31 December 31
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $4,400.0 $3,800.0 $1,300.0 $1,700.0
New contracts 710.0 600.0 800.0 --
Terminations and maturities -- -- (1,500.0) (400.0)
Balance at end of year $5,110.0 $4,400.0 $ 600.0 $1,300.0
</TABLE>
<TABLE>
<CAPTION>
Financial Futures
Contracts Options
1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C>
Balance at beginning of year $ 382.5 $ 33.1 $ -- $ --
New contracts 810.5 1,087.7 181.6 308.0
Terminations and maturities (1,193.0) (738.3) (181.6) (308.0)
Balance at end of year $ -- $ 382.5 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Derivatives
Foreign
Exchange Foreign Foreign
Forward Currency Currency
Contracts Options Swaps
1995 1994 1995 1994 1995 1994
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 21.2 $ -- $ -- $-- $ -- $--
New contracts 131.2 38.5 356.6 -- 15.0 --
Terminations and maturities (136.7) (17.3) (257.4) -- -- --
Balance at end of year $ 15.7 $21.2 $ 99.2 $-- $15.0 $--
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Interest Rate Caps
The interest rate cap agreements, which expire in 1997 through 2003, entitle
the Company to receive payments from the counterparties on specified future
reset dates, contingent on future interest rates. For each cap, the amount of
such quarterly payments, if any, is determined by the excess of a market
interest rate over a specified cap rate times the notional amount divided by
four. The purpose of the Company's interest rate cap agreement program is to
protect its annuity line of business from the effect of fluctuating interest
rates. The premium paid for the interest rate caps is included in other
assets ($22,700,000 and $23,400,000 as of December 31, 1995 and 1994,
respectively) and is being amortized over the terms of the agreements and is
included in net investment income.
Spread Locks
Spread-lock agreements in effect at December 31, 1995 all expire in 2005.
Spread-lock agreements provide for a lump sum payment to or by the Company
depending on whether the spread between the swap rate and a specified U.S.
Treasury note is larger or smaller than a contractually specified spread.
Cash payments are based on the product of the notional amount, the spread
between the swap rate and the yield of an equivalent maturity U.S. Treasury
security and the price sensitivity of the swap at that time, expressed in
dollars per basis point. The purpose of the Company's spread-lock program is
to protect a portion of its fixed maturity securities against widening of
spreads.
Financial Futures
The Company uses exchange-traded financial futures contracts and options on
those financial futures to hedge against interest rate risks and to manage
duration of a portion of its fixed maturity securities. Financial futures
contracts obligate the Company to buy or sell a financial instrument at a
specified future date for a specified price and may be settled in cash or
through delivery of the financial instrument. Cash settlements on the change
in market values of financial futures contracts are made daily. Options on
financial futures give the Company the right, but not the obligation, to
assume a long or short position in the underlying futures at a specified price
during a specified time period.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Restrictions, Commitments and Contingencies (continued)
Foreign Currency Derivatives
The Company uses a combination of foreign exchange forward contracts, foreign
currency options and foreign currency swaps, all of which are traded over-the-
counter, to hedge some of the foreign exchange risk of investments in fixed
maturity securities denominated in foreign currencies. The foreign currency
forward contracts obligate the Company to deliver a specified amount of
currency at a future date at a specified exchange rate. Foreign currency
options give the Company the right, but not the obligation, to buy or sell a
foreign currency at a specific exchange rate during a specified time period.
A foreign currency swap is a contractual agreement to exchange the currencies
of two different countries pursuant to an agreement to reexchange the two
currencies at the same rate of exchange at a specified future date.
Additional Derivative Information
Expenses for the agreements and contracts described above amounted to
$5,600,000 and $5,400,000 in 1995 and 1994, respectively. Deferred losses of
$21,800,000 as of December 31, 1995, resulting from 1) terminated and expired
spread-lock agreements, 2) financial futures contracts and 3) options on
financial futures, are included with the related fixed maturity securities to
which the hedge applied and are being amortized over the life of such
securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap agreements, spread-lock agreements,
interest rate swaps, foreign exchange forward contracts, foreign currency
options and foreign currency swaps, but the Company does not anticipate
nonperformance by any of these counterparties. The credit risk associated
with such agreements is minimized by purchasing such agreements from financial
institutions with long-standing, superior performance records. The amount of
such exposure is essentially the net replacement cost or market value for such
agreements with each counterparty if the net market value is in the Company's
favor. At December 31, 1995, the exposure was $6,900,000.
8. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair value of the Company's financial instruments.
Considerable judgment is required to develop these fair values and,
accordingly, the estimates shown are not necessarily indicative of the amounts
that would be realized in a one time, current market exchange of all of the
Company's financial instruments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Fixed Maturity and Equity Securities
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services
or, in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the coupon rate,
credit quality and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
Mortgage Loans on Real Estate
The estimated fair value of mortgage loans on real estate was established
using a discounted cash flow method based on credit rating, maturity and
future income when compared to the expected yield for mortgages having similar
characteristics. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service coverage,
loan to value, caliber of tenancy, borrower and payment record. Fair values
for impaired mortgage loans are measured based either on the present value of
expected future cash flows discounted at the loan's effective interest rate,
at the loan's market price or the fair value of the collateral if the loan is
collateral dependent.
Policy Loans
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using Treasury interest rates consistent
with the maturity durations assumed. These durations were based on historical
experience.
Other Investments and Cash and Invested Cash
The carrying value for assets classified as other investments and cash and
invested cash in the accompanying balance sheets approximates their fair
value.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Investment Type Insurance Contracts
The balance sheet captions, "Future Policy Benefits, Claims and Claims
Expenses" and "Contractholder Funds," include investment type insurance
contracts (i.e., deposit contracts and guaranteed interest contracts). The
fair values for the deposit contracts and certain guaranteed interest
contracts are based on their approximate surrender values. The fair values
for the remaining guaranteed interest and similar contracts are estimated
using discounted cash flow calculations based on interest rates currently
being offered on similar contracts with maturities consistent with those
remaining for the contracts being valued.
The remainder of the balance sheet captions, "Future Policy Benefits, Claims
and Claims Expenses" and "Contractholder Funds," that do not fit the
definition of "investment type insurance contracts" are considered insurance
contracts. Fair value disclosures are not required for these insurance
contracts and have not been determined by the Company. It is the Company's
position that the disclosure of the fair value of these insurance contracts is
important in that readers of these financial statements could draw
inappropriate conclusions about the Company's shareholder's equity determined
on a fair value basis if only the fair value of assets and liabilities defined
as financial instruments are disclosed. The Company and other companies in
the insurance industry are monitoring the related actions of the various rule-
making bodies and attempting to determine an appropriate methodology for
estimating and disclosing the "fair value" of their insurance contract
liabilities.
Short-Term and Long-Term Debt
Fair values for long-term debt issues are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for similar
types of borrowing arrangements. For short-term debt, the carrying value
approximates fair value.
Guarantees
The Company's guarantees include guarantees related to real estate
partnerships and mortgage loan pass-through certificates. Based on historical
performance where repurchases have been negligible and the current status,
which indicates none of the loans are delinquent, the fair value liability for
the guarantees related to the mortgage loan pass-through certificates is
insignificant. Fair values for all other guarantees are based on fees that
would be charged currently to enter into similar agreements, taking into
consideration the remaining terms of the agreements and the counterparties'
credit standing.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
Derivatives
The Company's derivatives include interest rate cap agreements, spread-lock
agreements, foreign currency exchange contracts, financial futures contracts,
options on financial futures, interest rate swaps, foreign currency options
and foreign currency swaps. Fair values for these contracts are based on
current settlement values. The current settlement values are based on quoted
market prices for the foreign currency exchange contracts, financial future
contracts and options on financial futures and on brokerage quotes, which
utilized pricing models or formulas using current assumptions, for all other
swaps and agreements.
Investment Commitments
Fair values for commitments to make investment in fixed maturity securities
(primarily private placements), mortgage loans on real estate and real estate
are based on the difference between the value of the committed investments as
of the date of the accompanying balance sheets and the commitment date, which
would take into account changes in interest rates, the counterparties' credit
standing and the remaining terms of the commitments.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Fair Value of Financial Instruments (continued)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
Carrying Fair Carrying Fair
Assets (Liabilities) Value Value Value Value
(in millions)
<S> <C> <C> <C> <C>
Fixed maturity securities $20,414.8 $20,414.8 $17,692.2 $17,692.2
Equity securities 598.4 598.4 456.3 456.3
Mortgage loans on real estate 3,147.8 3,330.5 2,795.9 2,720.6
Policy loans 565.3 557.4 528.7 508.1
Other investments 241.2 241.2 158.2 158.2
Cash and invested cash 802.7 802.7 990.9 990.9
Investment type
insurance contracts:
Deposit contracts and
certain guaranteed
interest contracts (15,390.8) (15,179.1) (14,294.7) (14,052.5)
Remaining guaranteed
interest and similar
contracts (2,470.9) (2,396.5) (2,485.5) (2,423.9)
Short-term debt (124.8) (124.8) (153.7) (153.7)
Long-term debt (40.8) (36.7) (54.8) (57.0)
Derivatives 23.7 5.8 19.4 30.5
Investment commitments -- (.8) -- (.5)
</TABLE>
As of December 31, 1995 and 1994, the carrying value of the deposit contracts
and certain guaranteed contracts is net of deferred acquisition costs of
$333,797,000 and $399,000,000, respectively, excluding adjustments for
deferred acquisition costs applicable to changes in fair value of securities.
The carrying values of these contracts are stated net of deferred acquisition
costs in order that they be comparable with the fair value basis.
9. Segment Information
The Company has two major business segments: Life Insurance and Annuities and
Reinsurance. The Life Insurance and Annuities segment offers universal life,
pension products and other individual coverages through a network of career
agents, independent general agencies and insurance agencies located within a
variety of financial institutions. These products are sold throughout the
United States by the Company. Reinsurance sells reinsurance products and
services to insurance companies, HMOs, self-funded employers and other primary
risk accepting organizations in the U.S. and economically attractive
international markets. Effective in the fourth quarter of 1995, operating
results of the direct disability income business previously included in the
Life Insurance and Annuities segment is now included in the Reinsurance
segment. This direct disability income business, which is no longer being
sold, is now managed by the Reinsurance segment along with its disability
income business. Prior to the sale of 100% of the ownership of its primary
underwriter of employee life-health benefit coverages in 1994 (see Note 10),
the Employee Life-Health Benefits segment distributed group life and health
insurance, managed health care and other related coverages through career
agents and independent general agencies. Activity which is not included in
the major business segments is shown as "Other Operations."
"Other Operations" includes operations not directly related to the business
segments and unallocated corporate items (i.e., corporate investment income,
interest expense on corporate debt and unallocated corporate overhead
expenses).
The revenue, pre-tax income and assets by segment for 1993 through 1995 are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Revenue:
Life Insurance and Annuities $2,569.2 $2,065.3 $2,341.9
Reinsurance 751.2 660.4 610.7
Employee Life-Health Benefits -- 314.9 1,326.8
Other Operations 16.1 74.6 (28.8)
Total $3,336.5 $3,115.2 $4,250.6
Income (loss) before income taxes and
cumulative effect of accounting change:
Life Insurance and Annuities $ 361.0 $ 75.6 $ 265.3
Reinsurance 83.5 93.9 31.6
Employee Life-Health Benefits -- 22.9 83.0
Other Operations 5.0 67.8 (44.2)
Total $ 449.5 $ 260.2 $ 335.7
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Segment Information (continued)
<TABLE>
<CAPTION>
December 31
1995 1994 1993
(in millions)
<S> <C> <C> <C>
Assets:
Life Insurance and Annuities $45,280.0 $37,675.9 $36,021.0
Reinsurance 3,383.5 2,311.5 2,328.9
Employee Life-Health Benefits -- -- 588.5
Other Operations 923.6 1,038.1 770.0
Total $49,587.1 $41,025.5 $39,708.4
</TABLE>
Provisions for depreciation and capital additions were not material.
10. Sale of Affiliates
In December 1993, the Company recorded a provision for loss of $98,500,000
(also $98,500,000 after-tax) in the "Other Operations" segment for the sale of
Security-Connecticut Life Insurance Company ("Security-Connecticut"). The
sale was completed on February 2, 1994 through an initial public offering and
the Company received cash and notes, net of related expenses, totaling
$237,700,000. The loss on sale and disposal expenses did not differ
materially from the estimate recorded in the fourth quarter of 1993. For the
year ended December 31, 1993, Security-Connecticut, which operated in the Life
Insurance and Annuities segment, had revenue of $274,500,000 and net income of
$24,000,000.
In 1994, the Company completed the sale of 100% of the common stock of
EMPHESYS (parent company of Employers Health Insurance Company, which
comprised the Employee Life-Health Benefits segment) for $348,200,000 of cash,
net of related expenses, and a $50,000,000 promissory note. A gain on sale of
$69,000,000 (also $69,000,000 after-tax) was recognized in 1994 in "Other
Operations". For the year ended December 31, 1993, EMPHESYS had revenues of
$1,304,700,000 and net income of $55,300,000. EMPHESYS had revenue and net
income of $314,900,000 and $14,400,000, respectively, during the three months
of ownership in 1994.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
11. Subsequent Event
In January 1996, LNC announced that it had signed a definitive agreement to
acquire the group tax-sheltered annuity business of UNUM Corporation's
affiliates. This purchase is expected to be completed in the form of a
reinsurance transaction with an initial ceding commission of approximately
$70,000,000. This ceding commission represents the present value of business
in-force and, accordingly, will be classified as other intangible assets upon
the close of this transaction. This transaction, which is expected to close
in the third quarter of 1996, will increase LNC's assets and policy
liabilities and accruals by approximately $3,200,000,000.
12. Transactions With Affiliates
A wholly owned subsidiary of LNC, Lincoln Financial Group, Inc. ("LFGI"), has
a nearly exclusive general agents contract with the Company under which it
sells the Company's products and provides the service that otherwise would be
provided by a home office marketing department and regional offices. For
providing these selling and marketing services, the Company paid LFGI override
commissions and operating expense allowances of $81,900,000, $78,500,000 and
$74,500,000 in 1995, 1994 and 1993, respectively. LFGI incurred expenses of
$10,400,000, $10,700,000 and $10,500,000 in 1995, 1994 and 1993, respectively,
in excess of the override commission and operating expense allowances received
from the Company, which the Company is not required to reimburse.
Cash and invested cash at December 31, 1995 and 1994 include the Company's
participation in a short-term investment pool with LNC of $333,800,000 and
$428,300,000, respectively. Related investment income amounted to
$22,500,000, $17,100,000 and $9,100,000 in 1995, 1994 and 1993, respectively.
Short-term debt at December 31, 1995 and 1994 includes $67,000,000 and
$68,600,000, respectively, borrowed from LNC. The Company paid interest to
LNC of $24,000, $8,000 and $137,000 in 1995, 1994 and 1993, respectively.
The Company provides services to and receives services from affiliated
companies which resulted in a net receipt of $7,500,000, $13,900,000 and
$18,900,000 in 1995, 1994 and 1993, respectively.
<PAGE>
The Lincoln National Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Transactions With Affiliates (continued)
The Company both cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income includes reinsurance
transactions with affiliated companies as follows:
<TABLE>
<CAPTION>
Year ended
December 31
1995 1994
(in millions)
<S> <C> <C>
Insurance assumed $ 17.6 $ 19.8
Insurance ceded 214.4 481.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in millions)
<S> <C> <C>
Future policy benefits and claims assumed $ 344.8 $341.3
Future policy benefits and claims ceded 1,344.5 857.7
Amounts recoverable on paid and unpaid losses 65.9 36.8
Reinsurance payable on paid losses 5.5 3.5
Funds held under reinsurance treaties-net liability 712.3 238.4
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit aggregating
$340,800,000 and $308,200,000 at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, LNC had guaranteed $275,300,000 and $298,200,000,
respectively, of these letters of credit. At December 31, 1995, the Company
has a receivable (included in the foregoing amounts) from affiliated insurance
companies in the amount of $241,900,000 for statutory surplus relief received
under financial reinsurance ceded agreements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Lincoln
National Life Insurance Company, a wholly owned subsidiary of Lincoln National
Corporation, as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995. Our audits also included the
financial statement schedules listed on B- . These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Lincoln
National Life Insurance Company at December 31, 1995, and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions, accounting for impairment of loans and accounting for certain
investments in debt and equity securities.
/S/ ERNST & YOUNG LLP
Fort Wayne, Indiana
February 7, 1996
<PAGE>
FINANCIAL SCHEDULES
The following consolidated financial statement schedules of The Lincoln National
Life Insurance Company and subsidiaries are included on Pages B- through
B- .
I Summary of Investments Other than Investments in Related Parties December
31, 1995
III Supplementary Insurance Information Years ended December 31, 1995, 1994 and
1993
IV Reinsurance Years ended December 31, 1995, 1994 and 1993
V Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and
1993
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or the required information is included
in the consolidated financial statements, and therefore have been omitted.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Amount at
Which
Shown in
the Balance
Type of Investment Cost Value Sheet
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
United States Government and
government agencies and authorities $ 569,552 $ 653,444 $ 653,444
States, municipalities
and political subdivisions 12,325 12,375 12,375
Mortgage-backed securities 4,891,521 5,184,751 5,184,751
Foreign governments 927,901 997,567 997,567
Public utilities 2,572,309 2,772,990 2,772,990
Convertibles and bonds
with warrants attached 181,431 199,658 199,658
All other corporate bonds 9,658,371 10,551,770 10,551,770
Redeemable preferred stocks 39,427 42,230 42,230
Total fixed maturity securities 18,852,837 20,414,785 20,414,785
Equity securities available-for-sale:
Common stocks:
Public utilities 8,980 10,989 10,989
Banks, trust and insurance companies 74,897 89,197 89,197
Industrial, miscellaneous and all other 345,434 436,556 436,556
Nonredeemable preferred stocks 50,950 61,693 61,693
Total equity securities 480,261 598,435 598,435
Mortgage loans on real estate 3,176,275 3,147,783 (A)
Real estate:
Investment properties 635,135 635,135
Acquired in satisfaction of debt 157,441 110,888 (A)
Policy loans 565,325 565,325
Other investments 253,015 241,219 (A)
Total investments $24,120,189 $25,713,570
</TABLE>
(A) Investments which are deemed to have declines in value that are other than
temporary are written down or reserved for to reduce their carrying value to
their estimated realizable value.
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Future Policy
Benefits, Other Policy
Deferred Claims and Claims and
Acquisition Claim Unearned Benefits Premium
Segment Costs Expenses Premiums Payable Revenue (A)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $ 713,213 $6,530,475 $ 9,145 $-- $ 685,258
Reinsurance 247,921 1,855,039 45,951 -- 611,416
Other (including consolidating
adjustments) (7,300) 49,505 78 -- 622
Total $ 953,834 $8,435,019 $ 55,174 $-- $1,297,296
Year ended December 31, 1994:
Life insurance and annuities $1,427,692 $5,888,581 $ 11,201 $-- $ 647,416
Reinsurance 304,913 1,626,033 51,618 -- 542,034
Employee life-health benefits -- -- -- -- 299,338
Other (including consolidating
adjustments) 3,921 26,158 (1,347) -- 1,076
Total $1,736,526 $7,540,772 $ 61,472 $-- $1,489,864
Year ended December 31, 1993:
Life insurance and annuities $ 999,126 $6,782,207 $ 5,188 $-- $ 662,353
Reinsurance 298,787 1,616,088 54,157 -- 491,397
Employee life-health benefits -- 228,892 -- -- 1,243,576
Other (including consolidating
adjustments) -- 171,043 315 -- 387
Total $1,297,913 $8,798,230 $ 59,660 $-- $2,397,713
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information (continued)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column G Column H Column I Column J Column K
Amortization
Benefits, of Deferred
Net Claims and Policy Other
Investment Claim Acquisition Operating Premium
Segment Income (B) Expenses Costs Expenses (B) Written
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance and annuities $1,741,231 $1,649,119 $298,020 $261,016 $--
Reinsurance 134,000 472,198 101,729 93,750 --
Other (including consolidating
adjustments) 24,399 1,299 -- 9,898 --
Total $1,899,630 $2,122,616 $399,749 $364,664 $--
Year ended December 31, 1994:
Life insurance and annuities $1,542,552 $1,554,479 $ 85,697 $349,529 $--
Reinsurance 116,957 419,266 29,477 117,238 --
Employee life-health benefits (C) 10,838 218,672 -- 73,355 --
Other (including consolidating
adjustments) 3,634 1,630 -- 5,682 --
Total $1,673,981 $2,194,047 $115,174 $545,804 $--
Year ended December 31, 1993:
Life insurance and annuities $1,676,163 $1,615,883 $197,363 $268,066 $--
Reinsurance 115,582 467,824 38,351 72,840 --
Employee life-health benefits 54,513 943,235 -- 300,648 --
Other (including consolidating
adjustments) (22,799) 6,197 5,275 (744) --
Total $1,823,459 $3,033,139 $240,989 $640,810 $--
(A) Includes insurance fees on universal life and other interest sensitive products.
(B) The allocation of expenses between investments and other operations are based on a number of assumptions and estimates.
Results would change if different methods were applied.
(C) Includes data through the March 21, 1994 date of sale of the direct writer of employee life-health coverages.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance (A)
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force $ 51,570,782 $17,612,782 $142,794,000 $176,752,000 80.8%
Premiums:
Health insurance 302,463 299,222 273,572 276,813 98.8
Life insurance (B) 658,936 142,523 504,070 1,020,483 49.4
Total $ 961,399 $ 441,745 $ 777,642 $ 1,297,296
Year ended December 31, 1994:
Life insurance in force $ 79,802,000 $45,822,000 $125,640,000 $159,620,000 78.7%
Premiums:
Health insurance 666,609 496,090 359,659 530,178 67.8
Life insurance (B) 629,185 220,678 551,179 959,686 57.4
Total $ 1,295,794 $ 716,768 $ 910,838 $ 1,489,864
Year ended December 31, 1993:
Life insurance in force $135,401,000 $61,401,000 $109,257,000 $183,257,000 59.6%
Premiums:
Health insurance 1,387,414 217,705 262,171 1,431,880 18.3
Life insurance (B) 771,408 350,907 545,332 965,833 56.5
Total $ 2,158,822 $ 568,612 $ 807,503 $ 2,397,713
(A) Special-purpose bulk reinsurance transactions have been excluded.
(B) Includes insurance fees on universal life and other interest sensitive products.
</TABLE>
<PAGE>
The Lincoln National Life Insurance Company and Subsidiaries
Schedule V
Valuation and Qualifying Accounts
(000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Charged
Charged to
Balance at to Other Balance at
Beginning Costs and Accounts- Deductions- End of
of Period Expenses (A) Describe Describe (B) Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $ 56,614 $ 2,659 $-- $ (30,781) $ 28,492
Reserve for real estate 65,186 (7,227) -- (11,406) 46,553
Reserve for other long-term investments 13,492 (1,541) -- (155) 11,796
Year ended December 31, 1994:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $220,671 $ 19,464 $-- $(183,521) $ 56,614
Reserve for real estate 121,427 13,058 -- (69,299) 65,186
Reserve for other long-term investments 26,730 262 -- (13,500) 13,492
Included in other liabilities:
Investment guarantees 1,804 4,280 -- (6,084) --
Year ended December 31, 1993:
Deducted from asset accounts:
Reserve for mortgage loans on real estate $129,093 $136,717 $-- $ (45,139) $220,671
Reserve for real estate 114,178 21,776 -- (14,527) 121,427
Reserve for other long-term investments 31,582 3,905 -- (8,757) 26,730
Included in other liabilities:
Investment guarantees 12,550 1,674 -- (12,420) 1,804
(A) Exclude charges for the direct write-off of assets. The negative amounts represent improvements in the underlying assets for
which valuation accounts had previously been established.
(B) Deductions reflect sales or foreclosures of the underlying holdings.
</TABLE>
<PAGE>
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
REGISTRATION STATEMENT ON FORM N-4
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) List of Financial Statements
1. Part A The Table of Condensed Financial Information is included in
Part A of this Registration Statement.
2. Part B The following Financial Statements for the Variable Account are
included in Part B of this Registration Statement:
Statement of Assets and Liability -- December 31, 1995
Statement of Operations -- Year ended December 31, 1995
Statements of Changes in Net Assets -- Years ended December 31, 1995
and 1994
Notes to Financial Statements -- December 31, 1995
Report of Ernst & Young LLP, Independent Auditors
3. Part B The following Consolidated Financial Statements and Schedules
of The Lincoln National Life Insurance Company are included in Part B
of the Registration Statement:
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Income -- Years ended December 31, 1995,
1994, and 1993
Consolidated Statements of Shareholder's Equity -- Years ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows -- Years Ended December 31,
1995, 1994, and 1993
Notes to Consolidated Financial Statements -- December 31, 1995
Schedule I-Summary of Investments Other than Investments in Related
Parties -- December 31, 1995
Schedule III-Supplementary Insurance Information -- Years ended
December 31, 1995, 1994, and 1993
Schedule IV-Reinsurance -- Years ended December 31, 1995, 1994, and
1993
Schedule V-Valuation and Qualifying Accounts--Years ended December
31, 1995, 1994, and 1993
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Item 24. (Continued)
(b) List of Exhibits
(4) Rider to Group Variable Annuity Contract
(8) Services Agreement with the Delaware Management Company.
(9) Consent and Opinion, Jeremy Sachs, Senior Counsel, Lincoln National Life
Insurance Company
(10) Consent of Ernst & Young LLP, Independent Auditors.
(13) Schedule for Computation of Performance Quotations.
(14) Other Exhibits:
(a) Organizational Chart of the Lincoln National Insurance
Holding Company System (11/1/96)
(b) Books and Records Report (12/3/96).
Item 25.
DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name Positions and Offices with LNL
- ---- ------------------------------
Jon A. Boscia* President, Chief Executive Officer and Director
Carolyn P. Brody* Vice President
Thomas L. Clagg* Vice President and Associate General Counsel
Kenneth J. Clark* Vice President
Kelly D. Clevenger* Vice President
Jack D. Hunter* Executive Vice President and General Counsel
Lawrence T. Rowland *** Executive Vice President and Director
Keith J. Ryan* Vice President, Chief Financial Officer and
Assistant Treasurer
John L. Steinkamp* Vice President and Associate General Counsel
Roy V. Washington* Vice President and Chief Compliance Officer
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Secretary and Assistant Vice President
O. Douglas Worthington* Vice President and Controller
<PAGE>
*Principal business address is 1300 South Clinton Street, Fort Wayne, Indiana
46802.
**Principal business address is 200 East Berry Street, Fort Wayne, Indiana
46802-2706.
***Principal business address is 1700 Magnavox Way, One Reinsurance Place,
Fort Wayne, Indiana 46804.
<PAGE>
Item 26.
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE DEPOSITOR OR REGISTRANT
See Exhibit 14(b): Organizational Chart of the Lincoln National Insurance
Holding Company System (11/1/96).
Item 27.
NUMBER OF CONTRACTOWNERS
As of December 2, 1996, there were 223,916 (variable and fixed) Contract
Owners under Account H.
Item 28. Indemnification
See prior filings.
Item 29. Principal Underwriter
(a) American Funds Distributors, Inc., is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American
Funds Income Series, The American Funds Tax-Exempt Series I, The
American Funds Tax-Exempt Series II American High-Income Municipal Bond
Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The
Bond Fund of America, Inc., Capital Income Builder, Inc., Capital World
Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash
Management Trust of America, EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of
America, Inc., Intermediate Bond Fund of America, The Investment
Company of America, Limited Term Tax-Exempt Bond Fund of America, The
New Economy Fund, New Perspective Fund, Inc., The Tax-Exempt Bond Fund
of America, Inc., The Tax-Exempt Money Fund of America, The U.S.
Treasury Money Fund of America, Washington Mutual Investors Fund, Inc.
and SMALLCAP World Fund, Inc.
(b)
(1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
*David L. Abzug Regional Vice President
5657 Limona Avenue
Van Nuys, CA 91411
John A. Agar Regional Vice President
1501 N. University Drive
Madison, WI 53711
<PAGE>
Robert B. Aprison Regional Vice President
2983 Bryn Wood Drive
Madison, WI 53711
#Richard Armstrong Assistant Vice President
*William W. Bagnard Vice President
Steven L. Barnes Vice President
8000 Town Line Avenue South
Suite 204
Minneapolis, MN 55438
Michelle A. Bergeron Regional Vice President
1190 Rockmart Circle
Kennesaw, GA 30144
<PAGE>
Item 29. Principal Underwriter (continued)
(b) (continued)
(1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ---------------------
Joseph T. Blair Vice President
27 Drumlin Road
West Simsbury, CT 06092
Ian B. Bodell Senior Vice President
3100 West End Avenue, Suite 870
Nashville, TN 37215
Michael L. Brethower Vice President
108 Hagen Court
Georgetown, TX 78628
C. Alan Brown Regional Vice President
4619 McPherson Avenue
St. Louis, MO 63108
*Daniel C. Brown Director and Senior Vice President
@J. Peter Burns Vice President
Brian C. Casey Regional Vice President
9508 Cable Drive
Kensington, MO 20895
Victor C. Cassato Vice President
999 Green Oaks Drive
Littleton, CO 80121
Christopher J. Cassin Regional Vice President
231 Burlington
Clarendon Hills, IL 60514
Denise M. Cassin Regional Vice President
1301 Stoney Creek Drive
San Ramon, CA 94538
<PAGE>
*Larry P. Clemmensen Director and Treasurer
*Kevin G. Clifford Senior Vice President
Ruth M. Collier Vice President
145 West 67th Street, Suite 12K
New York, NY 10023
Thomas E. Cournoyer Vice President
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Vice President
4116 Woodbine St.
Chevy Chase, MD 20815
*Carl D. Cutting Vice President
Michael A. Dilella Vice President
P.O. Box 661
Ramsey, NJ 07446
<PAGE>
Item 29. Principal Underwriters (continued)
(b) (continued)
(1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
- --------------------- ---------------------
G. Michael Dill Senior Vice President
3622 E. 87th Street
Tulsa, OK 74137
Kirk D. Dodge Regional Vice President
2617 Salisbury Road
Ann Arbor, MI 48103
Peter J. Doran Senior Vice President
1205 Franklin Avenue
Garden City, NY 11530
*Michael J. Downer Secretary
Robert W. Durbin Vice President
74 Sunny Lane
Tiffin, OH 44883
&Lloyd G. Edwards Vice President
*Paul H. Fieberg Senior Vice President
*Mark P. Freeman, Jr. Director and President
John Foder Regional Vice President
15 Latisquana Road
Southborough, MA 01772
Clyde E. Gardner Vice President
Route 2, Box 3162
Osage Beach, MO 65065
#Evelyn K. Glassford Vice President
Jeffrey J. Greiner Regional Vice President
5898 Heather Glen Court
<PAGE>
Dublin, OH 43017
*Paul G. Haaga, Jr. Director
David E. Harper Vice President
R.D.1, Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Regional Vice President
6744 Avalon
Dallas, TX 75214
*Robert L. Johansen Vice President and Controller
Michael J. Johnston Chairman of the Board
630 Fifth Ave., 36th Floor
New York, NY 10111
Victor J. Kriss Senior Vice President
P. O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President
12558 Highlands Place
Fishers, IN 46038
<PAGE>
Item 29. Principal Underwriters (continued)
(b) (continued)
(1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ------------------------
#Karl A. Lewis Assistant Vice President
T. Blake Liberty Regional Vice President
12585-E East Tennessee Circle
Aurora, CO 80012
Stephen A. Malbasa Regional Vice President
13405 Lake Shore Boulevard
Cleveland, OH 44110
Steven M. Markel Senior Vice President
5241 South Race St.
Littleton, CO 80121
*John C. Massar Senior Vice President
%John V. McLaughlin Senior Vice President
*E. Lee McClennahan Senior Vice President
Laurie B. McCurdy Regional Vice President
3500 W. Camino de Urania
Tucson, AZ 85255
Terry W. McNabb Vice President
2002 Barrett Station Road
St. Louis, MO 63131
*R. William Melinat Vice President
Institutional Investment
Services Division
David R. Murray Regional Vice President
25701 S. E. 32nd Place
Issaquah, WA 98027
<PAGE>
Stephen S. Nelson Vice President
7215 Trevor Road
Charlotte, NC 28226
William E. Noe Regional Vice President
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhhus Regional Vice President
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President
62 Park Drive
Glenview, IL 60025
Frederic Phillips Regional Vice President
32 Ridge Avenue
Newton Centre, MA 02159
#Candance D. Pilgrim Assistant Vice President
<PAGE>
Item 29. Principal Underwriters (continued)
- -------
(b) (continued)
(1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ---------------------
Carl S. Platou Regional Vice President
4021 96th Avenue, SE
Mercer Island, WA 98040
*John O. Post, Jr. Vice President
Steven J. Reitman Vice President
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Regional Vice President
12025 Delmahoy Drive
Charlotte, NC 28277
George S. Ross Vice President
55 Madison Avenue
Morristown, NJ 07962
*Julie D. Roth Vice President
*James F. Rothenberg Director
Douglas F. Rowe Regional Vice President
30309 Oak Tree Drive
Georgetown, TX 78628
Christopher Rowey Regional Vice President
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Vice President
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President
4604 Glencoe Ave., #4
<PAGE>
Marina Del Rey, CA 90292
Joe D. Scarpitti Regional Vice President
25760 Kensington Dr.
Westlake, OH 44145
*R. Michael Shanahan Director
David W. Short Senior Vice President
1000 RIDC Plaza, Suite 212
Pittsburgh, PA 15238
*Victor S. Sidhu Vice President
Institutional Investment Services
Division
William P. Simon, Jr. Vice President
554 Canterbury Lane
Berwyn, PA 19312
*John C. Smith Assistant Vice President
Institutional Investment Services
Division
*Mary E. Smith Assistant Vice President
Institutional Investment Services
Division
Rodney G. Smith Regional Vice President
2350 Lakeside Blvd., #850
Richardson, TX 75082
Nicholas D. Spadaccini Regional Vice President
855 Markley Woods Way
Cincinnati, OH 45230
<PAGE>
Item 29. Principal Underwriters (continued)
- --------
(b) (continued)
(1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ---------------------
Daniel S. Spradling Senior Vice President
#4 West Fourth Avenue, Suite 406
San Mateo, CA 94402
Thomas A. Stout Regional Vice President
12913 Dendale Lane
Bowie, MD 20715
Craig R. Strausser Regional Vice President
17040 Summer Place
Lake Oswego, OR 97035
Francis N. Strazzeri Regional Vice President
31641 Saddletree Drive
Westlake Village, CA 91361
#James P. Toomey Assistant Vice President
&Christopher E. Trede Assistant Vice President
George F. Truesdail Vice President
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President
606 Glenwood Avenue
Mill Valley, CA 94941
@Andrew J. Ward Vice President
*David M. Ward Assistant Vice President
Institutional Investment Services
Division
Thomas E. Warren Regional Vice President
4001 Crockers Lake Blvd.
Sarasota, FL 34238
*J. Kelly Webb Senior Vice President
<PAGE>
Gregory J. Weimer Regional Vice President
125 Surrey Drive
Canonsburg, PA 15317
#Timothy W. Weiss Director
**N. Dexter Williams Vice President
Timothy J. Wilson Regional Vice President
113 Farmview Place
Venetia, PA 15367
*Marshall D. Wingo Senior Vice President
*Robert L. Winston Director and Senior Vice President
William Yost Regional Vice President
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President
1616 Vermont
Houston, TX 77006
*Business Address, 333 South Hope Street, Los Angeles, CA 90071
**Business Address, Four Embarcadero, Suite 1800, San Francisco, CA 94111
#Business Address, 135 South State College Boulevard, Brea, CA 92621
%Business Address, 8000 IH-10, Suite 1400, San Antonio, TX 78230
@Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
&Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
Item 32(d)
- ----------
Lincoln National Life Insurance Company hereby represents that 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant duly has caused this Amendment to
the Registration Statement to be signed on its behalf, in the City of Fort
Wayne, and the State of Indiana on this 3rd day of December, 1996.
LINCOLN NATIONAL VARIABLE ANNUITY
ACCOUNT H, (Registrant)
By: /s/ Stephen H. Lewis
-------------------------------------
Stephen H. Lewis
(Signature-Officer of Depositor)
Senior Vice President, LNL
(Title)
By: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY (LNL)
(Depositor)
By: /s/ Jon A. Boscia
-------------------------------------
Jon A. Boscia
President
(Title)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed for the Depositor by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Jon A. Boscia President, Chief Executive December 3, 1996
- ----------------- Officer & Director ----------------
Jon A. Boscia (Principal Executive
Officer)
/s/ Jack D. Hunter
- ---------------------- Executive Vice President, December 3, 1996
Jack D. Hunter General Counsel & Director ----------------
- ---------------------- Executive Vice President ________________
Lawrence T. Rowland and Director
Vice President and Controller ________________
- ----------------------
O. Douglas Worthington
/s/ Keith J. Ryan
- ---------------------- Vice President, and Assistant December 3, 1996
Keith J. Ryan Treasurer and Chief ----------------
Financial Officer (Principal
Financial Officer)
/s/ Ian M. Rolland
- ---------------------- Director December 3, 1996
Ian M. Rolland ----------------
- ---------------------- Director ________________
H. Thomas McMeekin
/s/ Richard C. Vaughn
- ---------------------- Director December 3, 1996
Richard C. Vaughan ----------------
*By /s/ Jeremy Sachs pursuant to a Power of Attorney filed with Post-
---------------- Effective Amendment No. 5 to this Registration
Jeremy Sachs Statement.
<PAGE>
ENHANCED GUARANTEED MINIMUM DEATH BENEFIT (EGMDB)
Made a part of the Contract to which it is attached ("this Contract").
The following shall be inserted into Section 2.13 DEATH OF ANNUITANT. It
replaces the first paragraph of Section 2.13. It also replaces the "Increased
Guaranteed Minimum Death Benefit" rider Form DBA-2 which was attached to your
Contract.
The payment of the death benefit will occur upon receipt of: (1) Proof,
satisfactory to LNL, of the death of the Annuitant; (2) Written
authorization for payment; and (3) Receipt by LNL of all required claim
forms, fully completed. LNL will then pay to the Beneficiary a Death
Benefit equal to the greater of the following two amounts:
a) the current value of the Contract as of the date on which the death
claim is approved for payment as described above; or
b) for Annuitant ages up to and including 75: the highest account value
at the time of fund valuation on any policy anniversary date following
election of this rider.
for Annuitant ages over 75: the highest account value at the time of
fund valuation on any policy anniversary date up to and including age
75 following election of this rider.
The highest account value is adjusted for certain transactions. It is
increased by Purchase Payments and is decreased by partial
withdrawals, partial annuitizations, and premium taxes incurred
subsequent to such policy anniversary date on which the highest
account value occurred.
For benefits to be payable under the EGMDB, due proof of the death of the
Annuitant must be received before a choice is made to receive proceeds
under an Annuity Payment Option.
Due proof of death may be a certificate of death, a certified copy of the
statement of death from the attending physician, a certified copy of a
decree of a court of competent jurisdiction as to the finding of death, or
any other proof of death that is acceptable to LNL.
The EGMDB takes effect as of the time of fund valuation on the next policy
anniversary date following the election of this benefit. For an election of
this benefit made on any policy anniversary date or at Contract inception,
the EGMDB takes effect at the time of fund valuation on that date.
There is a daily charge for this benefit at an annual rate of 0.15% of
variable account value. The charge will begin at the time of fund valuation
on the policy anniversary date following the election of this rider. This
charge will continue for all future Contract years, including years following
age 75, unless the Owner elects to discontinue this benefit.
After this benefit has been elected, the Owner may discontinue it at any
time. If discontinued, the benefit will terminate at the time of fund
valuation on the next policy anniversary date. The 0.15% annual charge will
also cease when the benefit terminates. If the owner elects to discontinue
this benefit on a policy anniversary date, the benefit and the charge will
terminate at the time of fund valuation on that date. Once discontinued, the
Owner may not re-elect this benefit.
The following shall be inserted into Section 1.04 NET INVESTMENT RATE AND NET
INVESTMENT FACTOR following the sixth paragraph:
For any period in which the EGMDB is in effect, the Net Investment Rate for
each sub-account is equal to the Gross Investment Rate of the Fund less a
daily charge. The daily charge is deducted at an annual rate of 1.50% on each
day of the Valuation Period. The Net Investment Rate is then adjusted, plus
or minus, for any taxes imposed due to the operation of the Variable Account.
This daily charge of 1.50% consists of 1.40% for mortality and distribution
expense risks and 0.10% for administrative expenses.
The Lincoln National Life Insurance Company
Nancy J. Alford, Vice President
Form DBA-3 1/97
<PAGE>
SERVICES AGREEMENT
------------------
THIS SERVICES AGREEMENT (the "Agreement") is made as of August 15, 1996, by
and among Delaware Management Holdings, Inc., a Delaware corporation
("Holdings"), Delaware Service Company, Inc., a Delaware corporation and a
wholly owned subsidiary of Holdings ("Delaware"), Lincoln National Life
Insurance Company, an Indiana insurance corporation ("Lincoln Life"), and each
of the investment companies listed in Exhibit A hereto, each a Maryland
corporation (together with any other investment company designated in accordance
with Section 5.1, the "Funds," or individually, a "Fund").
The parties hereto, in consideration of the mutual covenants hereinafter
expressed, agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Section 1.1 Definitions. The following terms shall have the respective
meanings set forth in this Section 1.1 for all purposes of this Agreement except
where the application of such definitions is limited by reference in this
Section 1.1 to a specific Article of this Agreement (such definitions to be
equally applicable to both the singular and plural forms of the terms herein
defined):
"Acceptance Test" means a test, reasonably acceptable to Lincoln Life,
Delaware and the Funds, of the performance of the Value Calculation Services for
the Accounts included in the respective Phases, to be conducted in accordance
with Article 4.
"Accounting Services" means the services listed in the Cutover Schedule
with respect to the Accounts.
"Accounts" means the Funds and the Separate Accounts, collectively.
"Affiliate" means, with respect to any entity, any other entity
controlling, controlled by or under common control with such entity.
"Business Day" means a day on which the New York Stock Exchange is open for
trading.
"Calculation Losses" means any losses suffered by a Contractowner, Third
Party Administrator, Fund or Separate Account directly caused by an error in a
Net Asset Value or Unit Value, or by the delivery to Lincoln Life or any Fund of
a Net Asset Value or Unit Value after the applicable deadline provided for in
Section 2.1; provided, however, that such losses shall not include any
consequential damages.
<PAGE>
"Contractowner" means the present or former owner of an insurance or
annuity contract supported by a Separate Account, or any beneficiary or
annuitant thereof.
"Cutover Date," with respect to any Phase, means the date, which shall be a
Business Day, on which Delaware actually commences providing the Accounting
Services with respect to such Phase in accordance with Section 4.2. The planned
Cutover Date for each Phase is set forth in the Cutover Schedule.
"Cutover Schedule" means Schedule 1.1(a) hereto, which sets forth the
accounting services to be rendered pursuant to this Agreement and the planned
Cutover Dates, as such Schedule may be amended from time to time pursuant to
Section 16.1.
"Delaware" has the meaning set forth in the preamble to this Agreement.
"Delaware Affiliate" means Holdings and any entity that is directly or
indirectly controlled by Holdings.
"Fee Schedule" means Schedule 6.1 hereto, as such Schedule may be amended
from time to time pursuant to Section 16.1.
"Fund" has the meaning set forth in the preamble to this Agreement.
"Holdings" has the meaning set forth in the preamble to this Agreement.
"Lincoln Affiliate" means any Affiliate of Lincoln Life other than a
Delaware Affiliate.
"Lincoln Life" has the meaning set forth in the preamble to this Agreement.
"Net Asset Value" means the daily net asset value per share of the
respective Funds for each Business Day, all determined in accordance with the
terms of the Cutover Schedule and with any applicable prospectus or regulatory
requirement.
"Phase" means a set of Accounts comprising the Phase I Accounts, the Phase
II Accounts or the Phase III Accounts.
"Phase I Account" means an Account designated as such on the Cutover
Schedule.
"Phase II Account" means an Account designated as such on the Cutover
Schedule.
"Phase III Account" means an Account designated as such on the Cutover
Schedule.
"Renewal Term" means each successive one-year term occurring
<PAGE>
after the expiration of the initial term of this Agreement as described in
Section 11.1.
"Separate Account" means a separate account of Lincoln Life identified as
such on the Cutover Schedule, and any additional separate account or sub-account
of Lincoln Life or any Lincoln Affiliate (or of any other person if Lincoln Life
or any Lincoln Affiliate has administrative responsibilities with respect to
such separate account or sub-account pursuant to any reinsurance agreement or
otherwise) designated in accordance with Section 5.1.
"Test Period" means, with respect to each Phase, a period of time prior to
the Cutover Date for such Phase, commencing on the date specified by Delaware
pursuant to Section 4.1 and having a duration of three weeks or such longer
period as may be determined pursuant to Section 4.1.
"Third Party Administrator" means an administrator of insurance or annuity
contracts acting on behalf of Contractowners.
"Unit Value" means the daily unit value per unit of the respective Separate
Accounts or sub-accounts thereof for each Business Day, all determined in
accordance with the terms of the Cutover Schedule and with any applicable
prospectus or regulatory requirement.
"Value Calculation Services" means those Accounting Services consisting of
or incidental to the calculation and communication of Unit Values and Net Asset
Values in accordance with the terms of this Agreement.
ARTICLE 2
SCOPE OF SERVICES; CUTOVER
--------------------------
Section 2.1 Scope of Services. Delaware shall provide the Accounting
Services to each of the Funds and to Lincoln Life with respect to each of the
Separate Accounts, all in accordance with the terms of this Agreement. Without
limiting the generality of the foregoing, from and after the Cutover Date for
each respective Phase, Delaware, no later than 6:00 p.m. (New York City time) on
each Business Day, shall in accordance with the terms of this Agreement provide
to Lincoln Life and to the Funds the Value Calculation Services for each of the
Accounts included in such Phase. In the event of any error in the Value
Calculation Services, the parties hereto will follow the procedures set forth in
Schedule 2.1, without prejudice to any other rights described in this Agreement.
Section 2.2 Cutover Schedule. Delaware, Lincoln Life and the Funds shall
use their respective best efforts to cause the Cutover Date to occur no later
than (a) August 15, 1996, with respect to the Phase I Accounts, (b) October 31,
1996, with
<PAGE>
respect to the Phase II Accounts and (c) January 1, 1997 with respect to the
Phase III Accounts.
ARTICLE 3
LINCOLN LIFE'S SUPPORT OBLIGATIONS
----------------------------------
Section 3.1 Provision of Data. Lincoln Life shall use its best efforts to
provide or cause to be provided to Delaware the data identified in Schedule 3.1
during the periods and in accordance with the procedures identified in such
Schedule, it being understood that Delaware shall not be responsible for any
Calculation Losses or other claims, suits, hearings, actions, damages,
liabilities, fines, penalties, costs, losses or expenses, including reasonable
attorney's fees, which any party may sustain or incur, directly or indirectly,
in each case to the extent caused by or arising from Lincoln Life's failure to
provide such data in accordance with such Schedule 3.1.
Section 3.2 Data to Be Provided by Third Parties. With respect to each of
the mutual funds identified in Schedule 3.2 as an available investment of one or
more of the Separate Accounts (other than mutual funds managed by Lincoln Life
or Delaware or their respective Affiliates) and each third party service
provider identified in such Schedule, Lincoln Life shall direct each of the
managers of such funds or such service provider, as the case may be, to provide
or cause to be provided to Delaware the data identified in Schedule 3.2 in
accordance with the procedures and time deadlines identified in such Schedule.
Section 3.3 Information for Periods Prior to Cutover Date. Lincoln Life
will provide appropriate financial and other information with respect to the
Accounts to Delaware, and will cooperate with Delaware, in connection with the
preparation of data for 1996 annual reports to Contractowner and other elements
of the Accounting Services that relate to periods prior to the Cutover Dates for
the respective Accounts. In addition, Lincoln Life will provide to Delaware
appropriate financial and other information regarding the Accounts for periods
prior to 1996 to the extent relevant to the performance of the Accounting
Services for 1996 and subsequent periods.
ARTICLE 4
ACCEPTANCE TEST; CUTOVER DATE
-----------------------------
Section 4.1 Acceptance Testing. Delaware shall notify Lincoln Life of the
date, which shall be a Business Day, on which the Value Calculation Services for
each respective Phase will be ready for the commencement of the Acceptance Test
for such Phase. During the Test Period for each Phase, Delaware, Lincoln Life
and the Funds shall cooperate in performing the Acceptance Test for such Phase,
and Delaware and Lincoln Life, respectively, shall use its best efforts to
remedy any failure in the performance of the Value Calculation Services caused
by such party. In the event that, during the Test Period with respect to any
Phase,
<PAGE>
performance of the Value Calculation Services is suspended for such Phase in
order to effect such remedy or for any other reason, the Test Period for such
Phase shall be extended by the number of days of such suspension. Further, if
at the date that would otherwise be the end of the Test Period for any Phase
Delaware is not performing the Value Calculation Services with respect to such
Phase to the reasonable satisfaction of Lincoln Life, and Lincoln Life shall so
notify Delaware, the Test Period shall be extended until the date on which
Lincoln Life notifies Delaware that the Value Calculation Services are being
performed to the reasonable satisfaction of Lincoln Life. All references in this
Section 4.1 to the performance of the Value Calculation Services shall refer to
the performance thereof in a test mode.
Section 4.2 Cutover Date. With respect to each Phase, upon the
termination of the Test Period, Lincoln Life, the Funds and Delaware shall
execute a written acknowledgment in the form of Exhibit B hereto confirming such
termination and specifying the Cutover Date, which shall be the Business Day
immediately following the date of such termination unless Lincoln Life, the
Funds and Delaware shall agree upon a different date.
ARTICLE 5
NEW ACCOUNTS; NEW INVESTMENT MANAGERS
-------------------------------------
Section 5.1 Additional Accounts. Lincoln Life may from time to time
designate (i) one or more additional investment companies or separate accounts
to constitute Funds or Separate Accounts, as the case may be, for all purposes
of this Agreement, or (ii) one or more newly established sub-accounts of any
Separate Account. Such designation shall be:
(a) subject to Delaware's consent, which shall not be unreasonably
withheld; provided, that such consent shall be considered to be
unreasonably withheld if Delaware does not make reasonable
efforts to accept such new investment companies, separate
accounts and sub-accounts, which efforts shall include, but not
be limited to, reasonable consideration of the expansion of
Delaware's infrastructure to handle such new investment
companies, separate accounts and sub-accounts; and
(b) evidenced by a writing executed by Lincoln Life, Delaware and, if
applicable, each such investment company, setting forth the name
of such investment company, separate account or new sub-account,
the applicable rate under the Fee Schedule that shall apply to
the Accounting Services for such investment company, separate
account or new sub-account, the effective date of the designation
thereof as a Fund, Separate Account or new sub-account, and any
other matters the parties wish to include.
<PAGE>
Notwithstanding clause (b) of the preceding sentence, if Delaware's performance
of the Accounting Services for such additional Funds, Separate Accounts, or sub-
accounts of such Separate Accounts would, in Delaware's reasonable opinion,
result in higher costs than the costs Delaware incurs for providing the
Accounting Services to the current Accounts, then the affected parties hereto
shall negotiate in good faith an addendum to the Fee Schedule for such
additional Funds, Separate Accounts and sub-accounts and Delaware shall not be
deemed to have unreason ably withheld its consent under clause (b) of this
Section 5.1 until such addendum has been agreed to. Except as otherwise
specified in such writing, from and after such effective date, Delaware shall
provide to such Fund, or to Lincoln Life with respect to a Separate Account or
new sub-account, the same Accounting Services as are specified in the Cutover
Schedule with respect to the other Funds, Separate Accounts or sub-account of a
Separate Account, as the case may be.
Section 5.2 New Investment Managers. If new investment managers are added
to provide investment advisory services to any of the Accounts, and Delaware's
performance of the Accounting Services is, as a result thereof, significantly
more costly to Delaware, the affected parties shall negotiate in good faith an
addendum to the Fee Schedule for such Accounts.
ARTICLE 6
FEES
----
Section 6.1 Accrual of Fees. From and after the Cutover Date with respect
to each Phase, Lincoln Life shall pay fees for the Accounting Services for each
of the Separate Accounts included in such Phase, and each Fund included in such
Phase shall pay fees for the Accounting Services for such Fund, in each case at
the respective rates per annum determined in accordance with the Fee Schedule.
Fees accrued pursuant to this Section 6.1 shall be payable in arrears on a
monthly basis.
Section 6.2 Payment of Fees by Lincoln Life. Delaware shall submit to
Lincoln Life an invoice for each month for all of the fees payable pursuant to
Section 6.1 with respect to each of the Separate Accounts, which invoice shall
be itemized to show the portion of such fees allocable to each of the Separate
Accounts in accordance with the Fee Schedule. Subject to the terms of this
Agreement, invoices for such fees shall be payable within 30 days of receipt.
Section 6.3 Payment of Fees by the Funds. Delaware shall submit to
each Fund, with a copy to Lincoln Life, an invoice for each month for all of the
fees payable pursuant to Section 6.1 with respect to such Fund. Subject to the
terms of this Agreement, invoices for such fees shall be payable within 30 days
of receipt.
<PAGE>
ARTICLE 7
STANDARD OF CARE; INDEMNIFICATION
---------------------------------
Section 7.1 Standard of Care. Delaware shall provide the Accounting
Services with a level of care equal to or greater than the level of care at
which it performs similar functions for mutual funds that are sponsored or
managed by any Delaware Affiliate, and in any event, Delaware shall always
exercise reasonable care in performing the Accounting Services.
Section 7.2 Indemnification
(a) Indemnification by Lincoln Life. Lincoln Life shall indemnify,
defend and hold harmless Delaware and any Delaware Affiliate, and the directors,
officers and employees of the fore going (each individually, a "Delaware
Indemnified Party"), against any and all claims, suits, hearings, actions,
damages, liabilities, fines, penalties, costs, losses or expenses, including
reasonable attorney's fees, which any Delaware Indemnified Party may sustain or
incur, directly or indirectly, in each case to the extent caused by or arising
from (i) the negligence, recklessness or intentional misconduct of Lincoln Life
or any Lincoln Affiliate, or any director, officer or employee thereof, in the
performance of this Agreement; or (ii) the failure of Lincoln Life to comply
with the terms of this Agreement.
(b) Indemnification by Delaware. Subject to Section 3.1, Delaware
shall indemnify, defend and hold harmless Lincoln Life, the Lincoln Affiliates
and the Funds, and the directors, officers and employees of the foregoing (each
individually, a "Lincoln Indemnified Party") against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs, losses
(including but not limited to (a) Calculation Losses reimbursed by Lincoln Life
and (b) any market fluctuation losses incurred by Lincoln Life in effecting such
reimbursement) or expenses, including reasonable attorney's fees, which any
Lincoln Indemnified Party may sustain or incur, directly or indirectly, in each
case to the extent caused by or arising from (i) the negligence, recklessness or
intentional misconduct of Delaware or any Delaware Affiliate, or any director,
officer or employee thereof, in the performance of this Agreement; or (ii) the
failure of Delaware to comply with the terms of this Agreement.
(c) Procedures. Subject to the provisions of Section 7.2(d), promptly
after receipt by a Delaware Indemnified Party or a Lincoln Indemnified Party
(each, an "Indemnified Party") of notice of the commencement of any action,
proceeding, investigation or claim by any Contractowner or other third party (a
"Proceeding"), the Indemnified Party shall, if a claim in respect thereof is to
be made pursuant to this Section 7.2 against another party to this Agreement
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
commencement thereof; but the failure so to notify the Indemnifying Party
<PAGE>
shall not relieve the Indemnifying Party from any liability under this Section
7.2, except to the extent that such failure to notify actually prejudices the
Indemnifying Party. In case any such Proceeding shall be brought against an
Indemnified Party, the Indemnifying Party shall be entitled to participate in
and to assume the defense thereof, with counsel satisfactory to the Indemnified
Party, and after notice from the Indemnifying Party to the Indemnified Party of
the Indemnifying Party's election to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if, in the reasonable judgment of the Indemnified Party, it is
advisable for the Indemnified Party to be represented by separate counsel other
than counsel for the Indemnifying Party, the Indemnified Party shall have the
right to employ a single counsel to represent the Indemnified Party, in which
event the reasonable fees and expenses of such separate single counsel shall be
borne by the Indemnifying Party, and (ii) in the case of any Proceeding brought
by any governmental authority, the Indemnifying Party shall have the right to
participate in, but not to assume the defense of, such Proceeding. The
Indemnifying Party shall not be obligated under any settlement agreement
relating to any Proceeding under this Section 7.2 to which it has not consented
in writing, which consent shall not be unreasonably withheld.
(d) Preserving Rights with Respect to Calculation Losses. Notwithstanding
Section 7.2(c), Lincoln Life may in its sole discretion elect to reimburse a
Contractowner, Third Party Administrator, Separate Account or Fund for
Calculation Losses out of Lincoln Life's own funds and such reimbursement shall
have no effect on the respective indemnification obligations of the parties
pursuant to Section 7.2(a) and (b).
(e) Overpayments. The parties agree that there may be circumstances in
which it would not be commercially reasonable for Lincoln Life and the Funds to
seek reimbursement from one or more Contractowners of overpayments made them,
taking into account relevant factors such as industry practice; the amount of
such overpayments; the number of Contractowners overpaid; the cost of seeking
reimbursement; and the implications for customer relations of seeking
reimbursement. In the event of any overpayment to a Contractowner for which
Lincoln Life or any Fund intends to seek indemnification from Delaware pursuant
to Section 7.2(b) without seeking reimbursement from the Contractowner, the
parties shall negotiate in good faith as to what effect, if any, the
determination not to seek such reimbursement should have under the circumstances
on the rights of Lincoln Life or the Funds to indemnification for the amounts
overpaid.
<PAGE>
ARTICLE 8
INSURANCE COVERAGE
------------------
Section 8.1 Insurance. Delaware and Holdings shall maintain
insurance coverage at a level at least equal to the insurance coverage held by
each of them at the time this Agreement becomes effective.
ARTICLE 9
FORCE MAJEURE AND DISASTER RECOVERY PLAN
----------------------------------------
Section 9.1 Force Majeure; Disaster Recovery Plan. No party shall be
liable to any other party for any damages caused by delays beyond its reasonable
control, including, without limitation, those delays occasioned by fire, strike,
labor dispute, acts of the other party, acts of any common carrier, pricing
service, corporate action service, or telephone network, acts of the power
supply company or its networks, restrictions by civil or military authorities,
acts of nature, or unforeseen transportation failures. In the event of any such
delay, the hindered party shall promptly notify the other parties and, upon the
giving of such notice, the period of time for performance of obligations
hereunder affected by such delays will be extended by the same number of days as
the delay. Notwithstanding the foregoing, Delaware shall maintain and implement
a customary disaster recovery plan and such plan shall be reasonably acceptable
to Lincoln Life and the Funds. This Article 9 shall not excuse any failure to
perform, or extend the time for performance of, any obligation of Delaware under
this Agreement to the extent that such failure or delay would have been avoided
by compliance with such disaster recovery plan, or by the use of reasonable,
readily available alternatives.
ARTICLE 10
EFFECTIVENESS
-------------
Section 10.1 Effectiveness.
(a) This Agreement shall become effective upon the later of:
(i) the date first set forth above; or
(ii) the date as of which Lincoln Life has complied with the
requirements of the Indiana insurance holding company laws
at Section 27-1-23-4 of the Indiana Code.
(b) Lincoln Life shall diligently and reasonably pursue the satisfaction
of the requirements of the Indiana insurance holding company laws at
Section 27-1-23-4 of the Indiana Code.
<PAGE>
ARTICLE 11
TERM AND TERMINATION
--------------------
Section 11.1 Term. The initial term of this Agreement shall end on
the fourth anniversary of the Cutover Date of Phase III, and this Agreement
shall be automatically renewed for subsequent Renewal Terms thereafter unless
sooner terminated under Section 11.2.
Section 11.2 Termination. Subject to the procedures set forth in
Article 12 and to Section 11.3, this Agreement may be terminated as follows:
(a) by Lincoln Life, Delaware, or any Fund, in each case upon notice
to each of the other parties at least 180 days prior to the
expiration of the initial term or any Renewal Term, with such
termination to become effective upon such expiration; and
(b) by Lincoln Life, Delaware or any Fund upon 30 days notice to each
of the other parties, for any material breach of this Agreement
unless such breach is cured within such notice period.
For the purpose of this Section 11.2(b) only, a "material breach" shall include,
but not be limited to, the failure by Delaware to provide Accounting Services
hereunder of a quality reasonably determined by Lincoln Life or any Fund to be
consistent with a superior level of service in the industry.
Section 11.3 Effect of Termination by a Fund. In the event one or
more Funds shall terminate this Agreement, this Agreement shall nonetheless
continue in full force and effect between and among those parties who have not
terminated this Agreement.
ARTICLE 12
PROCEDURES UPON TERMINATION
---------------------------
Section 12.1 Obligations Upon Termination. Upon termination of this
Agreement by any party under Article 11, each party shall be obligated to
cooperate with each other party to provide for the transfer of all
responsibilities, duties and obligations of this Agreement as may be necessary
to ensure the orderly, undisrupted business of each party. Such cooperation
shall include, but not be limited to, returning all papers, documents, materials
or equipment to the party owning such materials. In the event that this
Agreement is terminated by Lincoln Life or any Fund under Section 11.2(b),
Lincoln Life and the Funds shall have the right to require Delaware to continue
performing all or any part of its responsibilities, duties and obligations under
this Agreement until the earlier of (a) 210 days following the date notice of
such termination was given, or (b) the date that is 30 days after notice from
Lincoln Life or the Funds that
<PAGE>
Delaware shall cease such performance. For this purpose, (a) the terms of this
Agreement (including without limitation the obligation of Lincoln Life and the
Funds to pay Delaware's fees under Article 6, and the obligation of Delaware to
continue to exercise the standard of care required under Section 7.1 shall
remain in effect with respect to the period in which Delaware is obligated to
continue such performance, and (b) if any portion of Delaware's
responsibilities, duties and obligations during such period are not so extended
as required by Lincoln Life, the parties shall mutually agree in good faith on a
reduction of fees which reflects the termination of such responsibilities,
duties and obligations.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
------------------------------
Each party represents and warrants to the other parties as follows:
Section 13.1 Organization and Authority. Such party is duly organized,
validly existing and in good standing as a corporation under the laws of the
state indicated on the first page of this Agreement, with the requisite
authority and power, in conformity with applicable laws, rules and regulations,
to execute and deliver this Agreement and to perform its obligations hereunder.
Such party has taken all necessary action to authorize such execution, delivery
and performance.
Section 13.2 No Conflict with Laws. The execution, delivery and
performance of this Agreement by such party do not conflict with or violate any
laws applicable to such party, any provision of its constituent documents, any
order or judgment of any court or governmental agency applicable to it or any of
its assets or any contractual restriction binding on it or its assets.
Section 13.3 Obligation. This Agreement constitutes a legal, valid and
binding obligation of such party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to the enforcement of creditors' rights generally and
subject to principles of equity.
ARTICLE 14
PARENT GUARANTY
---------------
Section 14.1 Parent Guaranty. Holdings hereby unconditionally guarantees
the full and punctual performance of the covenants, agreements and obligations
of Delaware under this Agreement, including but not limited to the payment when
due of all amounts that may from time to time be payable by Delaware pursuant to
Section 7.2(b) (the "Guaranteed Obligations").
Section 14.2 Guaranty Unconditional. The obligations of
<PAGE>
Holdings hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released or discharged by:
(a) any extension, settlement, compromise, waiver or release in
respect of any obligation of Delaware under this Agreement;
(b) any modification or amendment of or supplement to this
Agreement;
(c) any change in the corporate existence, structure or ownership of
Delaware, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting Delaware or its assets; or
(d) any other act or omission to act or delay of any kind by
Delaware, Lincoln Life, any Fund or any other person which would, but for
the provisions of this paragraph (d), constitute a legal or equitable
discharge of Holding's obligations hereunder;
provided, however, that in the event of any extension, settlement, compromise,
waiver or release of any obligation of Delaware under this Agreement, or any
modification or amendment of or supplement to this Agreement, the guaranty
provided for in this Article 14 shall apply to the obligations of Delaware as so
extended, settled, compromised, waived, released, modified, amended or
supplemented.
Section 14.3 Discharge Only Upon Payment or Performance in Full;
Reinstatement in Certain Circumstances. Holding's obligations hereunder shall
remain in full force and effect until the Guaranteed Obligations shall have been
paid or performed in full. If at any time any payment of Guaranteed Obligations
by Delaware under this Agreement is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of Delaware or
otherwise, Holding's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
Section 14.4 Waiver by Holdings. Holdings irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any person
against Delaware or any other person.
Section 14.5 Subrogation. Upon making any payment with respect to
Delaware hereunder, Holdings shall be subrogated to the rights of the payee
against Delaware with respect to such payment; provided that Holdings shall not
enforce payment by way of subrogation until all Guaranteed Obligations have been
paid or performed in full.
<PAGE>
ARTICLE 15
DISPUTE RESOLUTION
------------------
Before commencing litigation of any dispute arising out of or relating to
this Agreement, the parties shall attempt in good faith to resolve the dispute
by the following means:
Section 15.1 Negotiation. The parties shall in good faith attempt to
resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy. A
party may give the other parties written notice of any dispute not resolved in
the normal course of business. Within 20 days after delivery of that notice,
executives of the affected parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of the
controversy or claim as provided in Section 15.2. If a negotiator intends to be
accompanied at a meeting by an attorney, the other negotiator shall be given at
least 3 Business Days' notice of that intention and may also be accompanied by
an attorney.
Section 15.2 Mediation. If the dispute has not been resolved by
negotiation as provided in Section 15.1, the parties shall endeavor for an
additional period of 60 days to settle the dispute by mediation under the then-
current Center for Public Resources (CPR) Model Procedure for Mediation of
Business Disputes. The neutral third party will be selected from the CPR Panel
of Neutrals. If the parties encounter difficulty in agreeing on a neutral, they
will seek the assistance of CPR in the selection process.
Section 15.3 Confidentiality. All activities under this Article 15 are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence.
ARTICLE 16
MISCELLANEOUS
-------------
Section 16.1 Amendment. This Agreement, including any Exhibits or
Schedules, may be amended, modified or supplemented only in writing signed by
Delaware, Lincoln Life and any Fund affected thereby. This Agreement shall be
binding upon all successors, assigns or transferees of the parties to this
Agreement.
Section 16.2 Assignment. This Agreement and the rights, duties and
obligations of the parties hereto shall not be assign able by any party, except
assignment to successors in the case of mergers, sales of all or substantially
all of the assets of such
<PAGE>
party or transfer of ownership by reorganization or similar restructuring to a
successor in interest to the business of such party, without the prior written
consent of the other parties, and any purported assignment in the absence of
such consent shall be void.
Section 16.3 Notices. All notices given or submitted pursuant to this
Agreement shall be made in writing and shall be deemed given when (a) deposited
with the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested; (b) deposited with a nationally recognized
overnight mail delivery service; (c) sent by facsimile with electronic
confirmation of delivery or with a copy sent by mail as described in (a) or (b)
above; or (d) delivered in person; all to the last address of record of each
party being notified.
Any notice under this Agreement to Lincoln Life shall be given to:
ATTN: O. Douglas Worthington
Vice President and Controller
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-3669
Facsimile: (219) 455-1939
Any notice under this Agreement to Delaware or Holdings
shall be given to:
ATTN: Michael J. Bishof
Vice President and Treasurer
Delaware Management Company
1818 Market Street; 7th Floor
Philadelphia, PA 19103
Phone: (215) 255-2852
Facsimile: (215) 255-1645
With a copy to:
Richard J. Flannery
Managing Director, Corporate
& Tax Affairs
Delaware Management Company
2005 Market Street
Philadelphia, PA 19103
Phone: (215) 255-1244
Facsimile: (215) 255-2822
<PAGE>
Any notice under this Agreement to any Fund shall be given
to:
ATTN: Kelly D. Clevenger
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801
Phone: (219) 455-5119
Facsimile: (219) 455-1773
Any party may, by means of written notice in compliance with this Section
16.3, change the address or the identity of the person to whom any notice, or
copy thereof, is to be sent.
Section 16.4 Severability. If any provision of this Agreement, as applied
to any party or to any circumstances, shall be found by a court of competent
jurisdiction to be void, invalid or unenforceable, the same shall in no way
affect any other provision of this Agreement, the application of any such provi
sion in any other circumstances, or the validity or enforce ability of this
Agreement; provided, however, that nothing in this Section 16.4 shall adversely
affect the fundamental benefits received by the parties under this Agreement.
Section 16.5 Waiver. A waiver by any party of any of the terms and
conditions of this Agreement in any one instance shall not be deemed or
construed to be waiver of any such term or condition for the future, or of any
subsequent breach thereof, nor shall it be deemed a waiver of performance of any
other obligation hereunder. No waiver of any provision of this Agreement shall
be valid unless agreed to in writing by the party or parties against whom such
waiver is sought to be enforced.
Section 16.6 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter of this
Agreement and supersedes all prior and collateral agreements, understandings,
statements and negotiations of the parties.
Section 16.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without giving
effect to the conflict of law provisions thereof.
Section 16.8 Section and Paragraph Headings. The titles of the sections
and paragraphs of this Agreement are for convenience only and shall not in any
way affect the interpretation of any provision or condition of this Agreement.
Section 16.9 Counterparts. This Agreement may be executed in counterparts
which, taken together, shall constitute the whole of the Agreement as between
the parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
LINCOLN LIFE:
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: ____________________________
O. Douglas Worthington
Title: Vice President and
Controller
Date: __________________________
HOLDINGS:
DELAWARE MANAGEMENT HOLDINGS, INC.
By: ____________________________
Title: _________________________
Date: __________________________
DELAWARE:
DELAWARE SERVICE COMPANY, INC.
By: ____________________________
Title: _________________________
Date: __________________________
<PAGE>
FUNDS:
LINCOLN NATIONAL AGGRESSIVE GROWTH
FUND, INC.
LINCOLN NATIONAL BOND FUND, INC.
LINCOLN NATIONAL CAPITAL
APPRECIATION FUND, INC.
LINCOLN NATIONAL EQUITY-INCOME
FUND, INC.
LINCOLN NATIONAL GLOBAL ASSET
ALLOCATION FUND, INC.
LINCOLN NATIONAL GROWTH AND INCOME
FUND, INC.
LINCOLN NATIONAL INTERNATIONAL
FUND, INC.
LINCOLN NATIONAL MANAGED FUND, INC.
LINCOLN NATIONAL MONEY MARKET FUND,
INC.
LINCOLN NATIONAL SOCIAL AWARENESS
FUND, INC.
LINCOLN NATIONAL SPECIAL
OPPORTUNITIES FUND, INC.
By: ____________________________
Kelly D. Clevenger
In his capacity as President of each of
the above-named Funds.
Date: __________________________
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
<PAGE>
EXHIBIT A
---------
INVESTMENT COMPANIES
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
<PAGE>
EXHIBIT B
---------
FORM OF WRITTEN ACKNOWLEDGEMENT OF CUTOVER DATE
<PAGE>
SCHEDULE 1.1(a)
---------------
CUTOVER SCHEDULE
<PAGE>
SCHEDULE 2.1
------------
PROCEDURES FOR CORRECTING ERRORS
<PAGE>
SCHEDULE 3.1
------------
DATA PROVIDED BY LINCOLN LIFE
<PAGE>
SCHEDULE 3.2
------------
UNAFFILIATED MUTUAL FUNDS
AND
SERVICE PROVIDERS
<PAGE>
SCHEDULE 6.1
------------
FEE SCHEDULE
<PAGE>
LINCOLN NATIONAL LIFE INSURANCE COMPANY
Law Division 7C03
1300 South Clinton
Fort Wayne, Indiana 46802
Phone: (219) 455-3018
Fax: (219) 455-5135
Exhibit 9
VIA EDGAR
- ---------
December 5, 1996
Securities and Exchange Commission
Division of Insurance Management
Office of Insurance Products
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Lincoln National Variable Annuity Account H
File Nos. 33-27783; 811-5721
Opinion and Consent of Counsel
Ladies and Gentlemen:
I have recently 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 National Variable Annuity
Account H (the "Account"), a segregated account of Lincoln National Life
Insurance Company (Lincoln Life), of contributions from a person pursuant to an
insurance policy issued in accordance with the prospectus contained in this
amended Registration Statement on Form N-4 (including the Supplement filed
herewith), and upon compliance with applicable law, such person will have a
legally issued interest in his or her individual account with the Account, and
the securities issued will represent binding obligations of Lincoln Life.
I consent to the filing of this Opinion as an exhibit to the Account's
Post-Effective Amendment No. 9 to the Registration Statement on Form N-4.
Very truly yours,
/s/ Jeremy Sachs
Jeremy Sachs
Senior Counsel
JS/sb/A:\SEC2.LTR
Enclosure
<PAGE>
Exhibit 10
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Post-Effective Amendment No. 9 to the Registration Statement (Form N-4
No. 33-27783) and related Statement of Additional Information pertaining to the
Lincoln National Variable Annuity Account H and to the use therein of our
reports (a) dated February 7, 1996 with respect to the consolidated financial
statements of The Lincoln National Life Insurance Company and (b) dated March 6,
1996 with respect to the financial statements of Lincoln National Variable
Annuity Account H.
/s/ ERNST & YOUNG LLP
Fort Wayne, Indiana
December 3, 1996
<PAGE>
Exhibit 13
Lincoln National Life Account H
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
A. STANDARDIZED PERFORMANCE
The Average Annual Total Return for each period was determined by
finding the average annual compounded rate of return over each period that
would equate the inial amount invested to the ending redeemable value for
that period, according to the following formula:
n
P * ( 1 + T ) = ERV
Where:
P = a hypothetical inial purchase payment of $1,000
T = average annual total return for the period in question
n = number of years
ERV = redeemable value (as of the end of the period in question)
of a hypothetical $1,000 purchase payment made at the beginning
of the 1-year, 5-year, or 10-year period in question (or
fractional portion thereof).
The formula assumes that : 1) all recurring fees have been charged to
Contract Owner accounts; 2) all applicable non-recurring charges are
deducted at the end of the period in questions; 3) there will be a
complete redemption at the end of the period in question. The performance
figures shown in the table above relate to the contract form containing
the highest level of charges.
<PAGE>
<TABLE>
<CAPTION>
Separate Account H - Standardized 1 Year Returns
|-------------------------------------------------------------------------------------------------------------------|
| ONE YEAR RETURNS PERIOD ENDING 12/31/1995: |
|-------------------------------------------------------------------------------------------------------------------|
| | Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| | Series | Income | Bond | | | Allocation | |
|-------------------------------------------------------------------------------------------------------------------|
|<S> |<C> | <C> | <C> | <C> | <C> | <C> | <C> |
|Fund Value |$1,315.22 | $1,312.44 | $1,201.56 | $1,041.41 | $1,138.52 | $1,278.54 | $1,111.79 |
|Fee | $0.77 | $0.77 | $0.73 | $0.68 | $0.71 | $0.75 | $0.70 |
|===================================================================================================================|
|Surr Charge | $60.00 | $60.00 | $60.00 | $60.00 | $60.00 | $60.00 | $60.00 |
|Final Value |$1,254.45 | $1,251.67 | $1,140.83 | $980.74 | $1,077.81 | $1,217.79 | $1,051.09 |
|===================================================================================================================|
|Annual Return | 25.45% | 25.17% | 14.08% | -1.93% | 7.78% | 21.78% | 5.11% |
|-------------------------------------------------------------------------------------------------------------------|
</TABLE>
Calculation of Annual Return
Final Value = 1,000 * (31-Dec-95 Unit Value / 31-Dec-94 Unit Value) -
Annual Fee - Surrender Charge
Annual Return = Final Value / 1,000 - 1
<TABLE>
<CAPTION>
Unit Values
|------------------------------------------------------------------------------------------------------------------|
| | Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| Date | Series | Income | Bond | | | Allocation | |
|------------------------------------------------------------------------------------------------------------------|
|<S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| 31-Dec-94 | 1.557688 | 1.428485 | 1.513373 | 1.205723 | 1.369408 | 1.376640 | 1.361319 |
| 31-Dec-95 | 2.048701 | 1.8748 | 1.818413 | 1.255654 | 1.559097 | 1.760096 | 1.513506 |
|------------------------------------------------------------------------------------------------------------------|
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Separate Account H - Standardized 5 Year Returns
|---------------------------------------------------------------------------------------------------------------|
| FIVE YEAR RETURNS PERIOD ENDING 12/31/1995: |
|---------------------------------------------------------------------------------------------------------------|
| | Growth | Growth | High Yield| Cash | Gov't | Asset | International |
| | Series | Income | Bond | | | Allocation| |
|---------------------------------------------------------------------------------------------------------------|
|<S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
|One Year | $1,315.14 | $1,224.38 | $1,249.02 | $1,041.50 | $1,144.02 | $1,201.99| $1,102.74 |
|Fee | $0.81 | $0.78 | $0.79 | $0.71 | $0.75 | $0.77| $0.74 |
|Final Value | $1,314.33 | $1,223.60 | $1,248.23 | $1,040.78 | $1,143.27 | $1,201.22| $1,102.00 |
|---------------------------------------------------------------------------------------------------------------|
|Two Year | $1,436.63 | $1,303.02 | $1,385.24 | $1,059.95 | $1,213.79 | $1,285.95| $1,078.11 |
|Fee | $1.02 | $0.93 | $0.97 | $0.78 | $0.87 | $0.92| $0.81 |
|Final Value | $1,435.62 | $1,302.08 | $1,384.26 | $1,059.18 | $1,212.92 | $1,285.03| $1,077.30 |
|---------------------------------------------------------------------------------------------------------------|
|Three Year | $1,647.77 | $1,442.79 | $1,590.25 | $1,072.88 | $1,330.49 | $1,400.04| $1,428.17 |
|Fee | $1.12 | $1.00 | $1.08 | $0.77 | $0.92 | $0.97| $0.91 |
|Final Value | $1,646.66 | $1,441.79 | $1,589.17 | $1,072.10 | $1,329.57 | $1,399.07| $1,427.26 |
|---------------------------------------------------------------------------------------------------------------|
|Four Year | $1,632.59 | $1,452.02 | $1,465.24 | $1,098.73 | $1,254.75 | $1,376.38| $1,435.23 |
|Fee | $1.19 | $1.05 | $1.11 | $0.79 | $0.94 | $1.01| $1.04 |
|Final Value | $1,631.40 | $1,450.97 | $1,464.13 | $1,097.95 | $1,253.82 | $1,375.37| $1,434.19 |
|---------------------------------------------------------------------------------------------------------------|
|Five Year | $2,145.65 | $1,904.31 | $1,759.24 | $1,143.41 | $1,427.50 | $1,758.48| $1,594.52 |
|Fee | $1.25 | $1.11 | $1.07 | $0.74 | $0.89 | $1.04| $1.00 |
|===============================================================================================================|
|Surr Charge | $20.00 | $20.00 | $20.00 | $20.00 | $20.00 | $20.00| $20.00 |
|Final Value | $2,124.40 | $1,883.20 | $1,738.18 | $1,122.67 | $1,406.61 | $1,737.44| $1,573.52 |
|===============================================================================================================|
|Annual Return | 16.26% | 13.50% | 11.69% | 2.34% | 7.06% | 11.68%| 9.49% |
|---------------------------------------------------------------------------------------------------------------|
</TABLE>
Calculation of Annual Return
Final Value Year One = 1,000 * (31-Dec-91 Unit Value / 31-Dec-90 Unit
Value) - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-92 Unit Value / 31-Dec-91 Unit
Value) - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-93 Unit Value / 31-Dec-92 Unit
Value) - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-94 Unit Value / 31-Dec-93 Unit
Value) - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-95 Unit Value / 31-Dec-94 Unit
Value) - Annual Fee Year Five - Surrender Charge
Annual Return = (Final Value Year Five / 1,000) (1/5) - 1
<TABLE>
<CAPTION>
Unit Values
|---------------------------------------------------------------------------------------------------------------|
| | Growth | Growth | High Yield| Cash | Gov't | Asset | International|
| Date | Series | Income | Bond | | | Allocation | |
|---------------------------------------------------------------------------------------------------------------|
|<S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| 31-Dec-90 | 0.952210 | 0.981781 | 1.030775 | 1.095029 | 1.089119 | 0.998137 | 0.946560 |
| 31-Dec-91 | 1.252292 | 1.202073 | 1.287458 | 1.140472 | 1.245978 | 1.199751 | 1.043807 |
| 31-Dec-92 | 1.368821 | 1.280091 | 1.428769 | 1.161478 | 1.322827 | 1.284379 | 1.021176 |
| 31-Dec-93 | 1.571108 | 1.418422 | 1.641374 | 1.176502 | 1.451055 | 1.399330 | 1.353765 |
| 31-Dec-94 | 1.557688 | 1.428485 | 1.513373 | 1.205723 | 1.369408 | 1.376640 | 1.361319 |
| 31-Dec-95 | 2.048701 | 1.8748 | 1.818413 | 1.255654 | 1.559097 | 1.760096 | 1.513506 |
|---------------------------------------------------------------------------------------------------------------|
</TABLE>
<PAGE>
<TABLE>
Separate Account H - Standardized 10 Year/Lifetime Returns
- ------------------------------------------------------------------------------------------------------
10 YEAR/LIFETIME RETURNS PERIOD ENDING 12/31/1995:
- ------------------------------------------------------------------------------------------------------
Growth Growth High Yield Cash Gov't Asset International
Series Income Bond Allocation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Year One $1,286.85 $1,205.57 $1,177.52 $1,047.84 $1,130.67 $1,002.40 $1,005.36
Fee $0.80 $0.77 $0.76 $0.72 $0.75 $0.70 $0.70
Final Value $1,286.05 $1,204.79 $1,176.76 $1,047.12 $1,129.93 $1,001.70 $1,004.66
- ------------------------------------------------------------------------------------------------------
Year Two $1,372.16 $1,196.10 $1,217.54 $1,095.95 $1,097.33 $1,115.45 $1,079.87
Fee $0.93 $0.84 $0.84 $0.75 $0.78 $0.74 $0.73
Final Value $1,371.23 $1,195.26 $1,216.70 $1,095.20 $1,096.55 $1,114.71 $1,079.14
- ------------------------------------------------------------------------------------------------------
Year Three $1,550.03 $1,349.55 $1,376.18 $1,156.64 $1,169.38 $1,256.53 $1,111.55
Fee $1.02 $0.89 $0.91 $0.79 $0.79 $0.83 $0.81
Final Value $1,549.01 $1,348.66 $1,375.27 $1,155.85 $1,168.59 $1,255.70 $1,110.74
- ------------------------------------------------------------------------------------------------------
Year Four $2,005.52 $1,669.09 $1,499.18 $1,240.53 $1,277.45 $1,349.43 $1,373.88
Fee $1.24 $1.06 $1.01 $0.84 $0.86 $0.91 $0.90
Final Value $2,004.28 $1,668.03 $1,498.17 $1,239.70 $1,276.59 $1,348.52 $1,372.98
- ------------------------------------------------------------------------------------------------------
Year Five $1,891.05 $1,603.74 $1,534.91 $1,319.78 $1,365.62 $1,412.84 $1,394.43
Fee $1.36 $1.15 $1.06 $0.90 $0.92 $1.02 $1.00
Final Value $1,889.68 $1,602.60 $1,533.84 $1,318.89 $1,364.70 $1,411.82 $1,393.43
- ------------------------------------------------------------------------------------------------------
Year Six $2,485.20 $1,962.19 $1,915.80 $1,373.62 $1,561.24 $1,612.14 $1,508.30
Fee $1.53 $1.25 $1.21 $0.94 $1.02 $1.10 $0.96
Final Value $2,483.67 $1,960.94 $1,914.59 $1,372.68 $1,560.22 $1,611.04 $1,507.34
- ------------------------------------------------------------------------------------------------------
Year Seven $2,714.78 $2,088.21 $2,124.74 $1,397.96 $1,656.45 $1,752.89
Fee $1.92 $1.50 $1.49 $1.03 $1.19 $1.22
Final Value $2,712.86 $2,086.71 $2,123.25 $1,396.93 $1,655.26 $1,751.67
- ------------------------------------------------------------------------------------------------------
Year Eight $3,133.77 $2,312.21 $2,439.19 $1,415.00 $1,815.71
Fee $2.12 $1.60 $1.66 $1.02 $1.26
Final Value $3,111.66 $2,310.61 $2,437.53 $1,413.98 $1,814.45
- ------------------------------------------------------------------------------------------------------
Year Nine $3,085.08 $2,327.01 $2,247.45 $1,449.10 $1,712.36
Fee $2.25 $1.68 $1.70 $1.04 $1.28
Final Value $3,082.83 $2,325.33 $2,245.75 $1,448.06 $1,711.08
- ------------------------------------------------------------------------------------------------------
Year Ten $4,054.60 $3,051.85 $2,698.41 $1,508.03 $1,948.10
Fee $2.36 $1.78 $1.64 $0.98 $1.21
- ------------------------------------------------------------------------------------------------------
Surr Charge $0.00 $0.00 $0.00 $0.00 $0.00 $10.00 $20.00
Final Value $4,052.23 $3,050.07 $2,696.77 $1,507.05 $1,946.88 $1,741.67 $1,487.34
Period 10 10 10 10 10 6.41643836 5.66849315
- -------------------------------------------------------------------------------------------------------
Annual Return 15.02% 11.80% 10.43% 4.19% 6.89% 9.03% 7.25%
</TABLE>
4
<PAGE>
SEPARATE ACCOUNT H - STANDARDIZED 10 YEAR/LIFETIME RETURNS
Calculation of Annual Return (Excluding Asset Allocation and International Funds
<TABLE>
<S> <C> <C> <C> <C>
Final Value Year One = 1,000 * (31-Dec-86 Unit Value / 31-Dec-85 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-87 Unit Value / 31-Dec-86 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-88 Unit Value / 31-Dec-87 Unit Value) - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-89 Unit Value / 31-Dec-88 Unit Value) - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-90 Unit Value / 31-Dec-89 Unit Value) - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-91 Unit Value / 31-Dec-90 Unit Value) - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-92 Unit Value / 31-Dec-91 Unit Value) - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-93 Unit Value / 31-Dec-92 Unit Value) - Annual Fee Year Eight
Final Value Year Nine = 1,000 * (31-Dec-94 Unit Value / 31-Dec-93 Unit Value) - Annual Fee Year Nine
Final Value Year Ten = 1,000 * (31-Dec-95 Unit Value / 31-Dec-94 Unit Value) - Annual Fee Year Ten - Surrender Charge
</TABLE>
Calculation of Annual Return for Asset Allocation Fund
<TABLE>
<S> <C> <C> <C> <C>
Final Value Year One = 1,000 * (01-Aug-90 Unit Value / 01-Aug-89 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000 * (01-Aug-91 Unit Value / 01-Aug-90 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000 * (01-Aug-92 Unit Value / 01-Aug-91 Unit Value) - Annual Fee Year Three
Final Value Year Four = 1,000 * (01-Aug-93 Unit Value / 01-Aug-92 Unit Value) - Annual Fee Year Four
Final Value Year Five = 1,000 * (01-Aug-94 Unit Value / 01-Aug-93 Unit Value) - Annual Fee Year Five
Final Value Year Six = 1,000 * (01-Aug-95 Unit Value / 01-Aug-94 Unit Value) - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-95 Unit Value / 01-Aug-95 Unit Value) - Annual Fee Year Seven - Surrender Charge
</TABLE>
Calculation of Annual Return for International Fund
<TABLE>
<S> <C> <C> <C> <C>
Final Value Year One = 1,000 * (01-May-91 Unit Value / 01-May-90 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000 * (01-May-92 Unit Value / 01-May-91 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000 * (01-May-93 Unit Value / 01-May-92 Unit Value) - Annual Fee Year Three
Final Value Year Four = 1,000 * (01-May-94 Unit Value / 01-May-93 Unit Value) - Annual Fee Year Four
Final Value Year Five = 1,000 * (01-May-95 Unit Value / 01-May-94 Unit Value) - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-95 Unit Value / 01-May-95 Unit Value) - Annual Fee Year Six - Surrender Charge
</TABLE>
Annual Return = (Final Value Year Ten / 1,000) (1/period) - 1
5
<PAGE>
Separate Account H - Standardized 10 Year/Lifetime Returns
<TABLE>
<CAPTION>
Unit Values
|-------------------------------------------------------------------------------------------------------------------------|
| | Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| | Series | Income | Bond | | | Allocation | |
|-------------------------------------------------------------------------------------------------------------------------|
|<S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| 31-Dec-85 | 0.502238 | 0.610569 | 0.669767 | 0.827445 | 0.795361 | | |
| 31-Dec-86 | 0.646305 | 0.736081 | 0.788666 | 0.867029 | 0.899294 | | |
| 31-Dec-87 | 0.689581 | 0.730770 | 0.815995 | 0.907458 | 0.873351 | | |
| 30-Dec-88 | 0.779498 | 0.825103 | 0.922950 | 0.958368 | 0.931354 | 01-Aug-89 1.000000| |
| 31-Dec-89 | 1.009225 | 1.021137 | 1.006105 | 1.028581 | 1.018118 | 01-Aug-90 1.002399| 01-May-90 0.999963 |
| 31-Dec-90 | 0.952210 | 0.981781 | 1.030775 | 1.095029 | 1.089119 | 01-Aug-91 1.116232| 01-May-91 1.005326 |
| 31-Dec-91 | 1.252292 | 1.202073 | 1.287458 | 1.140472 | 1.245978 | 01-Aug-92 1.258248| 01-May-92 1.080589 |
| 30-Dec-92 | 1.368821 | 1.280091 | 1.428769 | 1.161478 | 1.322827 | 01-Aug-93 1.352163| 01-May-93 1.113034 |
| 31-Dec-93 | 1.571108 | 1.418422 | 1.641374 | 1.176502 | 1.451055 | 01-Aug-94 1.416660| 01-May-94 1.376724 |
| 31-Dec-94 | 1.557688 | 1.428485 | 1.513373 | 1.205723 | 1.369408 | 01-Aug-95 1.617666| 01-May-95 1.398236 |
| 31-Dec-95 | 2.048701 | 1.8748 | 1.818413 | 1.255654 | 1.559097 | 31-Dec-95 1.760096| 31-Dec-95 1.513506 |
|-------------------------------------------------------------------------------------------------------------------------|
</TABLE>
<PAGE>
B. NON-STANDARDIZED QUOTATIONS
This schedule present the formulas and calculation employed in
producing the performance quotations set out in the SAI, under the
heading, "NON-STANDARDIZED INVESTMENT RESULTS--SUN-ACCOUNTS OF ACCOUNT H".
Amount and Compound Growth Rate calculations are shown for all base
periods disclosed.
The formula for calculating the current Amount of an originally
invested $10,000 for a particular base period is:
CP = ( X / Y ) * $10,000
where:
CP = Amount at End of Base Period
X = Accumulation Unit Value at End of Base Period
Y = Accumulation Unit Value at Beginning of Base Period
The formula for calculating the Compound Growth Rate for a particular
base period is:
( 1 / N )
GR = ( X / Y ) - 1
where:
GR = Annualized Return
X = Accumulation Unit Value at End of Base Period
Y = Accumulation Unit Value at Beginning of Base Period
N = Number of Years of Fund Performance Being Evaluated
<PAGE>
NON-STANDARDIZED PERFORMANCE - SEPARATE ACCOUNT H
AMOUNT
<TABLE>
<CAPTION>
|-------|---------------------------|----------|----------|------------|--------|----------|------------|---------------|
| | Base Period | | | | | | | |
| |---------------------------| Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| Years | Start Date | End Date | Series | Income | Bond | | | Allocation | |
|-------|-------------|-------------|----------|----------|------------|--------|----------|------------|---------------|
|<S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| 1 | 31-Dec-94 | 31-Dec-95 | 13,152 | 13,124 | 12,016 | 10,414 | 11,385 | 12,785 | 11,118 |
| 2 | 31-Dec-93 | 31-Dec-95 | 13,040 | 13,218 | 11,079 | 10,673 | 10,745 | 12,578 | 11,180 |
| 3 | 31-Dec-92 | 31-Dec-95 | 14,967 | 14,646 | 12,727 | 10,811 | 11,786 | 13,704 | 14,821 |
| 4 | 31-Dec-91 | 31-Dec-95 | 16,360 | 15,596 | 14,124 | 11,010 | 12,513 | 14,671 | 14,500 |
| 5 | 31-Dec-90 | 31-Dec-95 | 21,515 | 19,096 | 17,641 | 11,467 | 14,315 | 17,634 | 15,990 |
| Life | See Below | 31-Dec-95 | 48,547 | 44,745 | 36,514 | 17,130 | 19,611 | 17,601 | 15,135 |
|-----------------------------------------------------------------------------------------------------------------------|
</TABLE>
Amount = (End Date Unit Value/Start Date Unit Value) * 10,000
COMPOUND GROWTH RATE
<TABLE>
<CAPTION>
|-------|------------------------------------|----------|------------|--------|---------|--------------|---------------|
| | Base Period | | | | | | | |
| |-------------------------| Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| Years | Start Date | End Date | Series | Income | Bond | | | Allocation | |
|-------|------------|------------|----------|----------|------------|--------|---------|--------------|---------------|
|<S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| 1 | 31-Dec-94 | 31-Dec-95 | 31.52% | 43.42% | 35.37% | 69.91% | 49.60% | 48.82% | 50.49% |
| 2 | 31-Dec-93 | 31-Dec-95 | 14.19% | 14.97% | 5.25% | 3.31% | 3.66% | 12.15% | 5.74% |
| 3 | 31-Dec-92 | 31-Dec-95 | 14.39% | 13.56% | 8.37% | 2.63% | 5.63% | 11.07% | 14.01% |
| 4 | 31-Dec-91 | 31-Dec-95 | 13.09% | 11.75% | 9.02% | 2.43% | 5.76% | 10.06% | 9.73% |
| 5 | 31-Dec-90 | 31-Dec-95 | 16.56% | 13.81% | 12.02% | 2.78% | 7.44% | 12.01% | 9.84% |
| Life | See Below | 31-Dec-95 | 14.20% | 13.42% | 11.50% | 4.63% | 6.88% | 9.21% | 7.58% |
|-------|------------|------------|----------|----------|------------|--------|---------|--------------|---------------|
</TABLE>
One Year Return = (31-Dec-95 Unit Value/31-Dec-94 Unit Value) - 1
Two Year Return = (31-Dec-95 Unit Value/31-Dec-93 Unit Value) (1/2) - 1
Three Year Return = (31-Dec-95 Unit Value/31-Dec-92 Unit Value) (1/3) - 1
Four Year Return = (31-Dec-95 Unit Value/31-Dec-91 Unit Value) (1/4) - 1
Five Year Return = (31-Dec-95 Unit Value/31-Dec-90 Unit Value) (1/5) - 1
Life Return = (31-Dec-95 Unit Value/Inception Date Unit Value) (1/period) - 1
<PAGE>
NON-STANDARDIZED PERFORMANCE - SEPARATE ACCOUNT H
<TABLE>
<CAPTION>
|------------------|-----------|----------|------------|-----------|--------------|------------|---------------|
| Unit Values | Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| | Series | Income | Bond | | | Allocation | |
|------------------|-----------|----------|------------|-----------|--------------|------------|---------------|
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| 31-Dec-95 | 2.048701 | 1.874800 | 1.818413 | 1.255654 | 1.559097 | 1.760096 | 1.513506 |
| 31-Dec-94 | 1.557688 | 1.428485 | 1.513373 | 1.205723 | 1.369408 | 1.376640 | 1.361319 |
| 31-Dec-93 | 1.571108 | 1.418422 | 1.641374 | 1.176502 | 1.451055 | 1.399330 | 1.353765 |
| 31-Dec-92 | 1.368821 | 1.280091 | 1.428769 | 1.161478 | 1.322827 | 1.284379 | 1.021176 |
| 31-Dec-91 | 1.252292 | 1.202073 | 1.287458 | 1.140472 | 1.245978 | 1.199751 | 1.043807 |
| 31-Dec-90 | 0.952210 | 0.981781 | 1.030775 | 1.095029 | 1.089119 | 0.998137 | 0.946560 |
|------------------|-----------|----------|------------|-----------|--------------|------------|---------------|
</TABLE>
<TABLE>
<CAPTION>
|------------------------|------------|-----------|------------|----------|----------|--------------|---------------|
| Life Returns | Growth | Growth | High Yield | Cash | Gov't | Asset | International |
| | Series | Income | Bond | | | Allocation | |
|------------------------|------------------------|------------|----------|----------|--------------|---------------|
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| Inception/Start Date | 02/08/84 | 02/08/84 | 02/08/84 | 02/08/84 | 11/19/85 | 08/01/89 | 05/01/90 |
| Unit Value | 0.422000 | 0.419000 | 0.498000 | 0.733000 | 0.795000 | 1.000000 | 1.000000 |
| Period (years) | 11.90 | 11.90 | 11.90 | 11.90 | 10.12 | 6.42 | 5.67 |
|------------------------|------------|-----------|------------|----------|----------|--------------|---------------|
</TABLE>
<PAGE>
EXHIBIT 14(a)
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with the
exception of American States Lloyds Insurance Company, Delaware Distributors,
L.P., Founders CBO, L.P., and Lincoln National Mezzanine Fund, L.P.
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| ----------------------------------------
|--| American States Financial Corporation|
| | 83.3% - Indiana - Holding Company |
| ----------------------------------------
| ---------------------------------------
|--| American States Insurance Company |
| | 100% - Indiana - Property/Casualty |
| ---------------------------------------
| ----------------------------------------
|--| American Economy Insurance Company |
| | 100% - Indiana - Property/Casualty |
| ----------------------------------------
| ----------------------------------------------
|--| American States Insurance Company of Texas |
| | 100% - Texas - Property/Casualty |
| ----------------------------------------------
| --------------------------------------------
|--| American States Life Insurance Company |
| | 100% - Indiana - Life/Health |
| --------------------------------------------
| -------------------------------------------------
|--| American States Lloyds Insurance Company |
| | Lloyds Plan - * - Texas - Property/Casualty |
| -------------------------------------------------
| -------------------------------------------------
|--| American States Preferred Insurance Company |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
| ---------------------------------
|--| City Insurance Agency, Inc. |
| | 100% - Indiana |
| ---------------------------------
| -------------------------------------------------
|--| Insurance Company of Illinois |
| | 100% - Illinois - Fire & Casualty Insurance |
| -------------------------------------------------
| ---------------------------------------------------------
|--| Aseguradora InverLincoln, S.A. Compania de Seguros Y |
| | Reaseguros, Grupo Financiero InverMexico |
| | 49% - Mexico - Life, Property and Casualty Insurance |
| ---------------------------------------------------------
1
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| --------------------------------------------------
|--| The Insurers' Fund, Inc. |
| | 100% - Maryland - Inactive |
| --------------------------------------------------
| --------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| --------------------------------------------------
|
| ----------------------------------------
|--| The Richard Leahy Corporation |
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------
| | -----------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | -----------------------------------
| | -----------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -------------------------------------------
| | -------------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -------------------------------------------------
| | -------------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -------------------------------------------
| | ---------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | ---------------------------------------------
| | -------------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -------------------------------------------
| | ----------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | ----------------------------------------
| | ----------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| | ----------------------------------------
| | --------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | --------------------------------------
| | ------------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ------------------------------------------
|
| ---------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| ---------------------------------------------
|
|
|
2
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -------------------------------------------------
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation) |
| | 100% - Indiana - Insurance Agency |
| -------------------------------------------------
| |
| | ------------------------------------
| |--| LNC Equity Sales Corporation |
| | | 100% - Indiana - Broker-Dealer |
| | ------------------------------------
| |
| | ----------------------------------------------------------------
| | | Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--| has subsidiaries of which LFG owns from 80%-100% of the |
| | | common stock (see Attachment #1). These subsidiaries serve |
| | | as the corporate agency offices for the marketing and |
| | | servicing of products of The Lincoln National Life Insurance |
| | | Company. Each subsidiary's assets are less than 1% of the |
| | | total assets of the ultimate controlling person. |
| | ----------------------------------------------------------------
| |
| | --------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| --------------------------------------------------
|
| -----------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| -----------------------------------------
|
| -------------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -------------------------------------------------
|
| -----------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| -----------------------------------------------
|
|
3
<PAGE>
- ---------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ---------------------------------
|
| -----------------------------------------
|__| Lincoln National Investment Companies,|
| | Inc. 100% - Indiana - Holding Company |
| -----------------------------------------
| |
| | --------------------------------------
| |--| Delaware Management Holdings, Inc. |
| | | 100% - Delaware - Holding Company |
| | --------------------------------------
| | | -------------------------------------
| | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -------------------------------------
| | | --------------------------------------
| | |--| Delaware Distributors, Inc. |
| | | | 100% - Delaware - General Partner |
| | | --------------------------------------
| | | | -------------------------------------------------------------
| | | |--| Delaware Distributors, L.P. |
| | | | 100% - Delaware - Mutual Fund Distributor & Broker/Dealer |
| | | -------------------------------------------------------------
| | | ------------------------------------------
| | |--| Delaware International Advisers Ltd. |
| | | | 81.1% - England - Investment Advisor |
| | | ------------------------------------------
| | | -----------------------------------------
| | |--| Delaware International Holdings Ltd. |
| | | | 100% - Bermuda - Marketing Services |
| | | -----------------------------------------
| | | | ----------------------------------------
| | | |--| Delaware International Advisers Ltd. |
| | | | 18.9% - England - Investment Advisor |
| | | ----------------------------------------
| | | ----------------------------------------
| | |--| Delaware Investment Counselors, Inc. |
| | | | 100% - Delaware - Investment Advisor |
| | | ----------------------------------------
| | | ---------------------------------------------------
| | |__| Delaware Investment & Retirement Services, Inc. |
| | | | 100% - Delaware - Registered Transfer Agent |
| | | ---------------------------------------------------
| | | -----------------------------------------
| | |--| Delaware Management Company, Inc. |
| | | | 100% - Delaware - Investment Advisor |
| | | -----------------------------------------
| | | | --------------------------------------
| | | |--| Founders Holdings, Inc. |
| | | | 100% - Delaware - General Partner |
| | | --------------------------------------
| | | | ---------------------------------------------
| | | |--| Founders CBO, L.P. |
| | | | 100% - Delaware - Investment Partnership |
| | | ---------------------------------------------
| | | | -------------------------------------------------
| | | |--| Founders CBO Corporation |
| | | | 100% - Delaware - Co-Issuer with Founders CBO |
| | | -------------------------------------------------
| | | ----------------------------------------
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Services |
| | | ----------------------------------------
| | | -----------------------------------------------------------
| | |--| Delaware Service Company, Inc. |
| | | 100% - Delaware - Shareholder Services & Transfer Agent |
| | -----------------------------------------------------------
| | --------------------------------------------------------------
| |--| Lincoln Investment Management, Inc. |
| | | (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| | --------------------------------------------------------------
| | |
| | | ------------------------------------------------------------
| | | | Lincoln National Mezzanine Corporation |
| | |--| 100% - Indiana - General Partner for Mezzanine Financing |
| | | Limited Partnership |
| | ------------------------------------------------------------
| | |
| | | ------------------------------------------------------------
| | |--| Lincoln National Mezzanine Fund, L.P. |
| | | 50% - Delaware - Mezzanine Financing Limited Partnership |
| | ------------------------------------------------------------
4
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -----------------------------------------------
|--| Lincoln National Investment Companies, Inc. |
| | 100% - Indiana - Holding Company |
| -----------------------------------------------
| | -------------------------------------------
| |--| Lynch & Mayer, Inc. |
| | | 100% - Indiana - Investment Adviser |
| | -------------------------------------------
| | | -------------------------------------------
| | |--| Lynch & Mayer Asia, Inc. |
| | | | 100% - Delaware - Investment Management |
| | | -------------------------------------------
| | | -------------------------------------------
| | |--| Lynch & Mayer Securities Corp. |
| | | 100% - Delaware - Securities Broker |
| | -------------------------------------------
| | --------------------------------------------------------
| | | Vantage Global Advisors, Inc. |
| |--| (formerly Modern Portfolio Theory Associates, (Inc.) |
| | 100% - Delaware - Investment Adviser |
| --------------------------------------------------------
| ------------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| ------------------------------------------------
| | ----------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | ----------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| | -------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------------
| | -------------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------
| | ----------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------------
| | --------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| |
5
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -------------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -------------------------------------------------
| | ----------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| | ----------------------------------------------------------
| | ---------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------------
| | -----------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ----------------------------------------------
| | -------------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------------
| | -------------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -------------------------------------------------------
| |
| | --------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| --------------------------------------------------------
| | -------------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -------------------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| -----------------------------------------------------------
|
| -----------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| -----------------------------------------
| -------------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -------------------------------------------------------------
| ------------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ------------------------------------------------
| | ------------------------------------------
| |--| Lincoln European Reinsurance Company |
| | | 100% - Belgium |
| | ------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | -----------------------------------------------------------
| | ----------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
| ----------------------------------------------------------
6
<PAGE>
- ----------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
| -----------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| -----------------------------------------------
|
| -------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| -------------------------------------------------
|
| -------------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -------------------------------------------
| |
| | ---------------------------------------------------------
| | | Allied Westminster & Company Limited |
| |--| 100% - England/Wales - Sales Services |
| | ---------------------------------------------------------
| |
| | -------------------------------------
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive |
| | -------------------------------------
| |
| | ----------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | ----------------------------------------------------------
| |
| | -----------------------------------------------------------
| | | HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | -----------------------------------------------------------
| |
| | ----------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | ----------------------------------------------
| |
| | ----------------------------------------------------
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company |
| | ----------------------------------------------------
| | |
| | | ----------------------------------------------------
| | |--| Lincoln Financial Advisers Limited |
| | | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | | 100% - England/Wales - Sales Company |
| | | ----------------------------------------------------
| | |
| | | ----------------------------------------------------
| | |--| Lincoln Investment Management Limited |
| | | | (formerly: Laurentian Fund Management Ltd.) |
| | | | 100% - England/Wales - Investment Management |
| | | ----------------------------------------------------
| | |
| | | -------------------------------------------------------------
| | |--| Lincoln Independent Limited |
| | | | (formerly: Laurentian Independent Financial Planning Ltd.)|
| | | | 100% - England/Wales - Independent Financial Adviser |
| | | -------------------------------------------------------------
7
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -------------------------------------------
| | Lincoln National (UK) PLC |
|--| 100% - England/Wales - Holding Company |
| -------------------------------------------
| |
| | ------------------------------------------
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company |
| | ------------------------------------------
| | | -----------------------------------------
| | |--| Laurentian Life PLC |
| | | | 100% - England/Wales - Life Insurance |
| | | -----------------------------------------
| | | |
| | | | -----------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Holding Company |
| | | | -----------------------------------------
| | | | |
| | | | | ---------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development |
| | | | | ---------------------------------------------
| | | | | ----------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | 100% - England/Wales - Property Investment |
| | | | ----------------------------------------------
| | | | --------------------------------------------------------
| | | |--|IMPCO Properties Limited |
| | | |100% - England/Wales - Property Investment (Inactive) |
| | | --------------------------------------------------------
| | | ---------------------------------------------
| | |--| Laurentian Management Services Limited |
| | | | 100% - England/Wales - Management Services|
| | | ---------------------------------------------
| | | | --------------------------------------------------
| | | |--|Laurit Limited |
| | | |100% - England/Wales - Data Processing Systems |
| | | --------------------------------------------------
| | | -----------------------------------------
| | |--| Laurentian Milldon Limited |
| | | | 100% - England/Wales - Sales Company |
| | | -----------------------------------------
| | | ------------------------------------------------
| | |--| Laurentian Unit Trust Management Limited |
| | | | 100% - England/Wales - Unit Trust Management |
| | | ------------------------------------------------
| | | | -------------------------------------------
| | | |--| LUTM Nominees Limited |
| | | | 100% - England/Wales - Nominee Services |
| | | -------------------------------------------
| | | ------------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | ------------------------------------------------------------
| | | -----------------------------------------
| | |--| The Money Club Direct Company Limited |
| | | 100% - Dormant |
| | -----------------------------------------
| |
| | ------------------------------------------
| |--| Liberty Life Assurance Limited |
| | | 100% - England/Wales - Inactive |
| | ------------------------------------------
| | -------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -------------------------------------------------
| | --------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| | --------------------------------------------
8
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
|
| ------------------------------------------
|--|Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| ------------------------------------------
| |
| | ----------------------------------------------
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | ----------------------------------------------
| |
| | ---------------------------------------------------
| |--| Lincoln Fund Managers Limited |
| | | 100% - England/Wales - Unit Trust Management |
| | ---------------------------------------------------
| |
| | ------------------------------------------------------
| |--| Lincoln Insurance Services Ltd. |
| | | 100% - Holding Company |
| | ------------------------------------------------------
| | |
| | | -----------------------------------
| | |--| British National Life Sales Ltd.|
| | | | 100% - Inactive |
| | | -----------------------------------
| | |
| | | -------------------------------------------------
| | |--| BNL Trustees Limited |
| | | | 100% - England/Wales - Corporate Pension Fund |
| | | -------------------------------------------------
| | |
| | | ---------------------------------------
| | |--| Chapel Ash Financial Services Ltd. |
| | | | 100% - Direct Insurance Sales |
| | | ---------------------------------------
| | |
| | | ------------------------------------------------
| | | | Lincoln General Insurance Co. Ltd. |
| | | | 100% - Accident & Health Insurance |
| | | ------------------------------------------------
| | |
| | | ----------------------------
| | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | 100% - Inactive |
| | ----------------------------
| |
| | ----------------------------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| | ----------------------------------------------------
| |
| | ---------------------------------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | ---------------------------------------------------
| |
| | -----------------------------------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | -----------------------------------------------------------
| | |
| | | -------------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -------------------------------------------------
| |
| | ---------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services |
| | ----------------------------------------------------
| | |
| | | -------------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -------------------------------------
| |
9
<PAGE>
- ----------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
- ----------------------------------
|
| -------------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -------------------------------------------
| |
| | --------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | --------------------------------------------
| |
| | -----------------------------------------------
| |--| Niloda Limited |
| | 100% - England/Wales - Investment Company |
| -----------------------------------------------
|
| ----------------------------------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| ----------------------------------------------------
|
| ------------------------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| |
| | -----------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| -----------------------------------------------------------
|
| ------------------------------------------------------------
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
| ------------------------------------------------------------
|
| ---------------------------------------------
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
---------------------------------------------
Footnotes:
- ----------
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
10
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport, LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln National Sales Corporation of Maryland (Baltimore, MD)
(formerly: Morgan Financial Group, Inc.)
12) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
13) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
13a) Financial Consultants of Michigan, Inc. (Troy, MI)
14) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
15) Beardslee & Associates, Inc. (Clifton, NJ)
16) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.)
(Albuquerque, NM)
17) Lincoln Cascades, Inc. (Portland, OR)
18) Lincoln Financial Services, Inc. (Pittsburgh, PA)
19) Lincoln National Financial Group of Philadelphia, Inc. (Philadelphia, PA)
20) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
11
<PAGE>
Exhibit 14(b)
BOOKS AND RECORDS
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having
Transactions with Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's reports
relating thereto.
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
<S> <C> <C> <C>
Annual Reports Controllers Eric Jones Permanently, the first two
To Shareholders years in an easily
accessible place
Semi-Annual Controllers Eric Jones Permanently, the first two
Reports years in an easily
accessible place
Form N-SAR Controllers Eric Jones Permanently, the first two
years in an easily
accessible place
</TABLE>
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
<TABLE>
<CAPTION>
Purchases and Sales Journals
- ----------------------------
<S> <C> <C> <C>
Daily reports Product Nancy Alford Permanently, the first two
of securities Admin. years in an easily
transactions accessible place
</TABLE>
<PAGE>
Portfolio Securities
- --------------------
Not Applicable.
<PAGE>
<TABLE>
<CAPTION>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Receipts and Deliveries of Securities (units)
- ---------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
Not Applicable.
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
<S> <C> <C> <C>
Daily Journals Product Nancy Alford Permanently, the first two
Admin. years in an easily
accessible place
</TABLE>
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the
following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a
record of the collateral therefore and substitutions in
such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
General Ledger
- --------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LNL trial Controllers Eric Jones Permanently, the first two
Balance (5000 years in an easily
series) accessible place
</TABLE>
Securities in Transfer
- ----------------------
Not Applicable.
Securities in Physical Possession
- ---------------------------------
Not Applicable.
Securities Borrowed and Loaned
- ------------------------------
Not Applicable.
Monies Borrowed and Loaned
- --------------------------
<PAGE>
Not Applicable.
Dividends and Interest Received
- -------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LNL Trial Controllers Eric Jones Permanently, the first two
Balance (5000 years in an easily
series) accessible place
</TABLE>
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Dividends Receivable and Interest Accrued
- -----------------------------------------
LNL Trial Controllers Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
Ledger Account for each portfolio Security
- ------------------------------------------
Daily Report Not Permanently, the first two years
of Securities Applicable in an easily accessible place
transactions
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Not Applicable.
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held.
in respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
Shareholder Accounts
- --------------------
Master file Controllers Eric Jones Permanently, the first two
Record years in an easily accessible
place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
<PAGE>
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Securities Position Record
- --------------------------
Maintained by State Street Mutual Funds Div. Permanently, the fist two
Custodian of Bank & Trust years in an easily accessible
Securities place
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
Corporate Documents
- -------------------
Not Applicable.
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
Order Tickets
- -------------
UIT applica- Not Six years, the first two
tions and Applicable years in an easily accessible
daily reports place
of securities
transactions
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
Commercial Paper
- ----------------
Not Applicable.
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
Not Applicable.
<PAGE>
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Trial Balance
- -------------
LNL Trial Controllers Eric Jones Permanently, the first two
Balance (5000 years in an easily accessible
series) place
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Not Applicable.
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Advisory Law Division John Steinkamp Six years, the first two
Agreements years in an easily accessible
place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
<PAGE>
Correspondence Product Nancy Alford Six years, the first two
Admin. years in an easily accessible
place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Proxy State- Product Nancy Alford Six years, the first two
ments and Admin. years in an easily accessible
Proxy Cards place
Pricing Sheets Controllers Eric Jones Permanently, the first two
years in an easily accessible
place
Bank State- Treasurers Rusty Summers
ments
December 3, 1996
