<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000
Registration No. 333-63505
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24 /X/
LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H
(EXACT NAME OF REGISTRANT)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1300 South Clinton Street, P.O. Box 1110, Fort Wayne, Indiana 46801
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE
(219)455-2000
ELIZABETH A. FREDERICK, ESQ.
The Lincoln National
Life Insurance Company
1300 S. Clinton Street
Post Office Box 1110
Fort Wayne, Indiana 46802
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(Name and Address of Agent for Service)
COPY TO:
Kimberly J. Smith
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Ave., N.W.
Washington, DC 20004
Title of securities being registered:
Interests in a separate account under individual flexible premium deferred
variable annuity contracts.
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 1, 2000, pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a) (1) of Rule 485
[ ] on pursuant to paragraph (a) (1) of Rule 485
<PAGE>
American Legacy Shareholder's Advantage
Lincoln National Variable Annuity Account H
Individual variable annuity contract
Home Office:
Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
www.lincolnlife.com
This prospectus describes the individual flexible premium deferred variable
annuity contract that is issued by Lincoln National Life Insurance Company
(Lincoln Life). It is primarily for use with nonqualified plans and retirement
plans under Section 408 (IRAs) of the tax code. Non-ERISA 403(b) business will
only be accepted for purchase payments that are either lump sum or rollovers.
Generally, you do not pay federal income tax on the contract's growth until it
is paid out. The contract is designed to accumulate contract value and to
provide retirement income that you cannot outlive or for an agreed upon time.
These benefits may be a variable or fixed amount or a combination of both. If
you die before the annuity commencement date, we will pay your beneficiary a
death benefit. In the alternative, you may choose to receive a death benefit on
the death of the annuitant.
The minimum initial gross purchase payment for the contract is:
1. $1,500 for a nonqualified plan; and
2. $300 for a qualified plan.
Additional gross purchase payments may be made to the contract and must be at
least $100 ($25 if transmitted electronically), and at least $300 annually.
You choose whether your contract value accumulates on a variable or fixed
(guaranteed) basis or both. If you put all your net purchase payments into the
fixed account, we guarantee your principal and a minimum interest rate. We
limit withdrawals and transfers from the fixed side of the contract.
All net 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. If you put all or
some of your net purchase payments into one or more of the contract's variable
options, you take all of the investment risk on the contract value and the
retirement income. If the subaccounts you select make money, your contract
value goes up; if they lose money, your contract value goes down. How much it
goes up or down depends on the performance of the subaccounts you select. We do
not guarantee how any of the variable options or their funds will perform.
Also, neither the U.S. Government nor any federal agency insures or guarantees
your investment in the contract.
The available funds, listed below, are each part of American Funds Insurance
Series (series) Class 2 Shares, also known as American Variable Insurance
Series:
Global Growth
Global Small Capitalization
Growth
International
New World
Growth-Income
Asset Allocation
Bond
High-Yield Bond
U.S. Government/AAA-Rated Securities
Cash Management
Net Purchase payments can be placed in the Dollar Cost Averaging (DCA) fixed
account. The DCA Fixed account is part of the general account. This Prospectus
deals only with those elements of the contracts relating to the VAA, except
where reference to the DCA fixed account is made.
This Prospectus gives you information about the contract that you should know
before you decide to buy a contract and make gross purchase payments. You
should also review the prospectuses for the funds that are attached, and keep
both prospectuses for future reference.
Neither the SEC nor any state securities commission has approved this contract
or determined that this prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
You can obtain a Statement of Additional Information (SAI), dated the same date
as this prospectus, about the contracts that has more information. Its terms
are made part of this Prospectus. For a free copy, write: Lincoln National Life
Insurance Company, P.O. Box 2348, Fort Wayne, Indiana 46801, or call
1-800-942-5500. The SAI and other information about Lincoln Life and Account H
are also available on the SEC's web site (http:\\www.sec.gov). There is a table
of contents for the SAI on the last page of this Prospectus.
April 1, 2000
1
<PAGE>
Table of contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Special terms.............................................................. 2
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Expense tables............................................................. 3
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Summary.................................................................... 5
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Investment results......................................................... 7
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Financial statements....................................................... 7
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Lincoln National Life Insurance Co......................................... 7
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DCA fixed account.......................................................... 7
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Variable annuity account (VAA)............................................. 7
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Investments of the variable annuity account................................ 8
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Charges and other deductions............................................... 10
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The contracts.............................................................. 11
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Annuity payouts........................................................... 15
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Federal tax matters....................................................... 16
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Voting rights............................................................. 20
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Distribution of the contracts............................................. 20
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Return privilege.......................................................... 20
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State regulation.......................................................... 20
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Restrictions under the Texas Optional Retirement Program.................. 21
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Records and reports....................................................... 21
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Other information......................................................... 21
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Statement of additional information table of contents for Variable Annuity
Account H American Legacy Shareholder's Advantage........................ 22
</TABLE>
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Special terms
(We have italicized the terms that have special meaning throughout the
Prospectus).
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 side of the 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.
Annuitant--The person on whose life the annuity benefit payments are based and
upon whose death a death benefit may be paid.
Annuity commencement date--The valuation date when funds are withdrawn or
converted into annuity units or fixed dollar payout for payment of retirement
income benefits under the annuity payout option you select.
Annuity payout--An amount paid at regular intervals after the annuity
commencement date under one of several options available to the annuitant
and/or any other payee. This amount maybe 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.
Beneficiary--The person you choose to receive the death benefit that is paid if
you die before the annuity commencement date.
Contractowner (you, your, owner)--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 the annuitant.
Contract value --At a given time before the annuity commencement date, the
total value of all accumulation units for a contract plus the value of the DCA
fixed side of the contract.
DCA fixed account--An account established to accept purchase payments or
transfers of contract value, that may only be used for dollar cost averaging
purposes. The DCA fixed account is part of the general account of Lincoln Life.
Contract year--Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Death benefit (EGMDB)--The amount payable to your designated beneficiary if the
owner dies before the annuity commencement date or, if selected, to the owner
if the annuitant dies. An enhanced guaranteed minimum death benefit is also
available.
Gross purchase payments--Amounts paid into the contract before deduction of the
sales charge.
Lincoln Life (we, us, our)--The Lincoln National Life Insurance Company.
Net purchase payments--The gross purchase payment amount less the sales charge.
The net purchase payment is the amount placed in the DCA fixed account and/or
the variable account.
Series--American Funds Insurance Series (series), the funds to which you direct
purchase payments.
Subaccount or American Legacy Shareholder's Advantage subaccount--The portion
of the VAA that reflects investments in accumulation and annuity units of a
class of a particular fund available under the contracts. There is a separate
subaccount which corresponds to each class of a fund.
Valuation date--Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation period--The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (valuation
date) and ending at the close of such trading on the next valuation date.
2
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Expense tables
Summary of Contractowner expenses:
The maximum sales charge, as a percentage of purchase payments: 5.75%
The sales charge percentage decreases as the value accumulated under certain of
the owner's investment increases. (See Charges and other deductions).
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Account H annual expenses for American Legacy Shareholder's Advantage
subaccounts:*
(as a percentage of average account value)
<TABLE>
<CAPTION>
With Enhanced Without Enhanced
Death Benefit Death Benefit
<S> <C> <C>
Mortality and expense risk charge 0.62% 0.50%
Administrative charge .10% .10%
----- -----
Total annual charge for each American Legacy
Shareholder's Advantage subaccounts 0.72% 0.60%
</TABLE>
Annual expenses of the funds for the year ended December 31, 1999:
(as a percentage of average account value):
<TABLE>
<CAPTION>
Management 12b-1 Other Total
fees + fees + expenses = expenses
<S> <C> <C> <C> <C> <C> <C> <C>
1. Global Growth .68% .25% .03% .96%
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2. Global Small Capitalization .78 .25 .03 1.06
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3. Growth .38 .25 .01 .64
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4. International .55 .25 .05 .85
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5. New World** .89 .25 .06 1.20
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6. Growth-Income .34 .25 .01 .60
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7. Asset Allocation .43 .25 .01 .69
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8. Bond .51 .25 .02 .78
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9. High-Yield Bond .50 .25 .01 .76
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10. U.S. Govt./AAA Rated
Securities .51 .25 .01 .77
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11. Cash Management .44 .25 .01 .70
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</TABLE>
*The VAA is divided into separately-named subaccounts, eleven of which are
available under the contracts. Each subaccount, in turn, invests net purchase
payments in shares of a class of its respective fund.
**These expenses are annualized. The fund began operations on June 17, 1999.
3
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Examples
(expenses of the subaccounts and of the funds and the maximum sales charge):
If you surrender your contract at the end of the time period shown, 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. Global Growth $74 $107 $144 $245
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2. Global Small Capitalization 75 110 148 255
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3. Growth 71 98 128 212
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4. International 73 104 138 233
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5. New World 76 114 155 269
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6. Growth-Income 70 97 126 207
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7. Asset Allocation 71 100 130 217
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8. Bond 72 102 135 226
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9. High-Yield Bond 72 102 134 224
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10. U.S. Govt./AAA Rated Securities 72 102 134 226
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11. Cash Management 71 100 131 218
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</TABLE>
We provide these examples to help you understand the direct and indirect costs
and expenses of the contract. The examples also assume that an enhanced death
benefit is in effect. Without this benefit, the expenses would be lower.
For more information, see Charges and other deductions in this Prospectus, and
in the Prospectus for the funds. Premium taxes may also apply, although they do
not appear in the examples. These examples should not be considered a
representation of past or future expenses. Actual expenses may be more or less
than those shown.
4
<PAGE>
Summary
What kind of contract am I buying? It is an individual annuity contract between
you and Lincoln Life. It may provide for a fixed annuity and/or variable
annuity. This Prospectus describes the variable side of the contract. See The
contracts.
What is the variable annuity account (VAA)? It is a separate account we
established under Indiana insurance law, and registered with the SEC as a unit
investment trust. VAA assets are allocated to one or more subaccounts,
according to your investment choices. VAA 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? Based upon your instruction, the VAA applies
net purchase payments to buy series shares in one or more of the investment
funds of the series: Global Growth Fund, Global Small Capitalization, Growth,
International, New World, Growth-Income, Asset Allocation, Bond, High-Yield
Bond, U.S. Government/AAA-Rated Securities and Cash Management. In turn, each
fund holds a portfolio of securities consistent with its 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 Capital Research
and Management Company (CRMC), Los Angeles, California. CRMC is registered as
an investment advisor with the SEC. See Investments of the variable annuity and
Investment advisor.
How does the contract work? If we approve your application, we will send you a
contract. When you make net purchase payments during the accumulation phase,
you buy accumulation units. If you decide to receive retirement income
payments, your accumulation units are converted to annuity units. Your
retirement income payments will be based on the number of annuity units you
received and the value of each annuity unit on payout days. See The contracts.
What charges do I pay under the contract? A front-end load is determined based
on each gross purchase payment as it is received. The amount of the sales
charge on any current gross purchase payment may be reduced based on the assets
accumulated under the terms of the contract. The maximum front-end load is
5.75% of the gross purchase payment.
We will deduct any applicable premium tax from gross purchase payments or
contract value at the time the tax is incurred or at another time we choose.
We apply an annual charge totaling 0.72% to the daily net asset value of the
VAA. This charge includes 0.10% as an administrative charge and 0.62% as a
mortality and expense risk charge. If the enhanced death benefit is not in
effect, the mortality and expense charge is 0.50%, for an annual charge
totaling 0.60%. See Charges and other deductions.
This series pays a management fee to CRMC based on the average daily net asset
value of each fund. See Investments of the variable annuity account-Investment
advisor. Each fund also has a 12b-1 fee and additional operating expenses.
These are described in the Prospectus for the series.
What purchase payments do I make, and how often? Subject to minimum and maximum
gross purchase payment amounts, your payments are completely flexible. See The
contracts--Purchase payments.
How will my annuity payouts be calculated? If you decide to annuitize, you may
select an annuity option and start receiving retirement income payments from
your contract as a fixed option or variable option or a combination of both.
See Annuity Options. Remember that participants in the VAA benefit from any
gain, and take a risk of any loss, in the value of the securities in the funds'
portfolios.
What happens if I die before I annuitize? If the enhanced death benefit is in
effect, your beneficiary will receive the greater of the guaranteed minimum
death benefit or the contract value. Your beneficiary has options as to how the
death benefit is paid or you may choose an option for your beneficiary. See
Death benefit before the annuity commencement date.
May I transfer contract value between variable options and between the fixed
side of the contract? Yes, with certain limits. See The contracts-- Transfers
on or before the annuity commencement date; and Transfers after the annuity
commencement date.
May I surrender the contract or make a withdrawal? Yes, subject to contract
requirements and to the restrictions of any qualified retirement plan for which
the contract was purchased. See Surrenders and withdrawals.
In addition, if you decide to take a distribution before age 59 1/2, a 10%
Internal Revenue Service (IRS) tax penalty may apply. A surrender or a
withdrawal also may be subject to 20% withholding. See Federal tax status and
withholding.
Do I get a free look at this contract? Yes. You can cancel the contract within
ten days (in some states longer) of the date you first receive the contract.
You need to return the contract, postage prepaid, to our home office. In most
states you assume the risk of any market drop on net purchase payments you
allocate to the variable side of the contract. See Return privilege.
5
<PAGE>
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 the American Legacy Shareholder's Advantage subaccounts
for the year ended December 31, 1999 comes from the VAA's financial statements.
It should be read along with the VAA's financial statements and notes which are
all included in the SAI.
<TABLE>
<CAPTION>
1999*
With EGMDB Without EGMDB
<S> <C> <C>
Global Growth Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.400 1.400
End of period number of units (000's ommitted) 647 198
Global Smallcap Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.304 1.304
End of period number of units (000's ommitted) 308 360
Growth Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.312 1.313
End of period number of units (000's ommitted) 1,624 1,188
International Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.407 1.408
End of period number of units (000's ommitted) 474 593
New World Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.238 1.238
End of period number of units (000's ommitted) 256 59
Growth-Income Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.092 1.092
End of period number of units (000's ommitted) 1,919 732
Asset Allocation Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.069 1.069
End of period number of units (000's ommitted) 442 486
Bond Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.020 1.020
End of period number of units (000's ommitted) 55 376
High-Yield Bond Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.046 1.047
End of period number of units (000's ommitted) 234 441
U.S. Government/AAA-Rated Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.003 1.003
End of period number of units (000's ommitted) 2 2
Cash Management Subaccount
Beginning of period unit value $1.000 1.000
End of period unit value $1.009 1.009
End of period number of units (000's ommitted) 120 9
</TABLE>
*The VAA began operations on August 1, 1989. However, the subaccounts did not
begin operations until October 15, 1999, so the figures for 1999 represent
experience of less than one year.
6
<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. Total returns include the reinvestment of all
distributions, which are reflected in changes in unit value. Results will be
calculated without sales charges. These results will be higher. See the SAI for
further information.
Financial statements
The financial statements of the VAA and the statutory-basis financial
statements of Lincoln Life are located in the SAI. If you would like a free
copy of the SAI, complete and mail the enclosed card, or call 1-800-942-5500.
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 Financial Group (LFG) which is also organized under Indiana
law. LFG's primary businesses are insurance and financial services.
DCA fixed account
Net purchase payments allocated to the DCA fixed side of the contract become
part of Lincoln Life's general account, and do not participate in the
investment experience of the VAA. The general account is subject to regulation
and supervision by the Indiana Insurance Department as well as the insurance
laws and regulations of the jurisdictions in which the contracts are
distributed.
In reliance on certain exemptions, exclusions and rules, Lincoln Life has not
registered interests in the general account as a security under the Securities
Act of 1933 and has not registered the general account as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests in it are regulated under the 1933 Act or the 1940
Act. Lincoln Life has been advised that the staff of the SEC has not made a
review of the disclosures which are included in this Prospectus which relate to
our general account and to the DCA fixed account under the contract. These
disclosures, however, may be subject to certain provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
Prospectuses. This Prospectus is generally intended to serve as a disclosure
document only for aspects of the contract involving the VAA, and therefore
contains only selected information regarding the DCA fixed side of the
contract. Complete details regarding the DCA fixed side of the contract are in
the contract.
Net purchase payments allocated to the DCA fixed side of the contract are
guaranteed to be credited with a minimum interest rate, specified in the
contract, or at least 3.0%. A net purchase payment allocated to the fixed side
of the contract is credited with interest beginning on the next calendar day
following the date of receipt if all data is complete. Lincoln Life may vary
the way in which it credits interest to the fixed side of the contract from
time to time.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN ADVANCE AT LINCOLN LIFE'S
SOLE DISCRETION, CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF
3.0% WILL BE DECLARED.
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 definition of a
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.
The VAA is used to support other annuity contracts offered by Lincoln Life in
addition to the contracts described in this prospectus. The other annuity
contracts supported by the VAA invest in the same portfolios of the series as
the contracts described in this Prospectus. These other annuity contracts may
have different charges that could affect the performance of the subaccount.
7
<PAGE>
Investments of the variable annuity account
You decide the subaccount(s) to which you allocate net purchase payments. There
is a separate subaccount which corresponds to each class of each fund of the
series. 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 Capital Research and Management
Company (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.
With respect to the series, the advisor and/or distributor, or an affiliate
thereof, may compensate Lincoln Life (or an affiliate) for administrative,
distribution, or other services. It is anticipated that such compensation will
be based on assets of the particular Series attributable to the contracts along
with certain other variable contracts issued or administered by Lincoln Life
(or an affiliate).
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 fund 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 eleven separate portfolios of funds. Fund assets
are segregated and a shareholder's interest is limited to those funds in which
the shareholder owns shares. The series has adopted a plan pursuant to Rule
18f-3 under the 1940 Act to permit the series to establish a multiple class
distribution system for all of its portfolios. The series Board of Trustees may
at any time establish additional funds or classes, which may not be available
to the VAA.
Under the multi-class system adopted by the series, shares of each multi-class
fund represent an equal pro rata interest in that fund and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except
that: (1) each class has a different designation; (2) each class of shares
bears its class expenses; (3) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement; and (4) each class has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class. Expenses currently designated as class expenses
by the series' Board of Trustees under the plan pursuant to Rule 18f-3 include,
for example, service fees paid under a 12b-1 plan to cover servicing fees paid
to dealers selling the contracts as well as related expenses incurred by
Lincoln Life.
Each fund has two classes of shares, designated as Class 1 shares and Class 2
shares. Class 1 and 2 differ primarily in that Class 2 (but not Class 1) shares
are subject to a 12b-1 plan. Only Class 2 shares are available under the
contracts.
Certain funds offered as part of this contract have similar investment
objectives and policies to other portfolios, other than funds, that are advised
by the advisor. The investment results of the funds, however, may be higher or
lower than the other portfolios that are managed by the advisor. There can be
no assurance, and no representation is made, that the investment results of any
of the funds will be comparable to the investment results of any other
portfolio managed by the advisor.
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. Global Growth Fund--The fund seeks to make your investment grow over time by
investing primarily in common stocks of companies located around the world.
The fund is designed for investors seeking capital appreciation through
stocks. Investors in the fund should have a long-term perspective and be
able to tolerate potentially wide price fluctuations.
2. Global Small Capitalization Fund--The fund seeks to make your investment
grow over time by investing primarily in stocks of smaller companies located
around the world that typically have market capitalizations of $50 million
to $1.5 billion. The fund is designed for investors seeking capital appreci-
ation through stocks. Investors in the fund should have a long-term perspec-
tive and be able to tolerate potentially wide price fluctuations.
8
<PAGE>
3. Growth Fund--The fund seeks to make your investment grow by investing pri-
marily in common stocks of companies that appear to offer superior opportu-
nities for growth of capital. The fund is designed for investors seeking
capital appreciation through stocks. Investors in the fund should have a
long-term perspective and be able to tolerate potentially wide price fluctu-
ations.
4. International Fund--The fund seeks to make your investment grow over time by
investing primarily in common stocks of companies located outside the United
States. The fund is designed for investors seeking capital appreciation
through stocks. Investors in the fund should have a long-term perspective
and be able to tolerate potentially wide price fluctuations.
5. New World Fund--The fund seeks to make your investment grow over time by in-
vesting primarily in stocks of companies with significant exposure to coun-
tries which have developing economies and/or markets. The fund may also in-
vest in debt securities of issuers, including issuers of high-yield, high-
risk bonds, in these countries.
6. Growth-Income Fund--The fund seeks to make your investment grow and provide
you with income over time by investing primarily in common stocks or other
securities which demonstrate the potential for appreciation and/or divi-
dends. The fund is designed for investors seeking both capital appreciation
and income.
7. Asset Allocation Fund--The fund seeks to provide you with high total return
(including income and capital gains) consistent with preservation of capital
over the long-term by investing in a diversified portfolio of common stocks
and other equity securities, bonds and other intermediate and long-term debt
securities, and money market instruments (debt securities maturing in one
year or less).
8. Bond Fund--The fund seeks to maximize your level of current income and pre-
serve your capital by investing primarily in bonds. The fund is designed for
investors seeking income and more price stability than stocks, and capital
preservation over the long-term.
9. High-Yield Bond Fund--The fund seeks to provide you with a high level of
current income and secondarily capital appreciation by investing primarily
in lower quality debt securities (rated Ba or BB or below by Moody's Invest-
ors Services, Inc. or Standard & Poor's Corporation), including those of
non-U.S. issuers. The fund may also invest in equity securities that provide
an opportunity for capital appreciation.
10. U.S. Government/AAA-Rated Securities Fund--The fund seeks to provide you
with a high level of current income, as well as preserve your investment.
The fund invests primarily in securities that are guaranteed by the "full
faith and credit" pledge of the U.S. Government and securities that are
rated AAA or Aaa by Moody's Investor's Services, Inc. or Standard & Poor's
Corporation or unrated but determined to be of equivalent quality.
11. Cash Management Fund--The fund seeks to provide you an opportunity to earn
income on your cash reserves while preserving the value of your investment
and maintaining liquidity by investing in a diversified selection of high
quality money market instruments.
Sale of fund shares
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 of dividends and capital gain distributions
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 in
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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). We cannot substitute shares of one fund for another without the
approval by the SEC. We will also notify you.
Charges and other deductions
We will deduct the charges described below to cover our costs and expenses,
services provided and risks assumed under the contracts. We incur certain
costs and expenses for the distribution and administration of the contracts
and for providing the benefits payable thereunder. More particularly, our
administrative services include: processing applications for and issuing the
contracts, processing purchases and redemptions of fund shares as required
(including dollar cost averaging, cross-reinvestment, portfolio rebalancing
and 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. The
risks we assume include: the risk that annuitants receiving annuity payouts
under contract live longer than we assumed when we calculated our guaranteed
rates (these rates are incorporated in the contract and cannot be changed);
the risk that death benefits paid under the EGMDB will exceed the actual
contract value; and the risk that our costs in providing the services will
exceed our revenues from the contract charges (which we cannot change). The
amount of a charge may not necessarily correspond to the costs associated with
providing the services or benefits indicated by the description of the charge.
For example, the sales charge collected may not fully cover all of the sales
and distribution expenses actually incurred by us.
Deductions from the VAA for American Legacy Shareholder's Advantage
We deduct from the VAA an amount, computed daily, which is equal to an annual
rate of 0.72% (0.60% for contracts without the EGMDB) of the daily net asset
value. The charge consists of a 0.10% administrative charge and a 0.62% (0.50%
for contract without the EGMDB) mortality and expense risk charge.
Sales charge
A front-end load, or sales charge, will be applied to all initial and
subsequent gross purchase payments that you may make. The charge is a
percentage of each gross purchase payment and is based on the owner's
investment at the time each gross purchase payment is made according to the
following scale:
<TABLE>
<CAPTION>
Sales
Owner's investment charge
- --------------------------------------------------------------------------------
<S> <C>
Under $25,000............................................................ 5.75%
$ 25,000-$ 50,000...................................................... 5.00%
$ 50,000-$ 99,999...................................................... 4.50%
$ 100,000-$249,999...................................................... 3.50%
$ 250,000-$499,999...................................................... 2.50%
$ 500,000-$749,999...................................................... 2.00%
$ 750,000-$999,999...................................................... 1.50%
$1,000,000 or greater.................................................... 1.00%
</TABLE>
The owner's investment is defined as the sum of:
a. the account values for any of the following individual Lincoln Life
contracts owned by an eligible owner (defined below) marketed under the
names of: The American Legacy Variable Annuity, American Legacy II Variable
Annuity, American Legacy III Variable Annuity, or American Legacy
Shareholder's Advantage Variable Annuity; plus
b. the amount (in dollars) of an eligible owner's investment in existing
mutual funds in The American Funds Group in accordance with the procedures
established by the American Funds Group; plus
c. the amount of the current gross purchase payment you are making into this
contract.
Note: For contracts issued in Texas, the owner's investment is defined as
the account value for this contract plus the amount of the current gross
purchase payment you are making into this contact. Therefore, in Texas, no
contract value from other annuity contracts or amounts from mutual funds
owned by the owner or any other eligible owner, will be included in
calculating this sales charge.
The American Funds Group will determine which of the mutual funds are included
in this program. Currently, direct purchases of money market funds are
excluded.
In determining the account values for the Lincoln Life annuity contracts, the
variable account values are valued as of the close of market on the last
previous day the market was open and are adjusted for current day
transactions. The fixed accounts will include interest accrued through the
close of market on the last previous day the market was open.
An eligible owner includes you as the owner of your American Legacy
Shareholder's Advantage contract, and, if you provide us with sufficient
identifying information (name and Social Security Number), eligible owner will
also include your spouse, and any of your children under the age of 21. If the
owner of any contract under (a) above is a non-natural owner and if you, your
spouse, or any children of yours under the age of 21 are the named annuitant,
then you may
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include these account values in the calculation of the owner's investment for
the contracts issued in one of the following IRS defined markets: Roth IRA,
traditional IRA, non-qualified, SEP and 403(b) transfers. The non-natural owner
will include the account values from contracts in all other markets in its
calculation of owner's investment.
No sales charge will be applied on contracts 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
and their spouses and minor children, of LNC or The Capital Group, Inc. or
their affiliated or managed companies (based upon the contractowner's status at
the time the contract was purchased).
No sales charge will be applied on contracts issued in connection with a fee-
based account where the contractowner is charged a fee outside of this
contract.
Deductions for premium taxes
Any premium tax or other tax levied by any government entity as a result of the
existence of the contracts of 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
administration interpretation or by judicial action. These premium taxes
generally depend upon the law of your state of residence. The tax ranges from
zero to 5.0%.
Other charges and deductions
There are deductions from and expenses paid out of the assets of the underlying
series that are more fully described in the Prospectus for the series. Among
these deductions and expenses are 12b-1 fees which reimburse Lincoln Life for
certain expenses incurred in connection with certain administrative and
distribution support service provided to the series.
Additional information
The administrative and 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 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.
When a completed application and all other information necessary for processing
a purchase order is received, an initial gross 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 gross 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 gross purchase payment will be returned immediately. Once the
application is complete, the initial gross 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
contractowner, joint owner and annuitant must be less than age 90 (or less than
age 83 for IRA's in Pennsylvania).
Purchase Payments
Gross purchase payments are payable to us at a frequency and in an amount
selected by you in the application. The minimum initial gross purchase payment
is $1,500 for nonqualified contracts and Section 403(b) transfers/rollovers;
and $300 for qualified contracts. The minimum annual amount for additional
gross purchase payments for nonqualified and qualified contracts is $300. The
minimum payment to the contract at any one time must be at least $100 ($25 if
transmitted electronically). Gross purchase payments in total may not exceed
$2,000,000 for an owner or $1,000,000 for each joint owner. If you stop making
gross purchase payments, the contract will remain in force as a paid-up
contract. However, we may terminate the contract as allowed by your state's
non-forfeiture law for individual deferred annuities. Payments may be made or,
if stopped, resumed at any time until the
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annuity commencement date, the surrender of the contract, maturity date or the
payment of any death benefit, whichever comes first.
Valuation date
Accumulation and annuity units will be valued once daily at the close of
trading (currently, normally, 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
Net 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. You may also allocate net purchase payments into the DCA fixed
account.
The minimum amount of any net purchase payment that can be put into any one
subaccount is $20. Upon allocation to a subaccount, net 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
gross purchase payment is received at our home office if received before 4:00
p.m., New York time. If the gross purchase payment is received at or after 4:00
p.m., New York time, we will use the accumulation unit value computed on the
next valuation date. The number of accumulation units determined in this way is
not 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 underlying fund's investment perform, but also upon the
expenses of the VAA and the underlying funds.
Valuation of accumulation units
Net purchase payments allocated to the VAA are converted into accumulation
units. This is done by dividing each net purchase payment by the value of an
accumulation unit for the valuation period during which the net purchase
payment is allocated to the VAA. The accumulation unit value for each
subaccount was or will be established at the inception of the subaccount. It
may increase or decrease from valuation period to valuation period. The
accumulation unit value for a subaccount for a later valuation period is
determined as follows:
(1) The total value of the fund shares held in the subaccount is calculated by
multiplying the number of fund shares owned by the subaccount at the
beginning of the valuation period by the net asset value per share of the
fund at the end of the valuation period, and adding any dividend or other
distribution of the fund if an ex-dividend date occurs during the valuation
period; minus
(2) The liabilities of the subaccount at the end of the valuation period; these
liabilities include daily charges imposed on the subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine result from the operations of the VAA; and
(3) The result of (2) is divided by the number of subaccount units outstanding
at the beginning of the valuation period.
The daily charges imposed on a subaccount for any valuation period are equal to
the daily mortality and expense risk charge and the daily administrative charge
multiplied by the number of calendar days in the valuation period. Because a
different daily charge is made for contracts with the EGMDB than for those
without, each of the two types of contracts will have different corresponding
accumulation unit values on any given day.
Transfers on or before the annuity commencement date
You may transfer all or a portion of your investment from one subaccount to
another. A transfer involves the surrender of accumulation units in one
subaccount or the withdrawal of money from the DCA fixed account and the
purchase of accumulation units in the other subaccount or the application of
proceeds to the DCA fixed account. A transfer will be done using the respective
accumulation unit values determined at the end of the valuation date on which
the transfer request is received. Currently, there is no charge for a transfer.
However, we reserve the right to impose a charge in the future for transfers.
Transfers between subaccounts are restricted to six times every contract year.
We reserve the right to waive this six-time limit. This limit does not apply to
transfers made under a dollar cost averaging, portfolio rebalancing or cross
re-investment program elected on forms available from us. (The SAI contains
more information about these programs.) The minimum amount that 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 entire balance
of the subaccount.
A transfer may be made in 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 or by the Lincoln Life Internet site. In order to prevent
unauthorized or fraudulent telephone transfers, we may require the caller to
provide certain identifying information before we will act upon their
instructions. We may also assign the contractowner a Personal Identification
Number (PIN) to serve as identification. We will not be liable for following
telephone instructions we reasonably believe are genuine. Telephone requests
may be recorded and
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<PAGE>
written confirmation of all transfer requests will be mailed to the
contractowner on the next valuation date. Telephone transfers will be processed
on the valuation date that they are received when they are received at our
customer service center before 4 p.m. New York time.
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 after the annuity commencement date
You may transfer all or a portion of your investment in one subaccount to
another subaccount in the VAA or to the fixed side of the contract. Those
transfers will be limited to three times per contract year. Currently, there is
no charge for those transfers. However, we reserve the right to impose a
charge. No transfers are allowed from the fixed side of the account to the
subaccounts.
Death benefit before the annuity commencement date
You may designate a beneficiary during your lifetime 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.
Upon the death of the contractowner, a death benefit will be paid to the
beneficiary. Upon the death of a joint owner, the death benefit will be paid to
the surviving joint owner. Upon the death of an annuitant who is not the
contractowner or joint owner, a death benefit may be paid to the contractowner
(and joint owner, if applicable, in equal shares). If the contractowner is a
corporation or other non-individual (non-natural person), the death of the
annuitant will be treated as death of the contractowner. Death benefits are
taxable. See Federal tax matters.
If the death occurs before the annuity commencement date and the enhanced
guaranteed minimum death benefit (EGMDB) is in effect, the death benefit paid
will be the greater of: (1) the 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 (including the amount of
the initial gross purchase payment on the inception date) on ages up to, and
including, the deceased's age 80. The highest contract value is increased by
gross purchase payments and is decreased by partial withdrawals, partial
annuitizations, and any premium taxes made, effected or incurred subsequent to
the anniversary date on which the highest contract value is obtained. If the
EGMDB is not in effect, the death benefit will be equal to the greater of
contract value or the guaranteed minimum death benefit (GMDB). The GMDB is
equal to the sum of all gross purchase payments minus any withdrawals, partial
annuitizations or premium taxes incurred.
If there are joint owners, upon the death of the first contractowner, Lincoln
Life will pay a death benefit to the surviving joint owner. The surviving joint
owner will be treated as the primary, designated beneficiary. Any other
beneficiary designation on record at the time of death will be treated as a
contingent beneficiary. If the surviving joint owner is the spouse of the
deceased joint owner he/she may continue the contract as a sole contractowner.
Upon the death of the spouse who continues the contract, Lincoln Life will pay
a death benefit to the designated beneficiary(s).
If the beneficiary is the spouse of the contractowner, then the spouse may
elect to continue the contract as contractowner.
Upon the death of a contractowner, joint owner or annuitant, if the surviving
spouse continues the contract, any portion of the death benefit that would have
been payable (if the contract had not been continued) that exceeds the current
contract value will be credited to the contract. This provision applies only
one time for each contract.
If an annuitant who is not the contractowner or a joint owner dies, then the
contingent annuitant, if named,
becomes the annuitant and no death benefit is payable on the death of the
annuitant. If no contingent annuitant is named, the contractowner (or younger
of joint owners) becomes the annuitant. Alternatively, a death benefit may be
paid to the contractowner (and joint owner, if applicable, in equal shares) if
the annuitant named on this contract has not been changed, except on death of a
prior annuitant. Notification of the election of this death benefit must be
received by Lincoln Life within 75 days of the death of the annuitant. If no
contractowner is living on the date of death of the annuitant, the death
benefit will be available to the beneficiary. The contract terminates when any
death benefit is paid due to the death of the annuitant. A death benefit
payable on the death of the annuitant will not be paid if the annuitant has
been changed subsequent to the effective date of this contract unless the
change occurred because of the death of a prior annuitant.
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 (e.g. an original certified death certificate), or any other proof of
death satisfactory to us, of the death; (2) written authorization for payment;
and (3) our receipt of all required claim forms, fully completed. If the
beneficiary is a minor, court documents appointing the guardian/custodian must
be submitted.
When applying for a contract, an applicant can request a contract without the
EGMDB. The EGMDB is not
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available under contracts used for qualified plans (other than IRAs) or
contracts issued to a contractowner, joint owner or annuitant who is age 80 or
older at the time of issue.
After a contract is issued, the contractowner may discontinue the EGMDB at any
time by completing the Enhanced Guaranteed Minimum Death Benefit Discontinuance
form and sending it to Lincoln Life. The benefit will be discontinued as of the
valuation date we receive the request, and we will stop deducting the charge
for the benefit as of that date. See Charges and other deductions. If you
discontinue the benefit, it cannot be reinstated.
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 contractowner, that beneficiary's
interest will go to any other beneficiaries named, according to their
respective interest; and/or
(2) If no beneficiary survives the contractowner, the proceeds will be paid to
the contractowner's estate.
Unless the contractowner has already selected a settlement option, the
beneficiary may choose the method of payment of the death benefit. The death
benefit payable to the beneficiary or joint owner must be distributed within
five years of the contractowner's date of death 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 designated period not extending
beyond the beneficiary's life expectancy.
The death benefit payable on the death of the annuitant will be distributed in
either a lump sum or under an annuity payout. The annuity payout must be
selected within 60 days after Lincoln Life has approved the death claim.
If a lump sum settlement is elected, the proceeds will be mailed within seven
days of approval by us of the claim, subject to the laws, regulations and tax
code governing payment of death benefits. This payment may be postponed as
permitted by the Investment Company Act of 1940.
Joint 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 ownership rights in this contract. Not
more than two owners (an owner and joint owner) may be named and contingent
owners are not permitted.
Surrenders and withdrawals
Before the annuity commencement date,
we will allow the surrender of the
contract or a withdrawal of the
contract value upon your written
request, subject to the rules
discussed below. The
surrender/withdrawal option is not
available after the annuity
commencement date.
The amount available upon the surrender/withdrawal is the cash surrender value
(contract value less any applicable charges, fees and taxes) at the end of the
valuation period during which the written request for surrender/withdrawal is
received at the home office. The minimum withdrawal is $300. Unless a request
for withdrawal specifies otherwise, withdrawals will be made from all
subaccounts within the VAA and from the DCA fixed account in the same
proportion that the amount of withdrawal bears to the total contract value.
Unless prohibited, 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.
The tax consequences of a surrender/withdrawal are discussed later in this
booklet. See Federal tax status.
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 tax 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 also be subject to restrictions.
Lincoln Life reserves the right to surrender this contract if any withdrawal
reduces the total contract value to a level at which this contract may be
surrendered in accordance with applicable law for individual deferred
annuities.
Participants in the Texas Optional Retirement Program should refer to the
Restrictions under the Texas Optional Retirement Program, later in this
Prospectus booklet.
Delay of payments
Contract proceeds from the VAA will be paid within seven days, except (i) when
the NYSE is closed (except weekends and holidays); (ii) times when the market
trading is restricted or the SEC declares an emergency, and we cannot value
units or the funds cannot redeem shares; or (iii) when the SEC so orders to
protect contractowners.
Reinvestment privilege
You may elect to make a reinvestment purchase with any part of the proceeds of
a surrender/withdrawal,
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without a new sales charge. We will recredit that portion of the
surrender/withdrawal charges attributable to the amount returned. 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 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 5.00% of each gross purchase
payment; plus an annual continuing commission of up to 0.25% of contract value.
At times, additional sales incentives (up to 0.25% of each gross purchase
payment and an annual continuing 0.10% of contract value) may be provided to
dealers maintaining certain sales volume levels. Upon annuitization, an annual
continuing commission of up to 0.80% (or up to 0.90% for dealers maintaining
certain sales volumes levels) of statutory reserves can be paid to dealers.
These commissions are not deducted from gross 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; and 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. Nonqualified contracts may not be collaterally
assigned. We assume no responsibility for the validity or affect of any
assignment. Consult your tax advisor about the tax consequence of an
assignment.
Contractowner questions
The obligations to purchasers under the contracts are those of Lincoln Life.
Questions about your contract 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. (Please note the following exception: Contracts issued under
qualified employee pension and profit-sharing trusts [described in the Section
401(a) and tax exempt under Section 501(a) of the tax code] and qualified
annuity plans [described in Section 403(a) of the tax 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.)
The contract provides optional forms of payouts of annuities (annuity options),
each of which is payable on a variable basis, fixed basis or a combination of
both as you specify. 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 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 recipient would receive
no payouts if the annuitant 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 contractowner.
Joint Life 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 Life Annuity with Guaranteed Period. This option guarantees periodic
payouts during a designated period, usually 10 or 20 years, and continues
during the joint lifetime of the annuitant and a designated joint annuitant.
The payouts continue during the lifetime of the survivor. The designated period
is elected by the contractowner.
Joint Life 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
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survivor receives two-thirds of the periodic payout made when both were alive.
Joint Life and Two-Thirds Survivor Annuity with Guaranteed Period. This option
provides a periodic payout during the joint lifetime of the annuitant and a
joint annuitant. When one of the joint annuitants dies, the survivor receives
two-thirds of the periodic payout made when both were alive. This option
further provides that should one or both of the annuitants dies during the
elected guaranteed period, usually 10 or 20 years, full benefit payment will
continue for the rest of the guaranteed period.
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 death claim is approved for payment by the home
office.
General Information
Under the annuity options listed above, you may not make withdrawals. Other
options, with or without withdrawal features, may be made available by us. You
may pre-select an annuity payout option as a method of paying the death benefit
to a beneficiary. If you do, the beneficiary cannot change this payout option.
At death, options are only available to the extent they are consistent with the
requirements of the contract as well as Sections 72(s) and 401(a)(9) of the tax
code, if applicable. The mortality and expense risk charge and the charge for
administrative services will be assessed on all variable annuity payouts,
including options that may be offered that do not have a life contingency and
therefore no mortality risk.
The annuity commencement date is usually on or before the contractowner's 90th
birthday. You may change the annuity commencement date, change the annuity
option or change the allocation of the investment among subaccounts up to 30
days before the 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 with annuity payouts guaranteed for 10 years (on a fixed, variable
or combination fixed and variable basis, in proportion to the account
allocations at the time of annuitization) except when a joint life payout is
required by law. Under any option providing for guaranteed period payouts, the
number of payouts which remain unpaid at the date of the annuitant's death (or
surviving annuitant's death in case of joint life annuity) will be paid to you,
if living, otherwise to your beneficiary as payouts become due.
Variable annuity payouts
Variable annuity payouts will be determined using:
1. The contract value on the annuity commencement date;
2. The annuity tables contained in the contract;
3. The annuity option selected; and
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 contract 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 period 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. If
the actual net investment rate (annualized) exceeds 4%, the payment will
increase at a rate proportional to the amount of such excess. Conversely, if
the actual rate is less than 4%, annuity payouts will decrease. There is a more
complete explanation of this calculation in the SAI.
Federal tax matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax
rules that may affect you and your contract. This discussion also does not
address other Federal tax consequences, or state or local tax consequences,
associated with the contract. As a result, you should always consult a tax
advisor about the application of tax rules to your individual situation.
Taxation of nonqualified annuities
This part of the discussion describes some of the Federal income tax rules
applicable to nonqualified annuities. A nonqualified annuity is a contract not
issued in connection with a qualified retirement plan receiving special tax
treatment under the tax code, such as an IRA or a section 403(b) plan.
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Tax deferral on earnings
The Federal income tax law generally does not tax any increase in your contract
value until you receive a contract distribution. However, for this general rule
to apply, certain requirements must be satisfied:
. An individual must own the contract (or the tax law must treat the contract
as owned by the individual).
. The investments of the VAA must be "adequately diversified" in accordance
with IRS regulations.
. Your right to choose particular investments for a contract must be limited.
. The annuity commencement date must not occur near the end of the annuitant's
life expectancy.
Contracts not owned by the individual
If a contract is owned by an entity (rather than an individual) the tax code
generally does not treat it as an annuity contract for Federal income tax
purposes. This means that the entity owning the contract pays tax currently on
the excess of the contract value over the gross purchase payments for the
contract. Examples of contracts where the owner pays current tax on the
contract's earnings are contracts issued to a corporation or a trust.
Exceptions to this rule exist. For example, the tax code treats a contract as
owned by an individual if the named owner is a trust or other entity that holds
the contract as an agent for an individual. However, this exception does not
apply in the case of any employer that owns a contract to provide deferred
compensation for its employees.
Investments in the VAA must be diversified
For a contact to be treated as an annuity for Federal income tax purposes, the
investments of the VAA must be "adequately diversified." IRS regulations define
standards for determining whether the investments of the VAA are adequately
diversified. If the VAA fails to comply with these diversification standards,
you could be required to pay tax currently on the excess of the contract value
over the contract gross purchase payments. Although we do not control the
investments of the underlying investment options, we expect that the underlying
investment options will comply with the IRS regulations so that the VAA will be
considered "adequately diversified."
Restrictions
Federal income tax law limits your right to choose particular investments for
the contract. Because the IRS has not issued guidance specifying those limits,
the limits are uncertain and your right to allocate contract value among
subaccounts may exceed those limits. If so, you would be treated as the owner
of the assets of the VAA and thus subject to current taxation on the income and
gains from those assets. We do not know what limits may be set by the IRS in
any guidance that it may issue and whether any such limits will apply to
existing contracts. We reserve the right to modify the contract without your
consent to try to prevent the tax law from considering you as the owner of the
assets of the VAA.
Age at which annuity payouts begin
Federal income tax rules do not expressly identify a particular age by which
annuity payouts must begin. However, those rules do require that an annuity
contract provide for amortization, through annuity payouts, of the contract's
gross purchase payments and earnings. If annuity payouts under the contract
begin or are scheduled to begin on a date past the annuitant's 85th birthday,
it is possible that the tax law will not treat the contract as an annuity for
Federal income tax purposes. In that event, you would be currently taxable on
the excess of the contract value over the gross purchase payments of the
contract.
Tax treatment of payments
We make no guarantees regarding the tax treatment of any contract or of any
transaction involving a contract. However, the rest of this discussion assumes
that your contract will be treated as an annuity for Federal income tax
purposes and that the tax law will not tax any increase in your contract value
until there is a distribution from your contract.
Taxation of withdrawals and surrenders
You will pay tax on withdrawals to the extent your contract value exceeds your
gross purchase payments in the contract. This income (and all other income from
your contract) is considered ordinary income. A higher rate of tax is paid on
ordinary income than on capital gains. You will pay tax on a surrender to the
extent the amount you receive extends your gross purchase payments. In certain
circumstances, your gross purchase payments are reduced by amounts received
from your contract that were not included in income.
Taxation of annuity payouts
The tax code imposes tax on a portion of each annuity payout (at ordinary
income tax rates) and treats a portion as a nontaxable return of your gross
purchase payments in the contract. We will notify you annually of the taxable
amount of your annuity payout. Once you have recovered the total amount of the
gross purchase payment in the contract, you will pay tax on the full amount of
your annuity payouts. If annuity payouts end because of the annuitant's death
and before the total amount of the gross purchase payments in the contract has
been received, the amount not received generally will be deductible.
Taxation of death benefits
We may distribute amounts from your contract because of the death of a
contractowner or an annuitant. The tax treatment of these amounts depends on
whether you
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or the annuitant dies before or after the annuity commencement date.
. Death prior to the annuity commencement date--
. If the beneficiary receives death benefits under an annuity payout option,
they are taxed in the same manner as annuity payouts.
. If the beneficiary does not receive death benefits under an annuity payout
option, they are taxed in the same manner as withdrawal.
. Death after the annuity commencement date--
. If death benefits are received in accordance with the existing annuity
payout option, they are excludible from income if they do not exceed the
gross purchase payments not yet distributed from the contract. All annuity
payouts in excess of the gross purchase payments not previously received
are includible in income.
. If death benefits are received in a lump sum, the tax law imposes tax on
the amount of death benefits which exceeds the amount of gross purchase
payments not previously received.
Penalty taxes payable on withdrawals, surrenders, or annuity payouts
The tax code may impose a 10% penalty tax on any distribution from your
contract which you must include in your gross income. The 10% penalty tax does
not apply if one of several exceptions exists. These exceptions include
withdrawals, surrenders or annuity payouts that:
. you receive on or after you reach age 59 1/2,
. you receive because you became disabled (as defined in the tax law),
. a beneficiary receives on or after your death, or
. you receive as a series of substantially equal periodic payments for your
life (or life expectancy).
Special rules if you own more than one annuity contract
In certain circumstances, you must combine some or all of the nonqualified
annuity contracts you own in order to determine the amount of an annuity
payout, a surrender or a withdrawal that you must include in income. For
example, if you purchase two or more deferred annuity contracts from the same
life insurance company (or its affiliates) during any calendar year, the tax
code treats all such contracts as one contract. Treating two or more contracts
as one contract could affect the amount of a surrender, withdrawal or an
annuity payout that you must include in income and the amount that might be
subject to the penalty tax described above.
Loans and assignments
Except for certain qualified contracts, the tax code treats any amount received
as a loan under a contract, and any assignment or pledge (or agreement to
assign or pledge) any portion of your contract value, as a withdrawal of such
amount or portion.
Gifting a contract
If you transfer ownership of your contract to a person other than your spouse
(or to your former spouse incident to divorce), and receive a payment less than
your contract's value, you will pay tax on your contract value to the extent it
exceeds your gross purchase payments not previously received. The new owner's
gross purchase payments in the contract would then be increased to reflect the
amount included in income.
Charges for a contract's death benefit
Your contract may have an EGMDB, for which you pay an annual charge, computed
daily. It is possible that the tax law may treat all or a portion of the EGMDB
charge as a contract withdrawal.
Loss of interest deduction
After June 8, 1997, if a contract is issued to a taxpayer that is not an
individual, or if a contract is held for the benefit of an entity, the entity
will lose a portion of its deduction for otherwise deductible interest
expenses. This disallowance does not apply if you pay tax on the annual
increase in the contract value. Entities that are considering purchasing a
contract, or entities that will benefit from someone else's ownership of a
contract, should consult a tax advisor.
Qualified retirement plans
We also designed the contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called
"qualified contracts." We issue contracts for use with different types of
qualified plans. The Federal income tax rules applicable to those plans are
complex and varied. As a result, this Prospectus does not attempt to provide
more than general information about use of the contract with various types of
qualified plans. Persons planning to use the contract in connection with a
qualified plan should obtain advice from a competent tax advisor.
Types of qualified contracts and terms of contracts
Currently, we may issue contracts in connection with the following types of
qualified plans:
. Individual Retirement Accounts and Annuities ("Traditional IRAs")
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. Roth IRAs
. Simplified Employee Pensions ("SEPs")
. Savings Incentive Matched Plan for Employees ("SIMPLE 401(k) plans")
. Public school system and tax-exempt organization annuity plans ("403(b)
plans")
. Qualified corporate employee pension and profit sharing plans ("401(a)
plans") and qualified annuity plans ("403(a) plans")
. Self-employed individual plans ("H.R. 10 plans" or "Keogh Plans")
. Deferred compensation plans of state and local governments and tax-exempt
organizations ("457 plans").
Section 403(b) business will normally be accepted only for purchase payments
qualifying as a 403(b) lump sum transfer or rollover. We may issue a contract
for use with other types of qualified plans in the future.
We will amend contracts to be used with a qualified plan as generally necessary
to conform to tax law requirements for the type of plan. However, the rights of
a person to any qualified plan benefits may be subject to the plan's terms and
conditions, regardless of the contract's terms and conditions. In addition, we
are not bound by the terms and conditions of qualified plans to the extent such
terms and conditions contradict the contract, unless we consent.
Tax treatment of qualified contracts
The Federal income tax rules applicable to qualified plans and qualified
contracts vary with the type of plan and contract. For example,
. Federal tax rules limit the amount of purchase payments that can be made, and
the tax deduction or exclusion that may be allowed for the gross purchase
payments. These limits vary depending on the type of qualified plan and the
plan participant's specific circumstances, e.g., the participant's
compensation.
. Under most qualified plans, e.g., 403(b) plans and Traditional IRAs, the
annuitant must begin receiving payments from the contract in certain minimum
amounts by a certain age, typically age 70 1/2. However, these "minimum
distribution rules" do not apply to a Roth IRA.
. Loans are allowed under certain types of qualified plans, but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some section 403(b) plans, but
prohibit loans under Traditional and Roth IRAs. If allowed, loans are subject
to a variety of limitations, including restrictions as to the loan amount,
the loan's duration, and the manner of repayment. Your contract or plan may
or may not permit loans.
Tax treatment of payments
Federal income tax rules generally include distributions from a qualified
contract in the recipient's income as ordinary income. These taxable
distributions will include gross purchase payments that were deductible or
excludible from income. Thus, under many qualified contracts the total amount
received is included in income since a deduction or exclusion from income was
taken for gross purchase payments. There are exceptions. For example, you do
not include amounts received from a Roth IRA in income if certain conditions
are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the
qualified plan.
Federal penalty taxes payable on distributions
The tax code may impose a 10% penalty tax on the amount received from the
qualified contract that must be included in income. The tax code does not
impose the penalty tax if one of several exceptions applies. The exceptions
vary depending on the type of qualified contract you purchase. For example, in
the case of an IRA, exceptions provide that the penalty tax does not apply to a
withdrawal, surrender or annuity payout:
. received on or after the annuitant reaches age 59 1/2,
. received on or after the annuitant's death or because of the annuitant's
disability (as defined in the tax law),
. received as a series of substantially equal periodic payments for the
annuitant's life (or life expectancy), or
. received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
Transfers and direct rollovers
In many circumstances, money may be moved between qualified contracts and
qualified plans by means of a rollover or transfer. Special rules apply to such
rollovers and transfers. If the applicable rules are not followed, you may
suffer adverse Federal income tax consequences, including paying taxes which
might not otherwise have had to be paid. A qualified advisor should always be
consulted before you move or attempt to move funds between any qualified plan
or contract and another qualified plan or contract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section
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401(a) plans, section 403(a) or (b) plans, H.R. 10 plans and contracts used in
connection with these types of plans. (The direct rollover rules do not apply
to distributions from IRAs or section 457 plans.) The direct rollover rules
require that we withhold Federal income tax equal to 20% of the eligible
rollover distribution from the distribution amount, unless you elect to have
the amount directly transferred to certain qualified plans or contracts. Before
we send a rollover distribution, we will provide the recipient with a notice
explaining these requirements and how the 20% withholding can be avoided by
electing a direct rollover.
The EGMDB and IRAs
Pursuant to IRS regulations, IRAs may not invest in life insurance contracts.
We do not believe that these regulations prohibit the EGMDB from being provided
under the contracts when we issue the contract as Traditional IRAs or Roth
IRAs. However, the law is unclear and it is possible that the presence of the
EGMDB under a contract issued as a Traditional IRA or Roth IRA could result in
increased taxes to you.
Federal income tax withholding
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a contract unless the distributee notifies us at or
before the time of the distribution that tax is not to be withheld. In certain
circumstances, Federal income tax rules may require us to withhold tax. At the
time a withdrawal, surrender or annuity payout is requested, we will give the
recipient an explanation of the withholding requirements.
Tax status of Lincoln Life
Under existing Federal income tax laws, Lincoln Life does not pay tax on
investment income and realized capital gains of the VAA. Lincoln Life does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the VAA. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the VAA, we may impose a charge against
the VAA to pay the taxes.
Changes in law
The above discussion is based on the tax code, IRS regulations and
interpretations existing on the date of this Prospectus. However, Congress, The
IRS and the courts may modify these authorities, sometimes retroactively.
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 the subaccounts which
invest in classes of funds of the series. If the 1940 Act or any regulation
under it should be amended or if present interpretations 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 of a class 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-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 gross 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 premium
taxes which had been deducted. No
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surrender charge will be assessed. 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 gross
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 are
responsible for maintaining all records and accounts relating to the VAA. We
have entered into an agreement with the Delaware Management Company, 2005
Market Street, Philadelphia, PA, 19203, to provide accounting services 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 that Act or any other applicable law or regulation.
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 files with the SEC.
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services for individually
sold life insurance and annuities.
Legal proceedings
Lincoln Life is involved in various pending or threatened legal proceedings
arising from the conduct of its business. Most of those proceedings are routine
and in the ordinary course of business. In some instances they include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for equitable relief. After consultation with legal counsel
and a review of available facts, it is management's opinion that the ultimate
liability, if any, under these suits will not have a material adverse effect on
the financial position of Lincoln Life.
Lincoln Life is presently defending several lawsuits in which Plaintiffs seek
to represent national classes of policyholders in connection with alleged
fraud, breach of contract and other claims relating to the sale of interest-
sensitive universal and participating whole life insurance policies. As of the
date of this prospectus, the courts have not certified a class in any of the
suits. Plaintiffs seek unspecified damages and penalties for themselves and on
behalf of the putative class. Although the relief sought in these cases is
substantial, the cases are in the preliminary stages of litigation, and it is
premature to make assessments about potential loss, if any. Management is
defending these suits vigorously. The amount of liability, if any, which may
ultimately arise as a result of these suits cannot be reasonably determined at
this time.
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Statement of additional
information table of
contents for Variable Annuity Account H American Legacy Shareholder's Advantage
<TABLE>
<CAPTION>
Item
- -----------------------------------------
<S> <C>
General information and history of
Lincoln Life B-2
- -----------------------------------------
Special terms B-2
- -----------------------------------------
Services B-2
- -----------------------------------------
Principal underwriter B-2
- -----------------------------------------
Purchase of securities being offered B-2
- -----------------------------------------
</TABLE>
For a free copy of the SAI please see page one of this booklet.
<TABLE>
<CAPTION>
Item
- --------------------------------------
<S> <C>
Calculation of investment results B-2
- --------------------------------------
Annuity payouts B-5
- --------------------------------------
Advertising and sales literature B-5
- --------------------------------------
Financial statements B-7
- --------------------------------------
</TABLE>
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The American Legacy Shareholder's Advantage
Lincoln National
Variable Annuity Account H (Registrant)
The Lincoln National
Life Insurance Company (Depositor)
Statement of Additional Information (SAI)
This Statement of Additional Information should be read in conjunction with the
American Legacy Shareholder's Advantage Prospectus of Lincoln National Variable
Annuity Account H dated April 1, 2000.
You may obtain a copy of the American Legacy Shareholder's Advantage Prospectus
on request and without charge. Please write American Legacy Customer Service,
The Lincoln National Life Insurance Company, P.O. Box 2348, Fort Wayne, Indiana
46801 or call 1-800-942-5500.
Table of Contents
<TABLE>
<CAPTION>
Item Page
- -----------------------------------------------------
<S> <C>
General information and history of Lincoln Life B-2
- -----------------------------------------------------
Special terms B-2
- -----------------------------------------------------
Services B-2
- -----------------------------------------------------
Principal underwriter B-2
- -----------------------------------------------------
Purchase of securities being offered B-2
- -----------------------------------------------------
</TABLE>
This SAI is not a Prospectus.
The date of this SAI is April 1, 2000.
<TABLE>
<CAPTION>
Item Page
- ---------------------------------------
<S> <C>
Calculation of investment results B-2
- ---------------------------------------
Annuity payouts B-5
- ---------------------------------------
Advertising and sales literature B-5
- ---------------------------------------
Financial statements B-7
- ---------------------------------------
</TABLE>
B-1
<PAGE>
General information
and history of 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 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, Martin
Luther King's Birthday, 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.
Services
Independent auditors
The financial statements of the variable annuity account (VAA) and the
statutory-basis financial statements of Lincoln Life appearing in this SAI and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports also appearing elsewhere in this
document and in the Registration Statement. The financial statements audited
by Ernst & Young LLP have been included in this document in reliance on their
reports given on their authority as experts in accounting and auditing.
Keeper of records
All accounts, books, records and other documents which are required to be
maintained for the VAA are maintained by Lincoln Life or by third parties
responsible to Lincoln Life. We have entered into an agreement with the
Delaware Management Company, 2005 Market Street, Philadelphia, PA 19203, to
provide accounting services to the VAA. No separate charge against the assets
of the VAA is made by Lincoln Life for this service.
Principal underwriter
Lincoln Life has contracted with American Funds Distributors, Inc. (AFD), 333
South Hope Street, Los Angeles, California 90071, a licensed broker-dealer, to
distribute the contracts through certain legally authorized sales persons and
organizations (brokers). AFD and its brokers are compensated under a standard
compensation schedule.
Purchase of securities being offered
The 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 sales
charge normally assessed on gross purchase payments 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 Charges and other deductions in the Prospectus.
Both before and after the annuity commencement date, there are exchange
privileges between variable subaccounts, and from the VAA to the fixed side of
the contract subject to restrictions set out in the Prospectus. See The
contracts, in the Prospectus. No exchanges are permitted between the VAA and
other variable separate accounts.
The offering of the contracts is continuous.
Calculation of investment results
The seven-day yield is determined by calculating the change in unit value for
the base period (the 7-day period ended December 31, 1999); then dividing this
figure by the account value at the beginning of the period; then annualizing
this result by the factor of 365/7. This yield includes all deductions charged
to the contractowner's account, and excludes any realized gains and losses
from the sale of securities.
Standard investment results:
Standard performance is based on a formula to calculate performance that is
prescribed by the SEC. Under rules issued by the SEC, standard performance
must be included in any marketing material that discusses the performance of
the VAA and the subaccounts. This information represents past performance and
does not indicate or represent future performance.
Average annual return for each period is determined by finding the average
annual compounded rate of return over each period that would equate the
initial
B-2
<PAGE>
amount invested to the ending redeemable value for that period, according to
the following formula:
P(1 + T)n = 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 = ending 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 period
thereof)
The formula assumes that: (1) all recurring fees have been charged to the
contractowner accounts; (2) all applicable non-recurring charges
(including any surrender charges) are deducted at the end of the period
in question; and (3) there will be a complete redemption upon the
anniversary of the 1-year, 5-year, or 10-year period in question.
In accordance with SEC guidelines, we will report standard performance back to
the first date that the Fund became available in the VAA. Because standard
performance reporting periods of less than one year could be misleading, we may
report "N/A's" for standard performance until one year after the option became
available in the Separate Account.
Standard Performance Data:
Period Ending December 31, 1999
<TABLE>
<CAPTION>
1 year- 5 year- 10 years or
period period Since Inception
<S> <C> <C> <C>
With EGMDB With EGMDB With EGMDB
- -----------------------------------------------------------------------------
Global Growth Subaccount
(commenced activity 4/30/97) 58.80% N/A 34.11%
- -----------------------------------------------------------------------------
Global Small Capitalization Subaccount
(commenced activity 4/30/98) 79.11 N/A 43.23
- -----------------------------------------------------------------------------
Growth Subaccount
(commenced activity 8/1/89) 47.19 30.44% 19.50
- -----------------------------------------------------------------------------
International Subaccount
(commenced activity 5/1/90) 64.70 22.65 14.94
- -----------------------------------------------------------------------------
New World Subaccount
(commenced activity 6/17/99) N/A N/A 11.12
- -----------------------------------------------------------------------------
Growth Income Subaccount
(commenced activity 8/1/89) 4.07 18.70 12.89
- -----------------------------------------------------------------------------
Asset-Allocation Subaccount
(commenced activity 8/1/89) 0.07 14.53 10.46
- -----------------------------------------------------------------------------
High-Yield Bond Subaccount
(commenced activity 8/1/89) (1.23) 8.15 8.54
- -----------------------------------------------------------------------------
Bond Subaccount
(commenced activity 1/2/96) (4.01) N/A 3.21
- -----------------------------------------------------------------------------
U.S. Gov't./AAA Subaccount
(commenced activity 8/1/89) (7.12) 4.53 5.52
- -----------------------------------------------------------------------------
Cash Management Subaccount
(commenced activity 8/1/89) (2.13) 2.93 3.28
- -----------------------------------------------------------------------------
</TABLE>
The above table reflects the cost of the Enhanced Guaranteed Minimum Death
Benefit rider. If contractholders had chosen to eliminate the Enhanced
Guaranteed Minimum Death Benefit, their returns would have been higher.
B-3
<PAGE>
Non-standard investment results:
The VAA may report its results over various periods--daily, monthly, three-
month, six-month, year-to-date, yearly (fiscal year), three, five, ten years
or more and lifetime--and compare its results to indices and other variable
annuities in sales materials including advertisements, brochures and reports.
Performance information for the periods prior to the date that a Fund became
available in the VAA will be calculated based on (1) the performance of the
Fund adjusted for Contract charges (ie: mortality and expense risk fees, any
applicable administrative charges, and the management and other expenses of
the fund) and (2) the assumption that the subaccounts were in existence for
the same periods as indicated for the Fund. It may or may not reflect charges
for any Riders (ie: EGMDB) that were in effect during the time periods shown.
This performance is referred to as non-standardized performance data. Such
results may be computed on a cumulative and/or annualized basis. We may also
report performance assuming that you deposited $10,000 into a subaccount at
inception of the underlying fund or 10 years ago (whichever is less). This
non-standardized performance may be shown as a graph illustrating how that
deposit would have increased or decreased in value over time based on the
performance of the underlying fund adjusted for Contract charges. This
information represents past performance and does not indicate or represent
future performance. The investment return and value of a Contract will
fluctuate so that contractowner's investment may be worth more or less than
the original investment.
Cumulative quotations are arrived at by calculating the change in 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 reflects the level rate of return, which if earned over the
entire base period, would produce the cumulative return.
Non-Standard Performance Data (adjusted
for contract expense charges):
Period ending December 31, 1999
<TABLE>
<CAPTION>
1- 3- 5- 10- Since
YTD year year year year Inception
<S> <C> <C> <C> <C> <C> <C>
With With With With With With
EGMDB EGMDB EGMDB EGMDB EGMDB EGMDB
- ---------------------------------------------------------------------------------
Global Growth Variable Subaccount
(commenced activity 4/30/97) 68.49% 68.49% N/A N/A N/A 37.11%
- ---------------------------------------------------------------------------------
Global Small Capitalization
Subaccount
(commenced activity 4/30/98) 90.04 90.04 N/A N/A N/A 48.39
- ---------------------------------------------------------------------------------
Growth Variable Subaccount
(as if commenced activity 2/8/84) 56.17 56.17 39.29% 32.00% 20.21% 18.80
- ---------------------------------------------------------------------------------
International Variable Subaccount
(as if commenced activity 5/1/90) 74.75 74.75 31.36 24.11 N/A 15.65
- ---------------------------------------------------------------------------------
New World Variable Subaccount
(as if commenced activity 6/17/99) N/A N/A N/A N/A N/A 17.90
- ---------------------------------------------------------------------------------
Growth-Income Variable Subaccount
(as if commenced activity 2/8/84) 10.42 10.42 17.29 20.11 13.56 14.75
- ---------------------------------------------------------------------------------
Asset Allocation Variable
Subaccount
(as if commenced activity 8/1/89) 6.17 6.17 12.40 15.89 11.12 10.89
- ---------------------------------------------------------------------------------
High-Yield Bond Variable Subaccount
(as if commenced activity 2/8/84) 4.80 4.80 5.10 9.44 9.18 10.64
- ---------------------------------------------------------------------------------
Bond Variable Subaccount
(as if commenced activity 1/2/96) 1.84 1.84 4.72 N/A N/A 4.75
- ---------------------------------------------------------------------------------
U.S. Gov't./AAA Variable Subaccount
(as if commenced activity 12/1/85) (1.46) (1.46) 4.29 5.77 6.14 6.60
- ---------------------------------------------------------------------------------
Cash Management Variable Subaccount
(as if commenced activity 2/8/84) 3.85 3.85 4.05 4.16 3.89 4.81
- ---------------------------------------------------------------------------------
</TABLE>
The above table reflects the cost of the Enhanced Guaranteed Minimum Death
Benefit rider. If contractholders had chosen to eliminate the Enhanced
Guaranteed Minimum Death Benefit, their returns would have been higher.
B-4
<PAGE>
Annuity payouts
Variable Annuity Payouts
Variable annuity payouts will be determined on the basis of: (1) the dollar
value of the contract on 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 payouts, Lincoln Life makes the following calculation: first,
it determines the dollar amount of the first payout; second, it credits the
contract with a fixed number of annuity units based on the amount of the first
payout; and third, it calculates the value of the annuity units each period
thereafter. These steps are explained below.
The dollar amount of the first periodic variable annuity payout is determined
by applying the total value of the accumulation units credited under the
contract valued as of the annuity commencement date (less any premium taxes) to
the annuity tables contained in the contract. The first variable annuity payout
will be paid 14 days after the annuity commencement date. This day of the month
will become the day on which all future annuity payouts will be paid. Amounts
shown in the tables are based on the 1983 Table "a" Individual Annuity
Mortality Tables, modified, with an assumed investment return at the rate of 4%
per annum. The first annuity payout 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 payouts. If the actual net investment rate
(annualized) exceeds 4%, the payout will increase at a rate equal to the amount
of such excess. Conversely, if the actual rate is less than 4%, annuity payouts
will decrease. If the assumed rate of interest were to be increased, annuity
payouts 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 where not prohibited by law.
At an annuity commencement date, the contract is credited with annuity units
for each variable subaccount on which variable annuity payouts are based. The
number of annuity units to be credited is determined by dividing the amount of
the first periodic payout by the value of an annuity unit in each variable
subaccount 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 periodic payouts is determined by
multiplying the contractowner's fixed number of annuity units in each variable
subaccount by the appropriate annuity unit value for the valuation date ending
14 days prior to the date that payout is due.
The value of each variable subaccount's annuity unit will be set initially at
$1.00. The annuity unit value for each variable subaccount at the end of any
valuation date is determined as follows:
1. The total value of fund shares held in a given variable subaccount is
calculated by multiplying the number of shares by the net asset value at the
end of the valuation period plus any dividend or other distribution.
2. The liabilities of the variable subaccount, including daily charges and
taxes, are subtracted.
3. The result is divided by the number of annuity units in the variable
subaccount at the beginning of the valuation period, and adjusted by 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
payouts 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.
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
B-5
<PAGE>
equity 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
representing over 1,000 companies across 20 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 financial strength rating is an opinion of an insurance
company's financial strength 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.
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 opinion 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 500 INDEX--A broad-based measurement of U.S. stock-market
performance based on the weighted average performance of 500 common stocks of
leading companies in leading industries; 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.
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 currently 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 VAA and the series
funds, Lincoln Life intends to illustrate the advantages of the contracts in a
number of ways:
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 tax savings through tax deferral;
the potential advantage of the variable annuity account over the fixed
account; and the compounding effect when a client makes regular deposits to
his or her contract.
INTERNET. An electronic communications network which may be used to provide
information regarding Lincoln Life, performance of the variable subaccounts
and advertisement literature.
DOLLAR-COST AVERAGING. (DCA)--You may systematically transfer on a monthly
basis amounts from the DCA fixed account or certain variable subaccounts into
the variable subaccounts or guaranteed period subaccounts. The variable
subaccounts that are currently available for dollar cost averaging are the
variable subaccounts with the Cash Management Fund and the U.S.
Government/AAA-Rated Securities Fund. We reserve the right to change
subaccounts under this program. You may elect to participate in the DCA
program at the time of application or at anytime before the annuity
commencement date by completing an election form available from us. The
minimum amount to be dollar cost averaged is $1,500 over any period between
six and 60 months. Once elected, the program will remain in effect until the
earlier of: (1) the annuity commencement date; (2) the value of the amount
being DCA'd is depleted; or (3) you cancel the program by written request or
by telephone if we have your telephone authorization on file. Currently, there
is no charge for this service. However, we reserve the right to impose one. A
transfer under this program is not considered a transfer for purposes of
limiting the number of transfers that may be made, or assessing any charges
which may apply to transfers. We reserve the right to discontinue this program
at any time. DCA does not assure a profit or protect against loss.
AUTOMATIC WITHDRAWAL SERVICE. (AWS)--AWS provides an automatic, periodic
withdrawal of contract value to you. You may elect to participate in AWS at
B-6
<PAGE>
the time of application or at any time before the annuity commencement date by
sending a written request to our home office. The minimum contract value
required to establish AWS is $10,000. You may cancel or make changes to your
AWS program at any time by sending a written request to our home office. If
telephone authorization has been elected, certain changes may be made by
telephone. Notwithstanding the requirements of the program, any withdrawal must
be permitted by Section 401(a)(9) of the code for qualified plans or permitted
under Section 72 for non-qualified contracts. Currently, there is no charge for
this service. However, we reserve the right to impose one. If a charge is
imposed, it will not exceed $25 per transaction or 2% of the amount withdrawn,
whichever is less. We reserve the right to discontinue this service at any
time.
CROSS-REINVESTMENT SERVICE--Under this option, account value in a designated
variable subaccount or the fixed side of the contract that exceeds a certain
baseline amount is automatically transferred to another specific variable
subaccount(s) or the fixed side of the contract at specific intervals. You may
elect to participate in cross-reinvestment at the time of application or at any
time before the annuity commencement date by sending a written request to our
home office or by telephone if we have your telephone authorization on file.
You designate the holding account, the receiving account(s), and the baseline
amount. Cross-reinvestment will continue until we receive authorization to
terminate the program.
The minimum holding account value required to establish cross-reinvestment is
$10,000. Currently, there is no charge for this service. However, we reserve
the right to impose one. A transfer under this program is not considered a
transfer for purposes of limiting the number of transfers that may be made, or
assessing any charges which may apply to transfers. We reserve the right to
discontinue this service at any time.
PORTFOLIO REBALANCING--Portfolio Rebalancing is an option which, if elected by
the contractowner, restores to a pre-determined level the percentage of
contract value allocated to each variable account subaccount (e.g., 20% Money
Market, 50% Growth, 30% Utilities). This pre-determined level will be the
allocation initially selected when the contract was purchased, unless
subsequently changed. The portfolio rebalancing allocation may be changed at
any time by submitting a request to Lincoln Life.
If portfolio rebalancing is elected, all purchase payments allocated to the
variable account subaccounts must be subject to portfolio rebalancing.
Portfolio rebalancing may take place on either a monthly, quarterly, semi-
annual or annual basis, as selected by the contractowner. Once the portfolio
rebalancing option is activated, any variable account subaccount transfers
executed outside of the portfolio rebalancing option will terminate the
portfolio rebalancing option. Any subsequent purchase payment or withdrawal
that modifies the account balance within each variable account subaccount may
also cause termination of the portfolio rebalancing option. Any such
termination will be confirmed to the contractowner. The contractowner may
terminate the portfolio rebalancing option or re-enroll at any time by calling
or writing Lincoln Life.
The portfolio rebalancing program is not available following the annuity
commencement date. Currently, there is no charge for this service. However, we
reserve the right to impose one.
Lincoln Financial Group. Lincoln Financial Group is the marketing name for
Lincoln National Corporation (NYSE:LNC) and its affiliates. With headquarters
in Philadelphia, Lincoln Financial Group has consolidated assets of over $103
billion and annual consolidated revenues of $6.8 billion. Through its wealth
accumulation and protection businesses, the company provides annuities, life
insurance, 401(k) plans, life-health reinsurance, mutual funds, institutional
investment management and financial planning and advisory services.
Lincoln Life's customers. Sales literature for the VAA 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 SAI, Lincoln Life was
serving over 15,000 employers and more than 1.5 million individuals.
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 1999 Lincoln Life had statutory admitted
assets of over $79 billion.
Financial statements
Financial statements of the VAA and the statutory-basis financials statements
of Lincoln Life appear on the following pages.
B-7
<PAGE>
Lincoln National Variable Annuity Account H
Statement of assets and liability
December 31, 1999
<TABLE>
<CAPTION>
Growth-Income
Growth-Income Class II
Combined Subaccount Subaccount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments at Market--
Unaffiliated (Cost
$17,753,933,654) $23,675,772,125 $5,898,495,515 $1,132,139,150
- -------------------------------- --------------- -------------- --------------
Total Assets 23,675,772,125 5,898,495,515 1,132,139,150
Liability--Payable to The
Lincoln National Life Insurance
Company 877,209 218,803 42,284
- -------------------------------- --------------- -------------- --------------
Net assets $23,674,894,916 $5,898,276,712 $1,132,096,866
- -------------------------------- =============== ============== ==============
Percent of net assets 100.00% 24.91% 4.78%
- -------------------------------- =============== ============== ==============
Net assets are represented by:
Legacy II without guaranteed
minimum death benefit:
. Units in accumulation period 1,563,524,672 --
------------------------------
. Annuity reserves units 6,071,368 --
------------------------------
. Unit value $ 3.503 $ --
------------------------------ -------------- --------------
. Value in accumulation period 5,476,349,424 --
------------------------------
. Annuity reserves 21,265,373 --
-------------------------------
Legacy II with guaranteed
minimum death benefit:
. Units in accumulation period 114,842,624 --
------------------------------
. Unit value $ 3.489 $ --
------------------------------ -------------- --------------
. Value in accumulation period 400,661,915 --
-------------------------------
Legacy III without guaranteed
minimum death benefit:
. Units in accumulation period -- 129,156,674
------------------------------
. Annuity reserves units -- 1,762,500
------------------------------
. Unit value $ -- $ 1.520
------------------------------ -------------- --------------
. Value in accumulation period -- 196,369,678
------------------------------
. Annuity reserves -- 2,679,703
-------------------------------
Legacy III with guaranteed
minimum death benefit:
. Units in accumulation period -- 614,232,524
------------------------------
. Unit value $ -- $ 1.514
------------------------------ -------------- --------------
. Value in accumulation period -- 930,152,106
-------------------------------
Shareholder's Advantage without
guaranteed minimum death
benefit:
. Units in accumulation period -- 731,753
------------------------------
. Annuity reserves units -- --
------------------------------
. Unit value $ -- $ 1.092
------------------------------ -------------- --------------
. Value in accumulation period -- 799,374
------------------------------
. Annuity reserves -- --
-------------------------------
Shareholder's Advantage with
guaranteed minimum death
benefit:
. Units in accumulation period -- 1,919,178
------------------------------
. Unit value $ -- $ 1.092
------------------------------ -------------- --------------
. Value in accumulation period -- 2,096,005
- --------------------------------
Net assets $5,898,276,712 $1,132,096,866
- -------------------------------- ============== ==============
</TABLE>
See accompanying notes.
H-2
<PAGE>
<TABLE>
<CAPTION>
U.S.
U.S. Government/
Asset High-Yield Government/ AAA-Rated
Growth Asset Allocation High-Yield Bond Class AAA-Rated Securities Cash
Growth Class II Allocation Class II Bond II Securities Class II Management
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$7,174,597,906 $1,071,095,846 $1,302,564,162 $326,008,212 $512,965,962 $98,987,168 $364,696,561 $47,860,527 $271,446,046
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
7,174,597,906 1,071,095,846 1,302,564,162 326,008,212 512,965,962 98,987,168 364,696,561 47,860,527 271,446,046
264,822 39,860 48,277 12,130 19,073 3,688 13,625 1,793 10,128
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
$7,174,333,084 $1,071,055,986 $1,302,515,885 $325,996,082 $512,946,889 $98,983,480 $364,682,936 $47,858,734 $271,435,918
============== ============== ============== ============ ============ =========== ============ =========== ============
30.30% 4.52% 5.50% 1.38% 2.17% 0.42% 1.54% 0.20% 1.15%
============== ============== ============== ============ ============ =========== ============ =========== ============
1,091,099,055 -- 430,364,472 -- 207,730,728 -- 191,847,850 -- 173,803,366
4,944,792 -- 2,134,647 -- 1,147,002 -- 944,812 -- 461,714
$ 6.118 $ -- $ 2.823 $ -- $ 2.330 $ -- $ 1.778 $ -- $ 1.449
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
6,675,106,847 -- 1,215,049,873 -- 484,029,853 -- 341,043,890 -- 251,874,190
30,251,166 -- 6,026,756 -- 2,672,610 -- 1,679,573 -- 669,112
76,952,649 -- 28,960,340 -- 11,308,416 -- 12,402,425 -- 13,089,058
$ 6.094 $ -- $ 2.812 $ -- $ 2.321 $ -- $ 1.771 $ -- $ 1.443
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
468,975,071 -- 81,439,256 -- 26,244,426 -- 21,959,473 -- 18,892,616
-- 60,530,171 -- 50,804,846 -- 16,310,537 -- 10,249,990 --
-- 1,092,833 -- 471,027 -- 329,991 -- 516,074 --
$ -- $ 2.605 $ -- $ 1.343 $ -- $ 1.131 $ -- $ 1.114 $ --
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
-- 157,687,149 -- 68,239,697 -- 18,449,044 -- 11,421,328 --
-- 2,846,940 -- 632,671 -- 373,256 -- 575,049 --
-- 349,496,915 -- 191,453,944 -- 70,524,971 -- 32,309,998 --
$ -- $ 2.595 $ -- $ 1.338 $ -- $ 1.127 $ -- $ 1.110 $ --
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
-- 906,830,937 -- 256,131,033 -- 79,454,055 -- 35,858,343 --
-- 1,188,330 -- 486,416 -- 441,334 -- 2,000 --
-- -- -- -- -- -- -- -- --
$ -- $ 1.313 $ -- $ 1.069 $ -- $ 1.047 $ -- $ 1.003 $ --
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
-- 1,559,923 -- 520,076 -- 461,894 -- 2,007 --
-- -- -- -- -- -- -- -- --
-- 1,623,917 -- 442,117 -- 234,372 -- 2,000 --
$ -- $ 1.312 $ -- $ 1.069 $ -- $ 1.046 $ -- $ 1.003 $ --
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
-- 2,131,037 -- 472,605 -- 245,231 -- 2,007 --
- -------------- -------------- -------------- ------------ ------------ ----------- ------------ ----------- ------------
$7,174,333,084 $1,071,055,986 $1,302,515,885 $325,996,082 $512,946,889 $98,983,480 $364,682,936 $47,858,734 $271,435,918
============== ============== ============== ============ ============ =========== ============ =========== ============
</TABLE>
H-3
<PAGE>
Lincoln National Variable Annuity Account H
Statement of assets and liability (continued)
December 31, 1999
<TABLE>
<CAPTION>
Cash
Management International
Class II International Class II
Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments at Market--Unaffiliated
(Cost $17,753,933,654) $47,751,238 $3,817,892,127 $368,999,954
- ------------------------------------- ----------- -------------- ------------
Total Assets 47,751,238 3,817,892,127 368,999,954
Liability--Payable to The Lincoln
National Life Insurance Company 1,791 141,216 13,747
- ------------------------------------- ----------- -------------- ------------
Net assets $47,749,447 $3,817,750,911 $368,986,207
- ------------------------------------- =========== ============== ============
Percent of net assets 0.20% 16.13% 1.56%
- ------------------------------------- =========== ============== ============
Net assets are represented by:
Legacy II without guaranteed minimum
death benefit:
. Units in accumulation period -- 909,205,118 --
-----------------------------------
. Annuity reserves units -- 5,201,907 --
-----------------------------------
. Unit value $ -- $ 3.932 $ --
----------------------------------- ----------- -------------- ------------
. Value in accumulation period -- 3,574,688,180 --
-----------------------------------
. Annuity reserves -- 20,452,146 --
------------------------------------
Legacy II with guaranteed minimum
death benefit:
. Units in accumulation period -- 56,848,874 --
-----------------------------------
. Unit value $ -- $ 3.916 $ --
----------------------------------- ----------- -------------- ------------
. Value in accumulation period -- 222,610,585 --
------------------------------------
Legacy III without guaranteed
minimum death benefit:
. Units in accumulation period 8,461,080 -- 26,368,918
-----------------------------------
. Annuity reserves units 233,715 -- 668,069
-----------------------------------
. Unit value $ 1.096 $ -- $ 2.127
----------------------------------- ----------- -------------- ------------
. Value in accumulation period 9,273,327 -- 56,089,351
-----------------------------------
. Annuity reserves 256,151 -- 1,421,049
------------------------------------
Legacy III with guaranteed minimum
death benefit:
. Units in accumulation period 34,892,204 -- 146,311,598
-----------------------------------
. Unit value $ 1.092 $ -- $ 2.119
----------------------------------- ----------- -------------- ------------
. Value in accumulation period 38,089,813 309,974,140
------------------------------------
Shareholder's Advantage without
guaranteed minimum death benefit:
. Units in accumulation period 9,425 -- 592,649
-----------------------------------
. Annuity reserves units -- -- --
-----------------------------------
. Unit value $ 1.009 $ -- $ 1.408
----------------------------------- ----------- -------------- ------------
. Value in accumulation period 9,514 -- 834,201
-----------------------------------
. Annuity reserves -- -- --
------------------------------------
Shareholder's Advantage with
guaranteed minimum death benefit:
. Units in accumulation period 119,534 -- 474,304
-----------------------------------
. Unit value $ 1.009 $ -- $ 1.407
----------------------------------- ----------- -------------- ------------
. Value in accumulation period 120,642 -- 667,466
----------------------------------- ----------- -------------- ------------
Net assets $47,749,447 $3,817,750,911 $368,986,207
- ------------------------------------- =========== ============== ============
</TABLE>
See accompanying notes.
H-4
<PAGE>
<TABLE>
<CAPTION>
Global
Global Global Small New
Bond Global Growth Small Capitalization New World
Bond Class II Growth Class II Capitalization Class II World Class II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$161,019,866 $78,440,200 $296,575,865 $378,124,464 $161,422,718 $101,098,240 $31,385,405 $32,204,993
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
161,019,866 78,440,200 296,575,865 378,124,464 161,422,718 101,098,240 31,385,405 32,204,993
5,999 2,924 10,934 14,057 5,953 3,744 1,161 1,200
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
$161,013,867 $78,437,276 $296,564,931 $378,110,407 $161,416,765 $101,094,496 $31,384,244 $32,203,793
============ =========== ============ ============ ============ ============ =========== ===========
0.68% 0.33% 1.25% 1.60% 0.68% 0.43% 0.13% 0.14%
============ =========== ============ ============ ============ ============ =========== ===========
128,409,290 -- 120,206,220 -- 77,664,595 -- 24,595,832 --
903,192 -- 700,953 -- 329,121 -- 44,131 --
$ 1.185 $ -- $ 2.298 $ -- $ 1.920 $ -- $ 1.176 $ --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
152,182,648 -- 276,220,233 -- 149,119,835 -- 28,920,791 --
1,070,406 -- 1,610,710 -- 631,928 -- 51,891 --
6,574,709 -- 8,185,381 -- 6,090,590 -- 2,052,631 --
$ 1.180 $ -- $ 2.289 $ -- $ 1.915 $ -- $ 1.175 $ --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
7,760,813 -- 18,733,988 -- 11,665,002 -- 2,411,562 --
-- 14,078,598 -- 27,671,349 -- 7,492,254 -- 3,728,134
-- 346,169 -- 484,012 -- 296,365 -- 108,111
$ -- $ 1.125 $ -- $ 2.291 $ -- $ 1.917 $ -- $ 1.175
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
-- 15,845,420 -- 63,382,553 -- 14,359,483 -- 4,381,538
-- 389,612 -- 1,108,653 -- 568,006 -- 127,058
-- 55,096,652 -- 137,048,068 -- 44,615,754 -- 23,252,868
$ -- $ 1.121 $ -- $ 2.280 $ -- $ 1.912 $ -- $ 1.174
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
-- 61,762,825 -- 312,436,490 -- 85,295,758 -- 27,305,402
-- 375,630 -- 197,674 -- 360,180 -- 58,929
-- -- -- -- -- -- -- --
$ -- $ 1.020 $ -- $ 1.400 $ -- $ 1.304 $ -- $ 1.238
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
-- 383,286 -- 276,744 -- 469,812 -- 72,958
-- -- -- -- -- -- -- --
-- 55,023 -- 647,276 -- 307,838 -- 255,977
$ -- $ 1.020 $ -- $ 1.400 $ -- $ 1.304 $ -- $ 1.238
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
-- 56,133 -- 905,967 -- 401,437 -- 316,837
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
$161,013,867 $78,437,276 $296,564,931 $378,110,407 $161,416,765 $101,094,496 $31,384,244 $32,203,793
============ =========== ============ ============ ============ ============ =========== ===========
</TABLE>
H-5
<PAGE>
Lincoln National Variable Annuity Account H
Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Growth-Income
Growth-Income Class II
Combined Subaccount Subaccount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Investment Income:
. Dividends from investment
income $ 363,649,245 $ 105,809,593 $ 13,787,028
---------------------------------
. Dividends from net realized
gains on investments 2,762,130,665 949,657,269 180,270,242
---------------------------------
. Mortality and expense
guarantees:
---------------------------------
. Legacy II without guaranteed
minimum death benefit (227,055,455) (78,372,764) --
---------------------------------
. Legacy II with guaranteed
minimum death benefit (14,804,893) (5,441,299) --
---------------------------------
. Legacy III without guaranteed
minimum death benefit (5,489,569) -- (2,024,469)
---------------------------------
. Legacy III with guaranteed
minimum death benefit (27,866,710) -- (9,817,618)
---------------------------------
. Shareholder's Advantage without
guaranteed minimum death
benefit (1,103) -- (144)
---------------------------------
. Shareholder's Advantage with
guaranteed minimum death
benefit (3,452) -- (999)
--------------------------------- -------------- ------------- -------------
Net investment income 2,850,558,728 971,652,799 182,214,040
- ----------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments:
. Net realized gain (loss) on
investments 674,284,647 228,634,133 (76,730)
---------------------------------
. Net change in unrealized
appreciation or depreciation on
investments 2,383,264,765 (612,847,050) (112,083,394)
- ---------------------------------- -------------- ------------- -------------
Net realized and unrealized gain
(loss) on investments 3,057,549,412 (384,212,917) (112,160,124)
- ---------------------------------- -------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations $5,908,108,140 $ 587,439,882 $ 70,053,916
- ---------------------------------- ============== ============= =============
</TABLE>
See accompanying notes.
H-6
<PAGE>
<TABLE>
<CAPTION>
U.S.
U.S. Government/
Asset High-Yield Government/ AAA-Rated
Growth Asset Allocation High-Yield Bond Class AAA-Rated Securities Cash
Growth Class II Allocation Class II Bond II Securities Class II Management
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10,612,046 $ -- $ 47,705,526 $ 8,770,098 $ 53,806,588 $ 8,251,537 $ 25,688,251 $ 2,524,271 $11,747,694
970,545,790 142,587,425 82,283,415 20,367,315 -- -- -- -- --
(73,609,144) -- (17,736,386) -- (7,301,578) -- (5,354,630) -- (3,229,152)
(4,920,359) -- (1,076,547) -- (371,550) -- (335,851) -- (251,032)
-- (1,220,870) -- (698,399) -- (199,132) -- (120,652) --
-- (7,278,541) -- (2,775,100) -- (950,317) -- (424,913) --
-- (514) -- (39) -- (14) -- (2) --
-- (965) -- (252) -- (102) -- (2) --
- ---------------- ------------ ------------ ------------ ------------ ----------- ------------ ----------- -----------
902,628,333 134,086,535 111,176,008 25,663,623 46,133,460 7,101,972 19,997,770 1,978,702 8,267,510
275,670,145 42,140 43,128,169 (92,641) (10,243,941) (670,173) (3,165,354) (171,695) 35,255
1,474,521,234 176,203,033 (75,303,263) (13,767,288) (11,867,689) (2,962,809) (25,194,562) (2,632,879) 336,632
- ---------------- ------------ ------------ ------------ ------------ ----------- ------------ ----------- -----------
1,750,191,379 176,245,173 (32,175,094) (13,859,929) (22,111,630) (3,632,982) (28,359,916) (2,804,574) 371,887
- ---------------- ------------ ------------ ------------ ------------ ----------- ------------ ----------- -----------
$2,652,819,712 $310,331,708 $ 79,000,914 $ 11,803,694 $ 24,021,830 $ 3,468,990 $ (8,362,146) $ (825,872) $ 8,639,397
================ ============ ============ ============ ============ =========== ============ =========== ===========
</TABLE>
H-7
<PAGE>
Lincoln National Variable Annuity Account H
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Cash
Management International
Class II International Class II
Subaccount Subaccount Subaccount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Investment Income:
. Dividends from investment income $1,740,187 $ 47,853,420 $ 3,298,825
- -------------------------------------
. Dividends from net realized gains
on investments -- 335,072,851 31,742,057
- -------------------------------------
. Mortality and expense guarantees:
- -------------------------------------
. Legacy II without guaranteed
minimum death benefit -- (35,623,837) --
- -------------------------------------
. Legacy II with guaranteed minimum
death benefit -- (2,044,777) --
- -------------------------------------
. Legacy III without guaranteed
minimum death benefit (110,773) -- (402,219)
- -------------------------------------
. Legacy III with guaranteed minimum
death benefit (434,303) -- (2,402,441)
- -------------------------------------
. Shareholder's Advantage without
guaranteed minimum death benefit (4) -- (269)
- -------------------------------------
. Shareholder's Advantage with
guaranteed minimum death benefit (27) -- (352)
- ------------------------------------- ---------- -------------- ------------
Net investment income 1,195,080 345,257,657 32,235,601
- -------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments:
. Net realized gain (loss) on
investments 7,876 136,759,947 300,753
- -------------------------------------
. Net change in unrealized
appreciation or depreciation on
investments 47,577 1,197,092,804 105,733,268
- ------------------------------------- ---------- -------------- ------------
Net realized and unrealized gain
(loss) on investments 55,453 1,333,852,751 106,034,021
- ------------------------------------- ---------- -------------- ------------
Net increase (decrease) in net assets
resulting from operations $1,250,533 $1,679,110,408 $138,269,622
- ------------------------------------- ========== ============== ============
</TABLE>
See accompanying notes.
H-8
<PAGE>
<TABLE>
<CAPTION>
Global
Global Global Small New
Bond Global Growth Small Capitalization New World
Bond Class II Growth Class II Capitalization Class II World Class II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11,939,045 $ 4,414,596 $ 2,504,131 $ 2,418,646 $ 393,998 $ 118,591 $ 143,163 $ 122,011
-- -- 11,923,190 15,003,882 14,024,003 8,627,543 12,535 13,148
(2,207,324) -- (2,418,878) -- (1,091,378) -- (110,384) --
(111,045) -- (160,485) -- (81,275) -- (10,673) --
-- (160,887) -- (448,375) -- (89,068) -- (14,725)
-- (680,920) -- (2,438,893) -- (561,173) -- (102,491)
-- (13) -- (66) -- (21) -- (17)
-- (46) -- (375) -- (197) -- (135)
- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
9,620,676 3,572,730 11,847,958 14,534,819 13,245,348 8,095,675 34,641 17,791
(907,102) (165,313) 1,908,891 237,892 2,901,161 146,994 1,486 2,754
(6,398,389) (2,564,024) 98,681,854 116,946,207 44,645,168 25,882,604 4,421,837 4,373,894
- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
(7,305,491) (2,729,337) 100,590,745 117,184,099 47,546,329 26,029,598 4,423,323 4,376,648
- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
$ 2,315,185 $ 843,393 $112,438,703 $131,718,918 $60,791,677 $34,125,273 $4,457,964 $4,394,439
=========== =========== ============ ============ =========== =========== ========== ==========
</TABLE>
H-9
<PAGE>
Lincoln National Variable Annuity Account H
Statements of changes in net assets
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Growth-Income
Growth-Income Class II
Combined Subaccount Subaccount
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1,
1998 $15,810,842,079 $ 5,822,004,732 $ 195,003,386
Changes From Operations:
. Net investment income 1,958,360,879 893,049,622 86,889,615
--------------------------
. Net realized gain (loss)
on investments 448,669,912 188,316,732 (97,997)
--------------------------
. Net change in unrealized
appreciation or
depreciation on
investments 670,203,311 (160,295,045) (24,918,745)
- --------------------------- --------------- --------------- --------------
Net Increase (Decrease) in
Net Assets Resulting from
Operations 3,077,234,102 921,071,309 61,872,873
Change From Unit
Transactions:
Accumulation Units:
. Contract purchases 3,687,600,242 580,662,940 391,845,842
--------------------------
. Terminated contracts and
transfers to annuity
reserves (4,095,996,116) (1,145,406,574) (35,431,367)
-------------------------- --------------- --------------- --------------
(408,395,874) (564,743,634) 356,414,475
Annuity Reserves:
. Transfer from
accumulation units and
between accounts 20,809,984 5,153,286 895,860
--------------------------
. Annuity payments (9,098,361) (2,717,517) (356,520)
--------------------------
. Receipt (reimbursement)
of mortality guarantee
adjustment 345,001 44,580 88,801
-------------------------- --------------- --------------- --------------
12,056,624 2,480,349 628,141
Net Increase (Decrease) in
net assets resulting from
unit transactions (396,339,250) (562,263,285) 357,042,616
- --------------------------- --------------- --------------- --------------
Total Increase (Decrease)
in Net Assets 2,680,894,852 358,808,024 418,915,489
- --------------------------- --------------- --------------- --------------
Net Assets at December 31,
1998 $18,491,736,931 $ 6,180,812,756 $ 613,918,875
- --------------------------- =============== =============== ==============
Changes From Operations:
. Net investment income $ 2,850,558,728 $ 971,652,799 $ 182,214,040
--------------------------
. Net realized gain (loss)
on investments 674,284,647 228,634,133 (76,730)
--------------------------
. Net change in unrealized
appreciation or
depreciation on
investments 2,383,264,765 (612,847,050) (112,083,394)
- --------------------------- --------------- --------------- --------------
Net Increase (Decrease) in
Net Assets Resulting from
Operations 5,908,108,140 587,439,882 70,053,916
Change From Unit
Transactions:
Accumulation Units:
. Contract purchases 4,055,223,256 396,604,891 532,499,824
--------------------------
. Terminated contracts and
transfers to annuity
reserves (4,793,427,647) (1,268,182,228) (85,270,021)
-------------------------- --------------- --------------- --------------
(738,204,391) (871,577,337) 447,229,803
Annuity Reserves:
. Transfer from
accumulation units and
between accounts 27,417,634 5,179,744 1,616,167
--------------------------
. Annuity payments (14,312,517) (3,587,278) (727,206)
--------------------------
. Receipt (reimbursement)
of mortality guarantee
adjustment 149,119 8,945 5,311
-------------------------- --------------- --------------- --------------
13,254,236 1,601,411 894,272
Net Increase (Decrease) in
net assets resulting from
unit transactions (724,950,155) (869,975,926) 448,124,075
- --------------------------- --------------- --------------- --------------
Total Increase (Decrease)
in Net Assets 5,183,157,985 (282,536,044) 518,177,991
- --------------------------- --------------- --------------- --------------
Net Assets at December 31,
1999 $23,674,894,916 $ 5,898,276,712 $1,132,096,866
- --------------------------- =============== =============== ==============
</TABLE>
See accompanying notes to financial stlatements.
H-10
<PAGE>
<TABLE>
<CAPTION>
U.S.
U.S. Government/
Asset High-Yield Government/ AAA-Rated
Growth Asset Allocation High-Yield Bond Class AAA-Rated Securities
Growth Class II Allocation Class II Bond II Securities Class II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,193,287,754 $ 93,370,037 $1,338,256,534 $ 50,823,817 $ 688,468,198 $ 25,011,764 $ 408,607,919 $ 8,726,936
635,842,827 44,825,117 127,393,254 15,295,564 56,598,764 5,029,262 19,916,539 999,083
165,304,535 (16,906) 26,232,366 (6,931) (225,013) (157,115) 204,281 31,201
521,153,770 25,360,098 (1,300,515) (3,954,214) (62,572,679) (6,308,219) 6,962,613 69,637
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
1,322,301,132 70,168,309 152,325,105 11,334,419 (6,198,928) (1,436,072) 27,083,433 1,099,921
<CAPTION>
Cash
Management
Subaccount
- -------------------------------------------------------------------------------------------------------------------------
<C>
$ 186,571,276
7,428,068
305,944
66,278
- ---------------
7,800,290
493,741,514
(473,937,066)
- ---------------
19,804,448
24,415
(158,324)
551,914,456 217,793,895 192,171,653 132,102,805 135,804,932 55,113,767 166,657,873 34,821,390
(982,427,432) (22,967,104) (260,845,905) (9,974,982) (200,788,113) (8,353,986) (136,101,572) (10,222,891)
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
(430,512,976) 194,826,791 (68,674,252) 122,127,823 (64,983,181) 46,759,781 30,556,301 24,598,499
4,395,770 234,502 1,776,864 141,714 1,867,393 74,730 712,721 --
(1,831,321) (226,163) (1,217,453) (36,686) (454,376) (33,896) (288,555) (39,846)
24,785 73,099 (17,136) 26,476 1,122 14,692 40,320 (1,672)
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
2,589,234 81,438 542,275 131,504 1,414,139 55,526 464,486 (41,518)
(427,923,742) 194,908,229 (68,131,977) 122,259,327 (63,569,042) 46,815,307 31,020,787 24,556,981
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
894,377,390 265,076,538 84,193,128 133,593,746 (69,767,970) 45,379,235 58,104,220 25,656,902
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
$ 5,087,665,144 $ 358,446,575 $1,422,449,662 $184,417,563 $ 618,700,228 $ 70,390,999 $ 466,712,139 $ 34,383,838
=============== ============== ============== ============ ============= ============ ============= ============
$ 902,628,333 $ 134,086,535 $ 111,176,008 $ 25,663,623 $ 46,133,460 $ 7,101,972 $ 19,997,770 $ 1,978,702
275,670,145 42,140 43,128,169 (92,641) (10,243,941) (670,173) (3,165,354) (171,695)
1,474,521,234 176,203,033 (75,303,263) (13,767,288) (11,867,689) (2,962,809) (25,194,562) (2,632,879)
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
2,652,819,712 310,331,708 79,000,914 11,803,694 24,021,830 3,468,990 (8,362,146) (825,872)
678,361,603 457,300,098 100,358,222 161,643,397 69,919,522 42,803,558 84,455,291 32,006,021
(1,248,483,617) (56,143,544) (299,229,623) (32,229,411) (199,680,418) (17,811,654) (178,030,011) (17,984,427)
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
(570,122,014) 401,156,554 (198,871,401) 129,413,986 (129,760,896) 24,991,904 (93,574,720) 14,021,594
7,809,103 1,627,925 1,050,198 427,965 511,359 188,151 193,581 345,971
(3,878,242) (507,939) (1,175,443) (66,895) (527,587) (54,980) (285,712) (66,852)
39,381 1,163 61,955 (231) 1,955 (1,584) (206) 55
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
3,970,242 1,121,149 (63,290) 360,839 (14,273) 131,587 (92,337) 279,174
(566,151,772) 402,277,703 (198,934,691) 129,774,825 (129,775,169) 25,123,491 (93,667,057) 14,300,768
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
2,086,667,940 712,609,411 (119,933,777) 141,578,519 (105,753,339) 28,592,481 (102,029,203) 13,474,896
- --------------- -------------- -------------- ------------ ------------- ------------ ------------- ------------
$ 7,174,333,084 $1,071,055,986 $1,302,515,885 $325,996,082 $ 512,946,889 $ 98,983,480 $ 364,682,936 $ 47,858,734
=============== ============== ============== ============ ============= ============ ============= ============
2,044
- ---------------
(131,865)
19,672,583
- ---------------
27,472,873
- ---------------
$ 214,044,149
===============
$ 8,267,510
35,255
336,632
- ---------------
8,639,397
542,479,627
(494,074,307)
- ---------------
48,405,320
412,110
(68,251)
3,193
- ---------------
347,052
48,752,372
- ---------------
57,391,769
- ---------------
$ 271,435,918
===============
</TABLE>
H-11
<PAGE>
Lincoln National Variable Annuity Account H
Statements of changes in net assets (continued)
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Cash
Management International
Class II International Class II
Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1998 $14,621,232 $2,452,767,098 $ 54,786,406
Changes From Operations:
. Net investment income 894,482 42,557,185 2,207,875
----------------------------------
. Net realized gain (loss) on
investments 3,239 68,479,051 (121,402)
----------------------------------
. Net change in unrealized
appreciation or depreciation on
investments (77,111) 326,267,926 12,867,429
- ----------------------------------- ----------- -------------- ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 820,610 437,304,162 14,953,902
Change From Unit Transactions:
Accumulation Units:
. Contract purchases 66,014,956 238,711,087 78,349,055
----------------------------------
. Terminated contracts and
transfers to annuity reserves (47,275,290) (627,305,056) (12,270,273)
---------------------------------- ----------- -------------- ------------
18,739,666 (388,593,969) 66,078,782
Annuity Reserves:
. Transfer from accumulation units
and between accounts 6,484 3,860,451 274,690
----------------------------------
. Annuity payments (1,165) (1,301,839) (47,154)
----------------------------------
. Receipt (reimbursement) of
mortality guarantee adjustment (1,812) 9,854 19,785
---------------------------------- ----------- -------------- ------------
3,507 2,568,466 247,321
Net Increase (Decrease) in net
assets resulting from unit
transactions 18,743,173 (386,025,503) 66,326,103
- ----------------------------------- ----------- -------------- ------------
Total Increase (Decrease) in Net
Assets 19,563,783 51,278,659 81,280,005
- ----------------------------------- ----------- -------------- ------------
Net Assets at December 31, 1998 $34,185,015 $2,504,045,757 $136,066,411
- ----------------------------------- =========== ============== ============
Changes From Operations:
. Net investment income $ 1,195,080 $ 345,257,657 $ 32,235,601
----------------------------------
. Net realized gain (loss) on
investments 7,876 136,759,947 300,753
----------------------------------
. Net change in unrealized
appreciation or depreciation on
investments 47,577 1,197,092,804 105,733,268
- ----------------------------------- ----------- -------------- ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 1,250,533 1,679,110,408 138,269,622
Change From Unit Transactions:
Accumulation Units:
. Contract purchases 76,596,463 233,170,102 114,066,150
----------------------------------
. Terminated contracts and
transfers to annuity reserves (64,527,757) (600,613,674) (19,828,191)
---------------------------------- ----------- -------------- ------------
12,068,706 (367,443,572) 94,237,959
Annuity Reserves:
. Transfer from accumulation units
and between accounts 263,628 4,544,323 548,952
----------------------------------
. Annuity payments (18,435) (2,529,837) (134,337)
----------------------------------
. Receipt (reimbursement) of
mortality guarantee adjustment -- 23,832 (2,400)
---------------------------------- ----------- -------------- ------------
245,193 2,038,318 412,215
Net Increase (Decrease) in net
assets resulting from unit
transactions 12,313,899 (365,405,254) 94,650,174
- ----------------------------------- ----------- -------------- ------------
Total Increase (Decrease) in Net
Assets 13,564,432 1,313,705,154 232,919,796
- ----------------------------------- ----------- -------------- ------------
Net Assets at December 31, 1999 $47,749,447 $3,817,750,911 $368,986,207
- ----------------------------------- =========== ============== ============
</TABLE>
See accompanying notes.
H-12
<PAGE>
<TABLE>
<CAPTION>
Global
Global Global Small New
Bond Global Growth Small Capitalization New World
Bond Class II Growth Class II Capitalization Class II World Class II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$132,273,025 $14,125,185 $ 78,828,107 $ 53,308,673 $ -- $ -- $ -- $ --
8,759,946 1,909,940 3,998,971 3,855,611 649,435 259,719 -- --
329,427 (21,838) 585,376 8,138 (475,613) (7,563) -- --
(4,706,995) (1,194,598) 19,497,337 18,070,094 3,093,466 2,122,784 -- --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
4,382,378 693,504 24,081,684 21,933,843 3,267,288 2,374,940 -- --
95,771,458 38,310,391 70,605,753 68,726,468 58,682,748 19,797,259 -- --
(55,017,820) (5,362,264) (41,136,434) (9,505,490) (10,773,580) (892,917) -- --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
40,753,638 32,948,127 29,469,319 59,220,978 47,909,168 18,904,342 -- --
651,791 65,465 267,744 107,634 252,165 46,305 -- --
(267,133) (21,305) (55,215) (31,478) (11,776) (639) -- --
(176) 2,007 (969) 17,065 -- 2,136 -- --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
384,482 46,167 211,560 93,221 240,389 47,802 -- --
41,138,120 32,994,294 29,680,879 59,314,199 48,149,557 18,952,144 -- --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
45,520,498 33,687,798 53,762,563 81,248,042 51,416,845 21,327,084 -- --
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
$177,793,523 $47,812,983 $132,590,670 $134,556,715 $ 51,416,845 $ 21,327,084 $ -- $ --
============ =========== ============ ============ ============ ============ =========== ===========
$ 9,620,676 $ 3,572,730 $ 11,847,958 $ 14,534,819 $ 13,245,348 $ 8,095,675 $ 34,641 $ 17,791
(907,102) (165,313) 1,908,891 237,892 2,901,161 146,994 1,486 2,754
(6,398,389) (2,564,024) 98,681,854 116,946,207 44,645,168 25,882,604 4,421,837 4,373,894
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
2,315,185 843,393 112,438,703 131,718,918 60,791,677 34,125,273 4,457,964 4,394,439
50,106,319 40,847,679 106,957,975 128,756,329 95,581,462 51,794,935 29,928,449 28,985,339
(69,209,717) (11,273,934) (56,115,684) (17,408,970) (46,466,522) (6,526,057) (3,047,501) (1,290,379)
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
(19,103,398) 29,573,745 50,842,291 111,347,359 49,114,940 45,268,878 26,880,948 27,694,960
370,737 257,336 798,409 557,713 164,132 387,634 46,955 115,541
(363,229) (45,949) (104,946) (75,049) (70,298) (16,035) (1,603) (6,414)
1,049 (4,232) (196) 4,751 (531) 1,662 (20) 5,267
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
8,557 207,155 693,267 487,415 93,303 373,261 45,332 114,394
(19,094,841) 29,780,900 51,535,558 111,834,774 49,208,243 45,642,139 26,926,280 27,809,354
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
(16,779,656) 30,624,293 163,974,261 243,553,692 109,999,920 79,767,412 31,384,244 32,203,793
- ------------ ----------- ------------ ------------ ------------ ------------ ----------- -----------
$161,013,867 $78,437,276 $296,564,931 $378,110,407 $161,416,765 $101,094,496 $31,384,244 $32,203,793
============ =========== ============ ============ ============ ============ =========== ===========
</TABLE>
H-13
<PAGE>
Lincoln National Variable Annuity Account H
Notes to Financial Statements
1. Accounting Policies and Variable Account Information
The Variable 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 with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as a
unit investment trust. The Variable Account consists of three products, each
offering a guaranteed minimum death benefit (GMDB) rider option. The available
contracts are as follows:
. Legacy II
. Legacy III
. Shareholder's Advantage
Legacy III and Shareholder Advantage contracts became available to clients of
the Company on April 30, 1997 and September 23, 1999, respectively.
The assets of the Variable Account are owned by the Company. The portion of the
Variable Account's assets supporting the annuity contracts may not be used to
satisfy liabilities arising from any other business of the Company.
Basis of Presentation: The accompanying financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States for unit investment trusts.
Investments: The Variable Account invests in the American Variable Insurance
Series (AVIS) which consists of the following funds:
Growth-Income Fund
Growth-Income Class II Fund
Growth Fund
Growth Class II Fund
Asset Allocation Fund
Asset Allocation Class II Fund
High-Yield Bond Fund
High-Yield Bond Class II Fund
U.S. Government/AAA-Rated Securities Fund
U.S. Government/AAA-Rated Securities Class II Fund
Cash Management Fund
Cash Management Class II Fund
International Fund
International Class II Fund
Bond Fund
Bond Class II Fund
Global Growth Fund
Global Growth Class II Fund
Global Small Capitalization Fund
Global Small Capitalization Class II Fund
New World Fund
New World Class II Fund
AVIS is registered as an open-ended management investment company. Investment
in the funds are stated at the closing net asset value per share on December
31, 1999, which approximates fair value. The difference between cost and fair
value is reflected as unrealized appreciation and depreciation of investments.
Investment transactions are accounted for on a trade date-basis. 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. Dividend income is recorded on the
ex-dividend date.
Federal Income Taxes: Operations of the Variable Account form a part of and are
taxed with operations of the Company, which is taxed as a "life insurance
company" under the Internal Revenue Code. The Variable Account will not be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code. Under current federal income tax law, no federal income taxes are
payable with respect to the Variable Account's net investment income and the
net realized gain on investments.
Annuity Reserves: Reserves on contracts not involving life contingencies are
calculated using an assumed investment 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 & Other Transactions with Affiliates
Amounts are paid to the Company for mortality and expense guarantees at a
percentage of the current value of the Variable Account each day. The rates are
as follows for the three contract types and the corresponding rider options
within the Variable Account:
. Legacy II at a daily rate of .0036986% (1.35% on an annual basis)
. Legacy II with GMDB rider at a daily rate of .0041096% (1.50% on an annual
basis)
. Legacy III at a daily rate of .0034247% (1.25% on an annual basis)
. Legacy III with GMDB rider at a daily rate of .0038356% (1.40% on an annual
basis)
. Shareholder Advantage at a daily rate of .0016438% (.60% on an annual basis)
. Shareholder Advantage with GMDB rider at a daily rate of .0019726% (.72% on
an annual basis)
In addition, amounts retained by the Company from the proceeds of the sales of
annuity contracts for
H-14
<PAGE>
Lincoln National Variable Annuity Account H
Notes to Financial Statements (continued)
2. Mortality and Expense Guarantees and Other Transactions with Affiliates
(continued)
contract charges and surrender charges were as follows during 1999 for the
Legacy II and Legacy III products:
<TABLE>
<S> <C>
Growth-Income Subaccount $ 6,342,982
Growth-Income Class II Subaccount 441,667
Growth Subaccount 5,593,781
Growth Class II Subaccount 292,821
Asset Allocation Subaccount 1,478,596
Asset Allocation Class II Subaccount 125,744
High-Yield Bond Subaccount 674,635
High-Yield Bond Class II Subaccount 56,894
U.S. Government/AAA-Rated Securities Subaccount 516,562
U.S. Government/AAA-Rated Securities Class II Subaccount 44,317
Cash Management Subaccount 1,353,124
Cash Management Class II Subaccount 140,274
International Subaccount 2,728,396
International Class II Subaccount 104,337
Bond Subaccount 192,878
Bond Class II Subaccount 40,373
Global Growth Subaccount 177,255
Global Growth Class II Subaccount 84,564
Global Small Capitalization Subaccount 83,310
Global Small Capitalization Class II Subaccount 6,998
New World Subaccount 6,141
New World Class II Subaccount 297
- -------------------------------------------------------- -----------
$20,485,946
===========
</TABLE>
For the Shareholder's Advantage product a front-end load, or sales charge is
applied as a percentage (5.75% maximum) to all gross purchase payments. The
sales charge percentage decreases as the value accumulated under certain of the
owner's investment increase. For the period ending December 31, 1999, sales
charges were $289,537.
Accordingly, the Company is responsible for all sales and general and
administrative expenses applicable to the Variable Account.
H-15
<PAGE>
Lincoln National Variable Annuity Account H
Notes to Financial Statements (continued)
3. Net Assets
The following is a summary of net assets owned at December 31, 1999.
<TABLE>
<CAPTION>
Growth-Income
Growth-Income Class II
Combined Subaccount Subaccount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit Transactions:
Accumulation units $ 7,710,448,323 $1,430,506,713 $ 991,703,174
Annuity reserves 52,990,956 12,052,311 2,372,291
- -------------------------- --------------- -------------- --------------
7,763,439,279 1,442,559,024 994,075,465
Accumulated net investment
income 8,439,370,833 3,281,518,114 287,811,775
Accumulated net realized
gain (loss) on
investments 1,550,246,333 538,461,005 (174,060)
Net unrealized
appreciation
(depreciation) on
investments 5,921,838,471 635,738,569 (149,616,314)
--------------- -------------- --------------
$23,674,894,916 $5,898,276,712 $1,132,096,866
- -------------------------- =============== ============== ==============
<CAPTION>
Cash
Management International
Class II International Class II
Subaccount Subaccount Subaccount ===
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit Transactions:
Accumulation units $ 45,235,876 $ 903,089,298 $ 218,030,488
Annuity reserves 248,700 9,259,833 855,833
- -------------------------- --------------- -------------- --------------
45,484,576 912,349,131 218,886,321
Accumulated net investment
income 2,402,533 874,971,913 40,215,001
Accumulated net realized
gain (loss) on
investments 10,050 286,310,586 172,018
Net unrealized
appreciation
(depreciation) on
investments (147,712) 1,744,119,281 109,712,867
--------------- -------------- --------------
$ 47,749,447 $3,817,750,911 $ 368,986,207
- -------------------------- =============== ============== ==============
</TABLE>
H-16
<PAGE>
<TABLE>
<CAPTION>
U.S.
U.S. Government/
Asset Government/ AAA-Rated
Growth Asset Allocation High-Yield High-Yield AAA-Rated Securities
Growth Class II Allocation Class II Bond Bond Class II Securities Class II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,003,234,732 $ 684,924,376 $ 474,728,156 $300,993,375 $272,960,383 $ 95,954,308 $212,519,053 $46,781,757
13,057,249 1,842,316 3,511,536 623,127 2,282,205 374,923 1,300,796 553,938
- -------------- -------------- -------------- ------------ ------------ ------------ ------------ -----------
1,016,291,981 686,766,692 478,239,692 301,616,502 275,242,588 96,329,231 213,819,849 47,335,695
2,528,834,096 189,615,897 555,138,469 44,086,152 293,513,746 13,192,699 179,981,244 3,191,966
643,772,273 25,761 90,561,885 (99,967) (7,694,922) (827,279) (6,495,962) (129,350)
2,985,434,734 194,647,636 178,575,839 (19,606,605) (48,114,523) (9,711,171) (22,622,195) (2,539,577)
- -------------- -------------- -------------- ------------ ------------ ------------ ------------ -----------
$7,174,333,084 $1,071,055,986 $1,302,515,885 $325,996,082 $512,946,889 $ 98,983,480 $364,682,936 $47,858,734
============== ============== ============== ============ ============ ============ ============ ===========
<CAPTION>
Global Global Small
Growth Global Small Capitalization New World
Bond Bond Class II Global Growth Class II Capitalization Class II New World Class II
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 140,647,385 $ 76,252,477 $ 158,417,783 $223,961,680 $ 97,024,108 $ 64,173,220 $ 26,880,948 $27,694,960
1,021,736 382,840 1,029,593 748,659 333,692 421,063 45,332 114,394
- -------------- -------------- -------------- ------------ ------------ ------------ ------------ -----------
141,669,121 76,635,317 159,447,376 224,710,339 97,357,800 64,594,283 26,926,280 27,809,354
26,835,629 5,904,896 15,901,198 18,434,900 13,894,783 8,355,394 34,641 17,791
(280,396) (187,033) 2,498,826 246,559 2,425,548 139,431 1,486 2,754
(7,210,487) (3,915,904) 118,717,531 134,718,609 47,738,634 28,005,388 4,421,837 4,373,894
- -------------- -------------- -------------- ------------ ------------ ------------ ------------ -----------
$ 161,013,867 $ 78,437,276 $ 296,564,931 $378,110,407 $161,416,765 $101,094,496 $ 31,384,244 $32,203,793
============== ============== ============== ============ ============ ============ ============ ===========
<CAPTION>
Cash
Management
Subaccount
- -----------------------------------------------------------------------------------------------------
<C>
$214,734,073
558,589
- -------------
215,292,662
55,517,996
1,507,120
(881,860)
- -------------
$271,435,918
=============
- ----------------------------------------------------------------------------------------------------
<C>
</TABLE>
H-17
<PAGE>
Lincoln National Variable Annuity Account H
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1999.
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds from
Purchases Sales
- ----------------------------------------------------------------------------
<S> <C> <C>
Growth-Income Fund $1,046,745,841 $ 945,078,445
Growth-Income Class II Fund 633,173,526 2,815,929
Growth Fund 1,017,409,917 680,855,107
Growth Class II Fund 536,557,452 166,597
Asset Allocation Fund 130,940,473 218,703,574
Asset Allocation Class II Fund 161,642,881 6,199,165
High-Yield Bond Fund 67,817,613 151,463,180
High-Yield Bond Class II Fund 39,101,915 6,875,396
U.S. Government/AAA-Rated Securities Fund 41,970,576 115,643,643
U.S. Government/AAA-Rated Securities Class II
Fund 23,698,855 7,418,878
Cash Management Fund 242,160,107 185,138,088
Cash Management Class II Fund 43,651,032 30,141,535
International Fund 393,431,739 413,530,827
International Class II Fund 128,909,721 2,015,298
Bond Fund 31,119,807 40,594,582
Bond Class II Fund 37,665,708 4,310,946
Global Growth Fund 70,793,360 7,403,809
Global Growth Class II Fund 127,607,341 1,228,727
Global Small Capitalization Fund 75,917,880 13,460,217
Global Small Capitalization Class II Fund 54,422,224 681,456
New World Fund 27,339,438 377,356
New World Class II Fund 28,079,133 250,788
- --------------------------------------------- -------------- --------------
$4,960,156,539 $2,834,353,543
============== ==============
</TABLE>
5. Investments
The following is a summary of investments owned at December 31, 1999.
<TABLE>
<CAPTION>
Net
Shares Asset Value of Cost of
Outstanding Value Shares Shares
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth-Income Fund 178,310,022 $33.08 $ 5,898,495,515 $ 5,262,756,946
Growth-Income Class II Fund 34,234,628 33.07 1,132,139,150 1,281,755,464
Growth Fund 101,594,420 70.62 7,174,597,906 4,189,163,172
Growth Class II Fund 15,177,779 70.57 1,071,095,846 876,448,210
Asset Allocation Fund 86,434,251 15.07 1,302,564,162 1,123,988,323
Asset Allocation Class II
Fund 21,647,292 15.06 326,008,212 345,614,817
High-Yield Bond Fund 40,232,624 12.75 512,965,962 561,080,485
High-Yield Bond Class II
Fund 7,763,699 12.75 98,987,168 108,698,339
U.S. Government/AAA-Rated
Securities Fund 34,535,659 10.56 364,696,561 387,318,756
U.S. Government/AAA-Rated
Securities Class II Fund 4,532,247 10.56 47,860,527 50,400,104
Cash Management Fund 24,565,253 11.05 271,446,046 272,327,906
Cash Management Class II
Fund 4,321,381 11.05 47,751,238 47,898,950
International Fund 142,778,314 26.74 3,817,892,127 2,073,772,846
International Class II Fund 13,804,712 26.73 368,999,954 259,287,087
Bond Fund 16,531,814 9.74 161,019,866 168,230,353
Bond Class II Fund 8,053,408 9.74 78,440,200 82,356,104
Global Growth Fund 13,845,745 21.42 296,575,865 177,858,334
Global Growth Class II Fund 17,661,114 21.41 378,124,464 243,405,855
Global Small Capitalization
Fund 9,293,190 17.37 161,422,718 113,684,084
Global Small Capitalization
Class II Fund 5,823,631 17.36 101,098,240 73,092,852
New World Fund 2,666,559 11.77 31,385,405 26,963,568
New World Class II Fund 2,736,194 11.77 32,204,993 27,831,099
- --------------------------- --------------- ---------------
$23,675,772,125 $17,753,933,654
=============== ===============
</TABLE>
6. New Investment Funds
Effective April 30, 1998, the AVIS Global Small Capitalization Fund and the
AVIS Global Small Capitalization Class II Fund became available as investment
options for Variable Account contract owners. Effective June 17, 1999, the AVIS
New World Fund and the AVIS New World Fund Class II Fund became available as
investment options for Variable Account contract owners.
H-18
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors
Board of Directors of The Lincoln National Life Insurance Company
and
Contract Owners 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") (comprised of the AVIS
Growth-Income, AVIS Growth-Income Class II, AVIS Growth, AVIS Growth Class II,
AVIS Asset Allocation, AVIS Asset Allocation Class II, AVIS High-Yield Bond,
AVIS High-Yield Bond Class II, AVIS U.S. Government/AAA-Rated Securities, AVIS
U.S. Government/AAA-Rated Securities Class II, AVIS Cash Management, AVIS Cash
Management Class II, AVIS International, AVIS International Class II, AVIS
Bond, AVIS Bond Class II, AVIS Global Growth, AVIS Global Growth Class II, AVIS
Global Small Capitalization, AVIS Global Small Capitalization Class II, AVIS
New World Opportunities and AVIS New World Opportunities Class II Subaccounts),
as of December 31, 1999, 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Lincoln National Variable Annuity Account H at
December 31, 1999, and the results of their operations and changes in their net
assets for each of the two years in the period then ended in conformity with
accounting principles generally accepted in the United States.
Fort Wayne, Indiana
March 10, 2000
H-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------- ---------
(IN MILLIONS)
---------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS:
Bonds $22,985.0 $23,830.9
- ------------------------------------------------------------
Preferred stocks 253.8 236.0
- ------------------------------------------------------------
Unaffiliated common stocks 166.9 259.3
- ------------------------------------------------------------
Affiliated common stocks 604.7 322.1
- ------------------------------------------------------------
Mortgage loans on real estate 4,211.5 3,932.9
- ------------------------------------------------------------
Real estate 254.0 473.8
- ------------------------------------------------------------
Policy loans 1,652.9 1,606.0
- ------------------------------------------------------------
Other investments 426.6 434.4
- ------------------------------------------------------------
Cash and short-term investments 1,409.2 1,725.4
- ------------------------------------------------------------ --------- ---------
Total cash and investments 31,964.6 32,820.8
- ------------------------------------------------------------
Premiums and fees in course of collection 115.8 33.3
- ------------------------------------------------------------
Accrued investment income 435.3 432.8
- ------------------------------------------------------------
Reinsurance recoverable 199.0 171.6
- ------------------------------------------------------------
Funds withheld by ceding companies 73.5 53.7
- ------------------------------------------------------------
Federal income taxes recoverable from parent company 61.6 64.7
- ------------------------------------------------------------
Goodwill 43.1 49.5
- ------------------------------------------------------------
Other admitted assets 66.7 89.3
- ------------------------------------------------------------
Separate account assets 46,105.1 36,907.0
- ------------------------------------------------------------ --------- ---------
Total admitted assets $79,064.7 $70,622.7
- ------------------------------------------------------------ ========= =========
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $12,184.0 $12,310.6
- ------------------------------------------------------------
Other policyholder funds 16,589.5 16,647.5
- ------------------------------------------------------------
Amounts withheld or retained by Company as agent or trustee 364.0 897.6
- ------------------------------------------------------------
Funds held under reinsurance treaties 796.9 795.8
- ------------------------------------------------------------
Asset valuation reserve 490.9 484.5
- ------------------------------------------------------------
Interest maintenance reserve 72.3 159.7
- ------------------------------------------------------------
Other liabilities 627.0 504.5
- ------------------------------------------------------------
Short-term loan payable to parent company 205.0 140.0
- ------------------------------------------------------------
Net transfers due from separate accounts (896.5) (789.0)
- ------------------------------------------------------------
Separate account liabilities 46,105.1 36,907.0
- ------------------------------------------------------------ --------- ---------
Total liabilities 76,538.2 68,058.2
- ------------------------------------------------------------
CAPITAL AND SURPLUS:
Common stock, $2.50 par value:
Authorized, issued and outstanding shares -- 10 million
(owned by Lincoln National Corporation) 25.0 25.0
- ------------------------------------------------------------
Surplus notes due to Lincoln National Corporation 1,250.0 1,250.0
- ------------------------------------------------------------
Paid-in surplus 1,942.6 1,930.1
- ------------------------------------------------------------
Unassigned surplus -- deficit (691.1) (640.6)
- ------------------------------------------------------------ --------- ---------
Total capital and surplus 2,526.5 2,564.5
- ------------------------------------------------------------ --------- ---------
Total liabilities and capital and surplus $79,064.7 $70,622.7
- ------------------------------------------------------------ ========= =========
</TABLE>
See accompanying notes. S-1
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------- --------- --------
(IN MILLIONS)
--------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $ 7,273.6 $12,737.6 $5,589.0
- ------------------------------------------------------------
Net investment income 2,203.2 2,107.2 1,847.1
- ------------------------------------------------------------
Amortization of interest maintenance reserve 29.1 26.4 41.5
- ------------------------------------------------------------
Commissions and expense allowances on reinsurance ceded 472.3 179.9 99.7
- ------------------------------------------------------------
Expense charges on deposit funds 146.5 134.6 119.3
- ------------------------------------------------------------
Separate account investment management and administration
service fees 473.9 396.3 325.5
- ------------------------------------------------------------
Other income 88.8 31.3 21.3
- ------------------------------------------------------------ --------- --------- --------
Total revenues 10,687.4 15,613.3 8,043.4
- ------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 8,504.9 13,964.1 4,522.1
- ------------------------------------------------------------
Underwriting, acquisition, insurance and other expenses 1,618.3 2,919.4 3,053.9
- ------------------------------------------------------------ --------- --------- --------
Total benefits and expenses 10,123.2 16,883.5 7,576.0
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before dividends to
policyholders, income taxes and net realized gain on
investments 564.2 (1,270.2) 467.4
- ------------------------------------------------------------
Dividends to policyholders 80.3 67.9 27.5
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before federal income taxes and
net realized gain on investments 483.9 (1,338.1) 439.9
- ------------------------------------------------------------
Federal income taxes (credit) 85.4 (141.0) 78.3
- ------------------------------------------------------------ --------- --------- --------
Gain (loss) from operations before net realized gain on
investments 398.5 (1,197.1) 361.6
- ------------------------------------------------------------
Net realized gain on investments, net of income tax expense
and excluding net transfers to the interest maintenance
reserve 114.4 46.8 31.3
- ------------------------------------------------------------ --------- --------- --------
Net income (loss) $ 512.9 $(1,150.3) $ 392.9
- ------------------------------------------------------------ ========= ========= ========
</TABLE>
See accompanying notes.
S-2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $2,564.5 $2,968.4 $1,868.0
- ------------------------------------------------------------
CAPITAL AND SURPLUS INCREASE (DECREASE):
Net income (loss) 512.9 (1,150.3) 392.9
- ------------------------------------------------------------
Difference in cost and admitted investment amounts (101.9) (304.8) (36.2)
- ------------------------------------------------------------
Nonadmitted assets (22.9) (17.1) (0.4)
- ------------------------------------------------------------
Regulatory liability for reinsurance 26.0 (35.2) (3.9)
- ------------------------------------------------------------
Gain on reinsurance of disability income business 71.8 -- --
- ------------------------------------------------------------
Life policy reserve valuation basis -- (0.4) (0.9)
- ------------------------------------------------------------
Asset valuation reserve (6.4) (34.5) (36.9)
- ------------------------------------------------------------
Proceeds from surplus notes from shareholder -- 1,250.0 --
- ------------------------------------------------------------
Paid-in surplus, including contribution of common stock of
affiliated company in 1997 12.5 108.4 938.4
- ------------------------------------------------------------
Separate account receivable due to change in valuation -- -- (2.6)
- ------------------------------------------------------------
Dividends to shareholder (530.0) (220.0) (150.0)
- ------------------------------------------------------------ -------- -------- --------
Capital and surplus at end of year $2,526.5 $2,564.5 $2,968.4
- ------------------------------------------------------------ ======== ======== ========
</TABLE>
See accompanying notes. S-3
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------- ---------- ---------
(IN MILLIONS)
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 7,671.1 $ 13,495.2 $ 6,364.3
- ------------------------------------------------------------
Allowances and reserve adjustments paid on reinsurance ceded (19.9) (632.4) (649.2)
- ------------------------------------------------------------
Investment income received 2,168.6 2,003.9 1,798.8
- ------------------------------------------------------------
Separate account investment management and administration
service fees 470.6 396.3 325.5
- ------------------------------------------------------------
Benefits paid (8,699.4) (7,395.8) (5,345.2)
- ------------------------------------------------------------
Insurance expenses paid (1,734.5) (2,909.7) (3,193.0)
- ------------------------------------------------------------
Proceeds related to sale of disability income business 71.8 -- --
- ------------------------------------------------------------
Federal income taxes recovered (paid) (81.2) 84.2 (87.0)
- ------------------------------------------------------------
Dividends to policyholders (82.8) (12.9) (28.4)
- ------------------------------------------------------------
Other income received and expenses paid, net 252.1 207.0 (8.7)
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) operating activities 16.4 5,235.8 (822.9)
- ------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 6,557.7 10,926.5 12,142.6
- ------------------------------------------------------------
Purchase of investments (5,940.8) (16,950.0) (10,345.0)
- ------------------------------------------------------------
Other sources (uses) including reinsured policy loans (497.0) (778.3) 529.1
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) investing activities 119.9 (6,801.8) 2,326.7
- ------------------------------------------------------------
FINANCING ACTIVITIES
Surplus paid-in 12.5 108.4 --
- ------------------------------------------------------------
Proceeds from surplus notes from shareholder -- 1,250.0 --
- ------------------------------------------------------------
Proceeds from borrowings from shareholder 205.0 140.0 120.0
- ------------------------------------------------------------
Repayment of borrowings from shareholder (140.0) (120.0) (100.0)
- ------------------------------------------------------------
Dividends paid to shareholder (530.0) (220.0) (150.0)
- ------------------------------------------------------------ --------- ---------- ---------
Net cash provided by (used in) financing activities (452.5) 1,158.4 (130.0)
- ------------------------------------------------------------ --------- ---------- ---------
Net increase (decrease) in cash and short-term investments (316.2) (407.6) 1,373.8
- ------------------------------------------------------------
Cash and short-term investments at beginning of year 1,725.4 2,133.0 759.2
- ------------------------------------------------------------ --------- ---------- ---------
Cash and short-term investments at end of year $ 1,409.2 $ 1,725.4 $ 2,133.0
- ------------------------------------------------------------ ========= ========== =========
</TABLE>
See accompanying notes.
S-4
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
The Lincoln National Life Insurance Company (the "Company") is a wholly
owned subsidiary of Lincoln National Corporation ("LNC") and is domiciled in
Indiana. As of December 31, 1999, the Company owned 100% of the outstanding
common stock of four insurance company subsidiaries and four non-insurance
subsidiaries. The Company also owned 85% of the common stock of an Internet
distributor of variable annuities.
The Company's principal businesses consist of underwriting annuities,
deposit-type contracts and life and health insurance through multiple
distribution channels and the reinsurance of individual and group life and
health business. The Company is licensed and sells its products in 49
states, Canada and several U.S. territories.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect the amounts
reported in the statutory-basis financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Department of
Insurance ("Insurance Department"), which practices differ from accounting
principles generally accepted in the United States ("GAAP"). The more
significant variances from GAAP are as follows:
INVESTMENTS
Bonds and preferred stocks are reported at cost or amortized cost or fair
value based on their National Association of Insurance Commissioners
("NAIC") rating. For GAAP, the Company's bonds and preferred stocks are
classified as available-for-sale and, accordingly, are reported at fair
value with changes in the fair values reported directly in shareholder's
equity after adjustments for related amortization of deferred acquisition
costs, additional policyholder commitments and deferred income taxes.
Investments in real estate are reported net of related obligations rather
than on a gross basis. Real estate owned and occupied by the Company is
classified as a real estate investment rather than reported as an operating
asset, and investment income and operating expenses include rent for the
Company's occupancy of those properties. Changes between cost and admitted
asset investment amounts are credited or charged directly to unassigned
surplus rather than to a separate surplus account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the interest maintenance reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. The asset valuation reserve
("AVR") is determined by a NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under GAAP, realized capital gains
and losses are reported in the income statement on a pre-tax basis in the
period in which the asset giving rise to the gain or loss is sold and
writedowns are provided when there has been a decline in value deemed other
than temporary, in which case, the provision for such declines are charged
to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP. Under statutory accounting principles, the Company's
insurance subsidiaries are carried at their statutory-basis net equity and
the non-insurance subsidiaries are carried at their GAAP-basis net equity,
adjusted for certain items which would be non-admitted under statutory
accounting principles. Both insurance subsidiaries and non-insurance
subsidiaries are presented in the balance sheet as investments in affiliated
common stocks.
S-5
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For
universal life insurance, annuity and other investment-type products,
deferred policy acquisition costs, to the extent recoverable from future
gross profits, are amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally furniture and
equipment and certain receivables, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Revenues for universal life policies consist of the entire premium received.
Under GAAP, premiums received in excess of policy charges are not recognized
as premium revenue.
Premiums and deposits with respect to annuity and other investment-type
contracts are reported as premium revenues; whereas, under GAAP, such
premiums and deposits are treated as liabilities and policy charges
represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits represent the excess of benefits paid over the policy account value
and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Insurance Department to assume such business. Changes to
those amounts are credited or charged directly to unassigned surplus. Under
GAAP, an allowance for amounts deemed uncollectible is established through a
charge to income.
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs. Business
assumed under 100% indemnity reinsurance agreements is accounted for as a
purchase for GAAP reporting purposes and the ceding commission represents
the purchase price. Under purchase accounting, assets acquired and
liabilities assumed are reported at fair value at the date of the
transaction and the excess of the purchase price over the sum of the amounts
assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory-basis, the ceding commission is expensed when paid
and reinsurance premiums and benefits are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts.
Certain reinsurance contracts meeting risk transfer requirements under
statutory-basis accounting practices have been accounted for using
traditional reinsurance accounting; whereas, such contracts are accounted
for using deposit accounting under GAAP.
S-6
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
SURPLUS NOTES DUE TO LNC
Surplus notes due to LNC are reported as surplus rather than as liabilities.
On a statutory-basis, interest on surplus notes is not accrued until
approval is received from the Indiana Insurance Commissioner; whereas, under
GAAP, interest would be accrued periodically based on the outstanding
principal and the interest rate.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
A reconciliation of the Company's net income (loss) and capital and surplus
determined on a statutory-basis with amounts determined in accordance with
GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
----------------------------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998 1997
----------------------------------------------------------------------
(IN MILLIONS)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts reported on a statutory-basis $ 2,526.5 $ 2,564.5 $ 512.9 $(1,150.3) $392.9
-----------------------------------------
GAAP adjustments:
Deferred policy acquisition costs,
present value of future profits and
non-admitted goodwill 3,628.2 3,085.2 135.0 48.5 (98.9)
--------------------------------------
Policy and contract reserves (1,943.1) (2,299.9) (97.9) 1,743.4 (48.6)
--------------------------------------
Interest maintenance reserve 72.3 159.7 (86.6) 24.4 58.7
--------------------------------------
Deferred income taxes 244.5 181.6 (117.4) (218.6) 70.3
--------------------------------------
Policyholders' share of earnings and
surplus on participating business (122.7) (132.8) (1.8) 3.2 5.3
--------------------------------------
Asset valuation reserve 490.9 484.5 -- -- --
--------------------------------------
Net realized gain (loss) on investments (186.4) (174.1) (32.4) (116.7) (20.4)
--------------------------------------
Unrealized gain (loss) on investments (555.2) 1,335.1 -- -- --
--------------------------------------
Nonadmitted assets, including
nonadmitted investments 139.6 119.1 -- -- --
--------------------------------------
Investments in subsidiary companies 460.9 490.4 39.1 41.3 (80.5)
--------------------------------------
Surplus notes and related interest (1,250.0) (1,251.5) 1.5 (1.5) --
--------------------------------------
Other, net (61.0) (120.1) 129.8 103.6 (35.0)
-------------------------------------- --------- --------- --------- --------- ------
Net increase (decrease) 918.0 1,877.2 (30.7) 1,627.6 (149.1)
----------------------------------------- --------- --------- --------- --------- ------
Amounts on a GAAP basis $ 3,444.5 $ 4,441.7 $ 482.2 $ 477.3 $243.8
----------------------------------------- ========= ========= ========= ========= ======
</TABLE>
S-7
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount
that would have existed had the new effective yield been applied since the
acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Preferred stocks are reported at cost or amortized cost.
Unaffiliated common stocks are reported at fair value as determined by the
Securities Valuation Office of the NAIC and the related unrealized gains
(losses) are reported in unassigned surplus without adjustment for federal
income taxes.
Policy loans are reported at unpaid balances.
The Company uses various derivative instruments as part of its overall
liability-asset management program for certain investments and life
insurance and annuity products. The Company values all derivative
instruments on a basis consistent with that of the hedged item. Upon
termination, gains and losses on those instruments are included in the
carrying values of the underlying hedged items or deferred in IMR, where
applicable, and are amortized over the remaining lives of the hedged items
as adjustments to investment income. Any unamortized gains or losses are
recognized when the underlying hedged items are sold. The premiums paid for
interest rate caps and swaptions are deferred and amortized to net
investment income on a straight-line basis over the term of the respective
derivative.
Hedge accounting is applied as indicated above after the Company determines
that the items to be hedged expose the Company to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity
U.S. government obligations and foreign exchange risk. Moreover, the
derivatives used are designated as a hedge and reduce the indicated risk by
having a high correlation between changes in the value of the derivatives
and the items being hedged at both the inception of the hedge and throughout
the hedge period. Should such criteria not be met or if the hedged items are
sold, terminated or matured, the change in value of the derivatives is
included in net income.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments. Real estate is reported at depreciated cost.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds, mortgage loans and common and preferred stocks are
credited or charged directly in unassigned surplus.
LOANED SECURITIES
Securities loaned are treated as collateralized financing transactions and a
liability is recorded equal to the cash collateral received which is
typically greater than the market value of the related securities loaned. In
other instances, the Company will hold as collateral securities with a
market value at least equal to the securities loaned. Securities held as
collateral are not recorded in the Company's balance sheet in accordance
with accounting guidance for secured borrowings and collateral. The
Company's agreements with third parties generally contain contractual
provisions to allow for additional collateral to be obtained when necessary.
The Company values collateral daily and obtains additional collateral when
deemed appropriate.
GOODWILL
Goodwill, which represents the excess, subject to certain limitations, of
the ceding commission over statutory-basis net assets of business purchased
S-8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
under an assumption reinsurance agreement, is amortized on a straight-line
basis over ten years.
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
Accident and health premiums are earned pro rata over the contract term of
the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Insurance Department. The Company waives deduction of deferred fractional
premiums on the death of life and annuity policy insureds and returns any
premium beyond the date of death, except for policies issued prior to March
1977. Surrender values on policies do not exceed the corresponding benefit
reserves. Additional reserves are established when the results of cash flow
testing under various interest rate scenerios indicate the need for such
reserves. If net premiums exceed the gross premiums on any insurance
in-force, additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
The tabular interest, tabular less actual reserves released and tabular cost
have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined
using the actual interest credited to the funds plus the change in accrued
interest.
Liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances
less applicable surrender charges.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends
in claim severity and frequency. Although considerable variability is
inherent in such estimates, management believes that the reserves for claims
and claim adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, benefits and claims and claim adjustment expenses are
accounted for on bases consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Certain
business is transacted on a funds withheld basis and investment income on
investments managed by the Company are reported in net investment income.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans are
systematically accrued during the expected period of active service of the
covered employees.
INCOME TAXES
The Company and eligible subsidiaries have elected to file consolidated
federal and state income tax returns with LNC and certain LNC subsidiaries.
Pursuant to an intercompany tax sharing agreement with LNC, the Company
provides for income taxes on a separate return filing basis. The tax sharing
agreement also provides that the Company will receive benefit for net
operating losses, capital losses and tax credits which are not usable on a
separate return basis to the extent such items may be utilized in the
consolidated income tax returns of LNC.
STOCK OPTIONS
The Company recognizes compensation expense for its stock option incentive
plans using the intrinsic value method of accounting. Under the terms of the
intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of
S-9
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
LNC's common stock at the grant date, or other measurement date, over the
amount an employee or agent must pay to acquire the stock.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE
ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable life
and variable annuity contracts and for which the contractholder, rather than
the Company, bears the investment risk. Separate account assets are reported
at fair value. The operations of the separate accounts are not included in
the accompanying financial statements. Policy administration and investment
management fees charged on separate account policyholder deposits are
included in income from separate account investment management and
administration service fees. Mortality charges on variable universal life
contracts are included in income from expense charges on deposit funds. Fees
charged relative to variable annuity and variable universal life
administration agreements for separate account products sold by other
insurance companies and not recorded on the Company's financial statements
are included in income from separate account investment management and
administration service fees.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the
Insurance Department. "Prescribed" statutory accounting practices are
interspersed throughout state insurance laws and regulations, the NAIC's
ACCOUNTING PRACTICES AND PROCEDURES MANUAL and a variety of other NAIC
publications. "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state and may
change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change,
to some extent, prescribed statutory accounting practices and may result in
changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification will require adoption by
the various states before it becomes the prescribed statutory-basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the
state of Indiana must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that
Indiana will adopt Codification, however, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
S-10
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------------------------------
(IN MILLIONS)
--------------------------------------
<S> <C> <C> <C>
Income:
Bonds $1,840.6 $1,714.3 $1,524.4
------------------------------------------------------------
Preferred stocks 20.3 19.7 23.5
------------------------------------------------------------
Unaffiliated common stocks 6.3 10.6 8.3
------------------------------------------------------------
Affiliated common stocks 7.8 5.2 15.0
------------------------------------------------------------
Mortgage loans on real estate 321.0 323.6 257.2
------------------------------------------------------------
Real estate 57.8 81.4 92.2
------------------------------------------------------------
Policy loans 101.7 86.5 37.5
------------------------------------------------------------
Other investments 50.6 26.5 28.2
------------------------------------------------------------
Cash and short-term investments 95.9 104.7 70.3
------------------------------------------------------------ -------- -------- --------
Total investment income 2,502.0 2,372.5 2,056.6
------------------------------------------------------------
Expenses:
Depreciation 14.4 19.3 21.0
------------------------------------------------------------
Other 284.4 246.0 188.5
------------------------------------------------------------ -------- -------- --------
Total investment expenses 298.8 265.3 209.5
------------------------------------------------------------ -------- -------- --------
Net investment income $2,203.2 $2,107.2 $1,847.1
------------------------------------------------------------ ======== ======== ========
</TABLE>
S-11
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1999:
Corporate $17,758.4 $ 229.6 $763.0 $17,225.0
------------------------------------------------
U.S. government 316.8 29.6 21.5 324.9
------------------------------------------------
Foreign government 984.5 49.8 39.9 994.4
------------------------------------------------
Mortgage-backed 3,913.7 46.2 139.0 3,820.9
------------------------------------------------
State and municipal 11.6 -- .5 11.1
------------------------------------------------ --------- -------- ------ ---------
$22,985.0 $ 355.2 $963.9 $22,376.3
========= ======== ====== =========
At December 31, 1998:
Corporate $17,658.4 $1,159.8 $148.2 $18,670.0
------------------------------------------------
U.S. government 900.7 88.8 3.4 986.1
------------------------------------------------
Foreign government 947.8 59.9 61.2 946.5
------------------------------------------------
Mortgage-backed 4,312.1 171.6 33.4 4,450.3
------------------------------------------------
State and municipal 11.9 .7 -- 12.6
------------------------------------------------ --------- -------- ------ ---------
$23,830.9 $1,480.8 $246.2 $25,065.5
========= ======== ====== =========
</TABLE>
The carrying amounts of bonds in the balance sheets at
December 31, 1999 and 1998 reflect adjustments of
$38,900,000 and $11,800,000, respectively, to decrease
amortized cost as a result of the Securities Valuation
Office of the NAIC ("SVO") designating certain investments
as in or near default.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1999, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
-------------------------
(IN MILLIONS)
-------------------------
<S> <C> <C>
Maturity:
In 2000 $ 598.0 $ 599.2
------------------------------------------------------------
In 2001-2004 4,359.8 4,313.4
------------------------------------------------------------
In 2005-2009 6,636.0 6,392.9
------------------------------------------------------------
After 2009 7,477.5 7,249.9
------------------------------------------------------------
Mortgage-backed securities 3,913.7 3,820.9
------------------------------------------------------------ --------- ---------
Total $22,985.0 $22,376.3
------------------------------------------------------------ ========= =========
</TABLE>
S-12
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
Proceeds from sales of investments in bonds during 1999,
1998 and 1997 were $5,351,400,000, $9,395,000,000 and
$9,715,000,000, respectively. Gross gains during 1999, 1998
and 1997 of $95,400,000, $186,300,000 and $218,100,000,
respectively, and gross losses of $195,500,000, $138,000,000
and $78,000,000, respectively, were realized on those sales.
At December 31, 1999 and 1998, investments in bonds, with an
admitted asset value of $116,500,000 and $97,800,000,
respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
Unrealized gains and losses on investments in unaffiliated
common stocks are reported directly in unassigned surplus
and are not reported in the statutory-basis Statements of
Operations. The cost or amortized cost, gross unrealized
gains and losses and the fair value of investments in
unaffiliated common stocks and preferred stocks are as
follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------
(IN MILLIONS)
-----------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1999:
Preferred stocks $253.8 $ 1.3 $31.5 $223.6
----------------------------------------
Unaffiliated common stocks 150.4 34.2 17.7 166.9
----------------------------------------
At December 31, 1998:
Preferred stocks $236.0 $ 8.9 $ 2.4 $242.5
----------------------------------------
Unaffiliated common stocks 223.3 62.0 26.0 259.3
----------------------------------------
</TABLE>
The carrying amount of preferred stocks in the balance
sheets at December 31, 1999 and 1998 reflects adjustments of
$4,100,000 and $5,800,000, respectively, to decrease
amortized cost as a result of the SVO designating certain
investments as low or lower quality.
During 1999, the minimum and maximum lending rates for
mortgage loans were 6.5% and 11.5%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. All properties covered by
mortgage loans have fire insurance at least equal to the
excess of the loan over the maximum loan that would be
allowed on the land without the building.
S-13
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Components of the Company's investments in real estate are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------
(IN MILLIONS)
-------------------
<S> <C> <C>
Occupied by the Company:
Land $ 2.5 $ 2.5
------------------------------------------------------------
Buildings 11.1 9.0
------------------------------------------------------------
Less accumulated depreciation (2.2) (1.7)
------------------------------------------------------------ ------ ------
Net real estate occupied by the Company 11.4 9.8
------------------------------------------------------------
Other:
Land 46.2 93.2
------------------------------------------------------------
Buildings 226.8 413.0
------------------------------------------------------------
Other 4.7 7.9
------------------------------------------------------------
Less accumulated depreciation (35.1) (50.1)
------------------------------------------------------------ ------ ------
Net other real estate 242.6 464.0
------------------------------------------------------------ ------ ------
Net real estate $254.0 $473.8
------------------------------------------------------------ ====== ======
</TABLE>
Net realized capital gains are reported net of federal
income taxes and amounts transferred to the IMR as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------
(IN MILLIONS)
--------------------------------
<S> <C> <C> <C>
Net realized capital gains $ 20.8 $179.7 $209.3
------------------------------------------------------------
Less amount transferred to IMR (net of related taxes
(credits) of ($31.4), $27.3 and $54.0 in 1999, 1998 and
1997, respectively) (58.3) 50.8 100.2
------------------------------------------------------------ ------ ------ ------
79.1 128.9 109.1
Less federal income taxes (credits) on realized gains (35.3) 82.1 77.8
------------------------------------------------------------ ------ ------ ------
Net realized capital gains after transfer to IMR and taxes
(credits) $114.4 $ 46.8 $ 31.3
------------------------------------------------------------ ====== ====== ======
</TABLE>
4. SUBSIDIARIES
The Company owns 100% of the outstanding common stock of
four insurance company subsidiaries: First Penn-Pacific Life
Insurance Company ("First Penn"), Lincoln National Health &
Casualty Insurance Company ("LNH&C"), Lincoln National
Reassurance Company ("LNRAC") and Lincoln Life & Annuity
Company of New York ("LNY"). The Company also owns 100% of
the outstanding common stock of four non-insurance company
subsidiaries: Lincoln National Insurance Associates
("LNIA"), Sagemark Consulting, Inc. ("Sagemark"), Wakefield
Tower Alpha Limited ("Wakefield"), and Lincoln Realty
Capital
S-14
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
Corporation ("LRCC"). The Company also owns 85% of one
non-insurance company subsidiary, AnnuityNet, Inc.
(AnnuityNet). Statutory-basis financial information related
to the insurance subsidiaries is summarized as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
FIRST
PENN LNH&C LNRAC LNY
----------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $1,318.7 $434.6 $443.6 $1,888.6
---------------------------------------------------------
Other assets 40.6 55.5 492.6 403.1
--------------------------------------------------------- -------- ------ ------ --------
Total admitted assets $1,359.3 $490.1 $936.2 $2,291.7
--------------------------------------------------------- ======== ====== ====== ========
Insurance reserves $1,242.2 $394.4 $261.4 $1,802.4
---------------------------------------------------------
Other liabilities 44.3 27.9 614.4 25.6
---------------------------------------------------------
Liabilities related to separate accounts -- -- -- 328.8
---------------------------------------------------------
Capital and surplus 72.8 67.8 60.4 134.9
--------------------------------------------------------- -------- ------ ------ --------
Total liabilities and capital and surplus $1,359.3 $490.1 $936.2 $2,291.7
--------------------------------------------------------- ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------
FIRST
PENN LNH&C LNRAC LNY
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $332.7 $263.3 $ 88.4 $ 313.3
-----------------------------------------------------------
Expenses 329.0 346.9 75.4 291.4
-----------------------------------------------------------
Net realized gains (losses) -- -- .2 (2.0)
----------------------------------------------------------- ------ ------ ------ --------
Net income (loss) $ 3.7 $(83.6) $ 13.2 $ 19.9
----------------------------------------------------------- ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
FIRST
PENN LNH&C LNRAC LNY
----------------------------------
<S> <C> <C> <C> <C>
Cash and invested assets $1,221.1 $333.9 $403.6 $1,938.0
----------------------------------------------------------
Other assets 40.3 31.3 490.0 270.2
---------------------------------------------------------- -------- ------ ------ --------
Total admitted assets $1,261.4 $365.2 $893.6 $2,208.2
---------------------------------------------------------- ======== ====== ====== ========
Insurance reserves $1,149.8 $266.3 $281.8 $1,814.5
----------------------------------------------------------
Other liabilities 42.0 24.0 553.7 45.1
----------------------------------------------------------
Liabilities related to separate accounts -- -- -- 236.9
----------------------------------------------------------
Capital and surplus 69.6 74.9 58.1 111.7
---------------------------------------------------------- -------- ------ ------ --------
Total liabilities and capital and surplus $1,261.4 $365.2 $893.6 $2,208.2
---------------------------------------------------------- ======== ====== ====== ========
</TABLE>
S-15
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
4. SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
FIRST
PENN LNH&C LNRAC LNY
---------------------------------
<S> <C> <C> <C> <C>
Revenues $310.4 $ 165.0 $150.3 $1,402.6
-----------------------------------------------------------
Expenses 310.6 164.4 139.5 1,656.1
-----------------------------------------------------------
Net realized gains (losses) (0.3) 0.9 (0.1) (0.7)
----------------------------------------------------------- ------ ------- ------ --------
Net income (loss) $ (0.5) $ 1.5 $10.7 $ (254.2)
----------------------------------------------------------- ====== ======= ====== ========
</TABLE>
AnnuityNet was formed in 1998 for the distribution of
variable annuities over the Internet and is valued on the
equity method (at 85% of GAAP equity) with an admitted asset
value of $2,400,000 at December 31, 1999. LNIA was purchased
in 1998 for $600,000 and is valued on the equity method with
an admitted asset value of $800,000 at December 31, 1999.
Sagemark is a broker dealer and was acquired in connection
with a reinsurance transaction completed in 1998. Sagemark
is valued on the equity method with an admitted asset value
of $6,400,000 at December 31, 1999. Wakefield was formed in
1999 to engage in the ownership and management of
investments and is valued on the equity method with an
admitted asset value of $248,300,000. Wakefield's assets as
of December 31, 1999 consist entirely of investments in
bonds. LRCC was formed in 1999 to engage in the management
of certain real estate investments. It was capitalized with
cash and three real estate investments of $12,700,000 and is
valued on the equity method with an admitted asset value of
$10,900,000.
The carrying value of all affiliated common stocks, was
$604,700,000 and $322,100,000 at December 31, 1999 and 1998,
respectively. The insurance affiliates are carried at
statutory-basis net equity while other affiliates are
recorded at GAAP-basis net equity, adjusted for certain
items which would be non-admitted under statutory accounting
principles. The cost basis of investments in subsidiaries as
of December 31, 1999 and 1998 was $970,700,000 and
$631,100,000, respectively.
During 1999, 1998 and 1997 the Company's insurance
subsidiaries paid dividends of $5,200,000, $5,200,000 and
$15,000,000, respectively.
5. FEDERAL INCOME TAXES
The effective federal income tax rate in the accompanying
Statements of Operations differs from the prevailing
statutory tax rate principally due to tax-exempt investment
income, dividends received tax deductions and differences
between statutory accounting and tax return recognition
relative to policy acquisition costs, policy and contract
liabilities and reinsurance ceding commissions.
In 1999, 1998 and 1997, federal income tax expense (benefit)
incurred totaled $85,400,000, ($141,000,000) and
$78,300,000, respectively. In 1999, capital losses of
$151,700,000 were incurred, and carried back to recover
taxes paid in prior years.
The Company paid $45,300,000, $2,300,000 and $164,500,000 to
LNC in 1999, 1998 and 1997, respectively, in federal income
taxes.
Under prior income tax law, one-half of the excess of a life
insurance company's income from operations over its taxable
investment income was not taxed, but was set aside in a
special tax account designated as "Policyholders' Surplus."
The Company has approximately $187,000,000 of untaxed
"Policyholders' Surplus" on which no payment of federal
S-16
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
income taxes will be required unless it is distributed as a
dividend, or under other specified conditions. Barring the
passage of unfavorable legislation, the Company does not
believe that any significant portion of the account will be
taxed in the foreseeable future and no related tax liability
has been recognized. If the entire balance of the account
became taxable under the current federal income tax rate,
the tax would be approximately $65,500,000.
6. SUPPLEMENTAL FINANCIAL DATA
The balance sheet caption "Reinsurance recoverable" includes
amounts recoverable from other insurers for claims paid by
the Company. The balance sheet caption, "Future policy
benefits and claims," and the balance sheet caption "Other
policyholder funds" have been reduced for insurance ceded as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Insurance ceded $5,340.0 $4,081.8
------------------------------------------------------------
Amounts recoverable from other insurers 81.2 79.9
------------------------------------------------------------
</TABLE>
Reinsurance transactions, excluding assumption reinsurance,
included in the income statement caption, "Premiums and
deposits," are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------
(IN MILLIONS)
------------------------------------
<S> <C> <C> <C>
Insurance assumed $2,606.5 $9,018.9 $727.2
------------------------------------------------------------
Insurance ceded 1,675.1 877.1 302.9
------------------------------------------------------------ -------- -------- ------
Net amount included in premiums $ 931.4 $8,141.8 $424.3
------------------------------------------------------------ ======== ======== ======
</TABLE>
The income statement caption, "Benefits and settlement
expenses," is net of reinsurance recoveries of
$2,609,000,000, $2,098,800,000 and $1,240,500,000 for 1999,
1998 and 1997, respectively.
Details underlying the balance sheet caption "Other
policyholder funds" are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------
(IN MILLIONS)
-------------------------
<S> <C> <C>
Premium deposit funds $16,208.3 $16,285.2
------------------------------------------------------------
Undistributed earnings on participating business 346.9 348.4
------------------------------------------------------------
Other 34.3 13.9
------------------------------------------------------------ --------- ---------
$16,589.5 $16,647.5
========= =========
</TABLE>
S-17
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
Deferred and uncollected life insurance premiums and annuity
considerations included in the balance sheet caption,
"Premiums and fees in course of collection," are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------
NET OF
GROSS LOADING LOADING
---------------------------------
(IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
Ordinary new business $10.8 $ 7.3 $ 3.5
------------------------------------------------------------
Ordinary renewal 54.2 6.8 47.4
------------------------------------------------------------
Group life 13.7 .1 13.6
------------------------------------------------------------ ----- ----- -----
$78.7 $14.2 $64.5
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
NET OF
GROSS LOADING LOADING
---------------------------------
(IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
Ordinary new business $ 9.5 $ 3.4 $ 6.1
------------------------------------------------------------
Ordinary renewal (13.7) 11.3 (25.0)
------------------------------------------------------------
Group life 14.2 .2 14.0
------------------------------------------------------------ ----- ----- -----
$10.0 $14.9 $(4.9)
===== ===== =====
</TABLE>
7. ANNUITY RESERVES
At December 31, 1999, the Company's annuity reserves and
deposit fund liabilities, including separate accounts, that
are subject to discretionary withdrawal with adjustment,
subject to discretionary withdrawal without adjustment and
not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 2,427.7 4%
------------------------------------------------------------
At book value, less surrender charge 2,237.3 3
------------------------------------------------------------
At market value 44,076.2 68
------------------------------------------------------------ --------- ---
48,741.2 75
Subject to discretionary withdrawal without adjustment at
book value with minimal or no charge or adjustment 13,486.5 21
------------------------------------------------------------
Not subject to discretionary withdrawal 2,622.4 4
------------------------------------------------------------ --------- ---
Total annuity reserves and deposit fund 64,850.1 100%
------------------------------------------------------------ ===
Less reinsurance 1,548.0
------------------------------------------------------------ ---------
Net annuity reserves and deposit fund liabilities, including
separate accounts $63,302.1
------------------------------------------------------------ =========
</TABLE>
S-18
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL AND SURPLUS
In 1998, the Company issued two surplus notes to LNC in return for cash of
$1,250,000,000. The first note for $500,000,000 was issued to LNC in
connection with the CIGNA Corporation ("CIGNA")indemnity reinsurance
transaction on January 5, 1998. This note calls for the Company to pay the
principal amount of the notes on or before March 31, 2028 and interest to be
paid quarterly at an annual rate of 6.56%. Subject to approval by the
Indiana Insurance Commissioner, LNC also has a right to redeem the note for
immediate repayment in total or in part once per year on the anniversary
date of the note, but not before January 5, 2003. Any payment of interest or
repayment of principal may be paid only out of the Company's earnings, only
if the Company's surplus exceeds specified levels ($2,315,700,000 at
December 31, 1999), and subject to approval by the Indiana Insurance
Commissioner.
The second note for $750,000,000 was issued on December 18, 1998 to LNC in
connection with the Aetna, Inc. ("Aetna") indemnity reinsurance transaction.
This note calls for the Company to pay the principal amount of the notes on
or before December 31, 2028 and interest to be paid quarterly at an annual
rate of 6.03%. Subject to approval by the Indiana Insurance Commissioner,
LNC also has a right to redeem the note for immediate repayment in total or
in part once per year on the anniversary date of the note, but not before
December 18, 2003. Any payment of interest or repayment of principal may be
paid only out of the Company's earnings, only if the Company's surplus
exceeds specified levels ($2,379,600,000 at December 31, 1999), and subject
to approval by the Indiana Insurance Commissioner.
A summary of the terms of these surplus notes follows (in millions):
<TABLE>
<CAPTION>
PRINCIPAL INCEPTION ACCRUED
OUTSTANDING AT TO DATE INTEREST AT
PRINCIPAL DECEMBER 31, CURRENT YEAR INTEREST DECEMBER 31,
DATE ISSUED AMOUNT OF NOTE 1999 INTEREST PAID PAID 1999
----------- -------------- -------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
January 5, 1998 $ 500.0 $ 500.0 $ 32.8 $ 65.1 $ --
-------------------------------
December 18, 1998 750.0 750.0 46.7 46.7 --
-------------------------------
</TABLE>
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1999, the Company exceeds the RBC requirements.
The payment of dividends by the Company is limited and cannot be made except
from earned profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Indiana Insurance
Commissioner is subject to restrictions relating to statutory surplus and
net gain from operations. In January 1998, the Company assumed a block of
individual life insurance and annuity business from CIGNA and in
October 1998, the Company assumed a block of individual life insurance
business from Aetna (SEE NOTE 10). The statutory accounting regulations do
not allow goodwill to be recognized on indemnity reinsurance transactions
and therefore, the related ceding commission was expensed in the
accompanying Statement of Operations and resulted in the reduction of
unassigned surplus. As a result of these transactions, the Company's
statutory-basis unassigned surplus is negative as of December 31, 1999 and
it will be necessary for the Company to obtain prior approval of the Indiana
Insurance Commissioner before paying any dividends to LNC until such time as
statutory-basis unassigned surplus is positive. The time frame for
unassigned surplus to return to a positive position is dependent upon future
statutory earnings and dividends paid to LNC. Although no assurance can be
given, management believes that the approvals for the payment of such
dividends in amounts consistent with those paid in the past can be obtained.
S-19
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). Effective July 1, 1999, the
agents' postretirement plan was changed to require agents retiring on or
after that date to pay the full premium costs. This change to the plan
resulted in a one-time curtailment gain of $1,400,000 in 1999. The aggregate
expenses and accumulated obligations for the Company's portion of these
plans are not material to the Company's statutory-basis financial Statements
of Operations or financial position for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Options issued subsequent to 1991
are exercisable in 25% increments on the option issuance anniversary in the
four years following issuance.
As of December 31, 1999, there were 2,072,087 and 1,397,005 shares of LNC
common stock subject to options granted to Company employees and agents,
respectively, under the stock option incentive plans of which 919,749 and
241,097, respectively, were exercisable on that date. The exercise prices of
the outstanding options range from $12.50 to $56.75. During 1999, 1998 and
1997, there were 318,421, 136,469 and 170,789 options exercised,
respectively, and 82,024, 18,288 and 1,846 options forfeited, respectively.
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
DISABILITY INCOME CLAIMS
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1999 and 1998 is
$221,600,000 and $670,100,000, respectively. This liability is based on the
assumption that the recent experience will continue in the future. If
incidence levels and/or claim termination rates fluctuate significantly from
the assumptions underlying reserves, adjustments to reserves could be
required in the future. Accordingly, this liability may prove to be
deficient or excessive. The Company reviews reserve levels on an ongoing
basis. However, it is management's opinion that such future development will
not materially affect the financial position of the Company.
During 1997, the Company conducted an in-depth review of loss experience on
its disability income business. As a result of this study, the reserve level
was deemed to be inadequate to meet future obligations if current incident
levels were to continue in the future. In order to address this situation,
the Company strengthened its disability income reserves by $80,000,000 in
1997.
PERSONAL ACCIDENT PROGRAMS
In the past, the Company and its wholly owned subsidiary, LNH&C, accepted
personal accident reinsurance programs from other insurance companies. Most
of these programs were presented by independent brokers who represented the
ceding companies. Certain excess-of-loss personal accident reinsurance
programs created in the London market during 1993 through 1996 have produced
and have potential to produce significant losses. The liabilities for these
programs, net of related assets recoverable from reinsurers, were
$174,700,000 and $177,400,000 at December 31, 1999 and 1998, respectively.
Settlement activities relating to the Company's participation in workers'
compensation carve-out (i.e., life and health risks associated with workers'
compensation coverage) programs managed by Unicover Managers, Inc. have
allowed the Company to evaluate the possibility of settlements and to
estimate its potential costs to settle Unicover-related exposures. As of
December 31, 1999, a liability of $62,200,000 has been established for the
S-20
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
settlement of the Company's exposure to the Unicover programs.
These amounts are based on various estimates that are subject to
considerable uncertainty. Accordingly, the liabilities may prove to be
deficient or excessive. However, it is management's opinion that future
developments in these programs will not materially affect the financial
position of the Company.
HMO EXCESS-OF-LOSS REINSURANCE PROGRAMS
In light of the continued volatility in the HMO excess-of-loss line of
business, LNH&C discontinued writing new HMO excess-of-loss reinsurance
programs in the third quarter of 1999. The liability for HMO claims, net of
the related assets for amounts recoverable from reinsurers, was $101,900,000
and $55,900,000 at December 31, 1999 and 1998, respectively. LNH&C reviews
reserve levels on an ongoing basis. The liability is based on the assumption
that recent experience will continue in the future. If claims and loss
ratios fluctuate significantly from the assumptions underlying the reserves,
adjustments to reserves could be required in the future. Accordingly, the
liability may prove to be deficient or excessive. However, it is
management's opinion that such future developments will not materially
affect the financial position of the Company.
MARKETING AND COMPLIANCE MATTERS
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances, companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. The Company's management
continues to monitor the Company's sales materials and compliance procedures
and is making an extensive effort to minimize any potential liability. Due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time;
however, it is management's opinion that such future development will not
materially affect the financial position of the Company.
GROUP PENSION ANNUITIES
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer being sold by the Company, are supported by a single
portfolio of assets that attempts to match the duration of these
liabilities. Due to the long-term nature of group pension annuities and the
resulting inability to exactly match cash flows, a risk exists that future
cash flows from investments will not be reinvested at rates as high as
currently earned by the portfolio. Accordingly, these liabilities may prove
to be deficient or excessive. However, it is management's opinion that such
future development will not materially affect the financial position of the
Company.
LEASES
The Company leases its home office properties through sale-leaseback
agreements. The agreements provide for a 25 year lease period with options
to renew for six additional terms of five years each. The agreements also
provide the Company with the right of first refusal to purchase the
properties during the term of the lease, including renewal periods, at a
price as defined in the agreements. The Company also has the option to
purchase the leased properties at fair market value as defined in the
agreements on the last day of the initial 25-year lease ending in 2009 or on
the last day of any of the renewal periods.
Total rental expense on operating leases in 1999, 1998 and 1997 was
$38,900,000, $34,000,000 and $29,300,000, respectively. Future minimum
rental commitments are as follows (in millions):
<TABLE>
<S> <C>
2000 $ 28.7
--------------------------------
2001 28.8
--------------------------------
2002 27.5
--------------------------------
2003 26.2
--------------------------------
2004 26.5
--------------------------------
Thereafter 123.5
-------------------------------- ------
$261.2
======
</TABLE>
INFORMATION TECHNOLOGY COMMITMENT
In February 1998, the Company signed a seven-year contract with IBM Global
Services for information technology services for the Fort Wayne
S-21
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
operations. Total costs incurred in 1999 and 1998 were $67,400,000 and
$54,800,000, respectively. Future minimum annual costs range from
$33,600,000 to $56,800,000, however future costs are dependent on usage and
could exceed these amounts.
INSURANCE CEDED AND ASSUMED
The Company cedes insurance to other companies, including certain
affiliates. The portion of risks exceeding the Company's retention limit is
reinsured with other insurers. The Company limits its maximum coverage that
it retains on an individual to $10,000,000. Portions of the Company's
deferred annuity business have also been coinsured with other companies to
limit its exposure to interest rate risks. At December 31, 1999, the
reserves associated with these reinsurance arrangements totaled
$1,422,800,000. To cover products other than life insurance, the Company
acquires other insurance coverages with retentions and limits that
management believes are appropriate for the circumstances. The Company
remains liable if its reinsurers are unable to meet their contractual
obligations under the applicable reinsurance agreements.
Proceeds from the sale of common stock of American States Financial
Corporation ("American States") and proceeds from the January 5, 1998
surplus note, were used to finance an indemnity reinsurance transaction
whereby the Company and LNY reinsured 100% of a block of individual life
insurance and annuity business from CIGNA. The Company paid $1,264,400,000
to CIGNA on January 2, 1998 under the terms of the reinsurance agreement and
recognized a ceding commission expense of $1,127,700,000 in 1998, which is
included in the Statement of Operations line item "Underwriting,
acquisition, insurance and other expenses." At the time of closing, this
block of business had statutory liabilities of $4,780,300,000 that became
the Company's obligation. The Company also received assets, measured on a
historical statutory-basis, equal to the liabilities.
In connection with the completion of the CIGNA reinsurance transaction, the
Company recorded a charge of $31,000,000 to cover certain costs of
integrating the existing operations with the new block of business.
In 1999, the Company and CIGNA reached an agreement through arbitration on
the final statutory-basis values of the assets and liabilities reinsured. As
a result, the Company's ceding commission for this transaction was reduced
by $58.6 million.
Subsequent to this transaction, the Company and LNY announced that they had
reached an agreement to sell the administration rights to a variable annuity
portfolio that had been acquired as part of the block of business assumed on
January 2, 1998. This sale closed on October 12, 1998 with an effective date
of September 1, 1998.
On October 1, 1998, the Company and LNY entered into an indemnity
reinsurance transaction whereby the Company and LNY reinsured 100% of a
block of individual life insurance business from Aetna. The Company paid
$856,300,000 to Aetna on October 1, 1998 under the terms of the reinsurance
agreement and recognized a ceding commission expense of $815,300,000 in
1998, which is included in the Statement of Operations line item
"Underwriting, acquisition, insurance and other expenses." At the time of
closing, this block of business had statutory liabilities of $2,813,800,000
that became the Company's obligation. The Company also received assets,
measured on a historical statutory-basis, equal to the liabilities. The
Company financed this reinsurance transaction with proceeds from short-term
debt borrowings from LNC until the December 18, 1998 surplus note was
approved by the Insurance Department. Subsequent to the Aetna transaction,
the Company and LNY announced that they had reached an agreement to
retrocede the sponsored life business assumed for $87,600,000. The
retrocession agreement closed on October 14, 1998 with an effective date of
October 1, 1998.
On November 1, 1999, the Company closed its previously announced agreement
to transfer a block of disability income business to MetLife. Under this
indemnity reinsurance agreement, the Company transferred $490,800,000 of
cash to MetLife representing the statutory reserves transferred on this
business less $17,800,000 of purchase price consideration. A gain on the
reinsurance transaction of $71,800,000 was recorded directly in unassigned
S-22
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
surplus and will be recognized in statutory earnings over the life of the
business.
The Company assumes insurance from other companies, including certain
affiliates. At December 31, 1999, the Company provided $270,000,000 of
statutory-basis surplus relief to other insurance companies under
reinsurance transactions. The Company retroceded 100% of this accepted
surplus relief to its off-shore reinsurance affiliates. Generally, such
amounts are offset by corresponding receivables from the ceding company,
which are secured by future profits on the reinsured business. However, the
Company is subject to the risk that the ceding company may become insolvent
and the right of offset would not be permitted.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $17,300,000 and $43,400,000 at December 31, 1999
and 1998, respectively.
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1999, the Company did not have a material concentration of
financial instruments in a single investee or industry. The Company's
investments in mortgage loans principally involve commercial real estate. At
December 31, 1999, 29% of such mortgages ($1,212,700,000) involved
properties located in Texas and California. Such investments consist of
first mortgage liens on completed income-producing properties and the
mortgage outstanding on any individual property does not exceed $70,000,000.
At December 31, 1999, the Company did not have a concentration of:
1) business transactions with a particular customer, lender or distributor;
2) revenues from a particular product or service; 3) sources of supply of
labor or services used in the business; or 4) a market or geographic area in
which business is conducted that makes it vulnerable to an event that is at
least reasonably possible to occur in the near term and which could cause a
severe impact to the Company's financial condition.
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine
in the ordinary course of business. The Company maintains professional
liability insurance coverage for certain claims in excess of $5,000,000. The
degree of applicability of this coverage will depend on the specific facts
of each proceeding. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition to
amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is
management's opinion that the ultimate liability, if any, under these
proceedings will not have a material adverse affect on the financial
position of the Company.
With the recent filing of a lawsuit alleging fraud in the sale of interest
sensitive universal and whole life insurance policies, the Company now has
several such actions pending. While each of these lawsuits seeks class
action status, the court has not certified a class in any of them. In each
of these lawsuits, plaintiffs seek unspecified damages and penalties for
themselves and on behalf of the putative class. While relief sought in these
lawsuits is substantial, they are in the discovery stages of litigation, and
it is premature to make assessments about potential loss, if any. Management
intends to defend these lawsuits vigorously. The amount of liability, if
any, which may arise as a result of these lawsuits cannot be reasonably
estimated at this time. In another lawsuit, a settlement has been
preliminarily approved by the court, and a class has been conditionally
certified for settlement purposes. Two other similar lawsuits previously
have been resolved and dismissed.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company has
accrued for expected assessments net of estimated future premium tax
deductions.
GUARANTEES
The Company has guarantees with off-balance-sheet risks whose contractual
amounts represent
S-23
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
credit exposure. Outstanding guarantees with off-balance-sheet risks at
December 31, 1999 relate to mortgage loan pass-through certificates. The
Company has sold commercial mortgage loans through grantor trusts that
issued pass-through certificates. The Company has agreed to repurchase any
mortgage loans which remain delinquent for 90 days at a repurchase price
substantially equal to the outstanding principal balance plus accrued
interest thereon to the date of repurchase. The outstanding guarantees as of
December 31, 1999 and 1998 were $25,900,000 and $30,900,000, respectively.
It is management's opinion that the value of the properties underlying these
commitments is sufficient that in the event of default the impact would not
be material to the Company. Accordingly, both the carrying value and fair
value of these guarantees is zero at December 31, 1999 and 1998.
DERIVATIVES
The Company has derivatives with off-balance-sheet risks whose notional or
contract amounts exceed the credit exposure. The Company has entered into
derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
government obligations, commodity risk, credit risk and foreign exchange
risks. In addition, the Company is subject to the risks associated with
changes in the value of its derivatives; however, such changes in value
generally are offset by changes in the value of the items being hedged by
such contracts.
Outstanding derivatives with off-balance-sheet risks, shown in notional or
contract amounts along with their carrying value and estimated fair values,
are as follows:
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
---------------------------------
NOTIONAL OR CARRYING FAIR CARRYING FAIR
CONTRACT AMOUNTS VALUE VALUE VALUE VALUE
-----------------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1999 1999 1998 1998
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate derivatives:
Interest rate cap agreements $2,508.8 $4,108.8 $ 5.2 $ 3.2 $ 9.3 $ .9
---------------------------------
Swaptions 1,837.5 1,899.5 12.2 10.8 16.2 2.5
---------------------------------
Interest rate swaps 630.9 258.3 -- (19.5) -- 9.9
---------------------------------
Put options 21.3 21.3 -- 1.9 -- 2.2
--------------------------------- -------- -------- ----- ------ ----- -----
4,998.5 6,287.9 17.4 (3.6) 25.5 15.5
Foreign currency derivatives:
Forward contracts -- 1.5 -- -- -- --
---------------------------------
Foreign currency swaps 44.2 47.2 -- (.4) -- .3
--------------------------------- -------- -------- ----- ------ ----- -----
44.2 48.7 -- (.4) -- .3
Commodity derivatives:
Commodity swaps -- 8.1 -- -- -- 2.4
--------------------------------- -------- -------- ----- ------ ----- -----
$5,042.7 $6,344.7 $17.4 $ (4.0) $25.5 $18.2
======== ======== ===== ====== ===== =====
</TABLE>
S-24
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
A reconciliation of the notional or contract amounts for the significant
programs using derivative agreements and contracts at December 31 is as
follows:
<TABLE>
<CAPTION>
INTEREST RATE CAPS SWAPTIONS
-----------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------
(IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $4,108.8 $4,900.0 $1,899.5 $1,752.0
-------------------------------------------------------
New contracts -- 708.8 -- 218.3
-------------------------------------------------------
Terminations and maturities (1,600.0) (1,500.0) (62.0) (70.8)
------------------------------------------------------- -------- -------- -------- --------
Balance at end of year $2,508.8 $4,108.8 $1,837.5 $1,899.5
------------------------------------------------------- ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE SWAPS
-----------------------
1999 1998
-----------------------
<S> <C> <C>
Balance at beginning of year $ 258.3 $ 10.0
------------------------------------------------------------
New contracts 482.4 2,226.6
------------------------------------------------------------
Terminations and maturities (109.8) (1,978.3)
------------------------------------------------------------ ------- ---------
Balance at end of year $ 630.9 $ 258.3
------------------------------------------------------------ ======= =========
</TABLE>
<TABLE>
<CAPTION>
COMMODITY
PUT OPTIONS SWAPS
----------------------------------------
1999 1998 1999 1998
----------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $21.3 $ -- $ 8.1 $ --
------------------------------------------------------------
New contracts -- 21.3 -- 8.1
------------------------------------------------------------
Terminations and maturities -- -- (8.1) --
------------------------------------------------------------ ----- ----- ----- ----
Balance at end of year $21.3 $21.3 $ -- $8.1
------------------------------------------------------------ ===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY DERIVATIVES
(FOREIGN INVESTMENTS)
-------------------------------------------
FOREIGN CURRENCY
SWAPS
FOREIGN EXCHANGE
-------------------------------------------
FORWARD CONTRACTS
1999 1998 1999 1998
-------------------------------------------
(IN MILLIONS)
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 1.5 $ 163.1 $47.2 $15.0
------------------------------------------------------------
New contracts 2.7 419.8 -- 39.2
------------------------------------------------------------
Terminations and maturities (4.2) (581.4) (3.0) (7.0)
------------------------------------------------------------ ----- ------- ----- -----
Balance at end of year $ -- $ 1.5 $44.2 $47.2
------------------------------------------------------------ ===== ======= ===== =====
</TABLE>
INTEREST RATE CAP AGREEMENTS
The interest rate cap agreements, which expire in 2000 through 2006, entitle
the Company to receive quarterly payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such payments, if any, is determined by the excess of a
market interest rate over a specified cap rate multiplied by the notional
amount divided by four. The purpose of the Company's interest rate cap
agreement program is to protect its annuity line of business from the effect
of rising interest rates. The
S-25
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
premium paid for the interest rate caps is included in other investments
(amortized costs of $5.2 million as of December 31, 1999) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
SWAPTIONS
Swaptions, which expire in 2000 through 2003, entitle the Company to receive
settlement payments from the counterparties on specified expiration dates,
contingent on future interest rates. For each swaption, the amount of such
settlement payments, if any, is determined by the present value of the
difference between the fixed rate on a market rate swap and the strike rate
multiplied by the notional amount. The purpose of the Company's swaption
program is to protect its annuity line of business from the effect of rising
interest rates. The premium paid for the swaptions is included in other
investments (amortized cost of $12.2 million as of December 31, 1999) and is
being amortized over the terms of the agreements. This amortization is
included in net investment income.
SPREAD LOCK AGREEMENTS
Spread-lock agreements provide for a lump sum payment to or by the Company,
depending on whether the spread between the swap rate and a specified
government security is larger or smaller than a contractually specified
spread. Cash payments are based on the product of the notional amount, the
spread between the swap rate and the yield of an equivalent maturity
government security and the price sensitivity of the swap at that time. The
purpose of the Company's spread-lock program is to protect a portion of its
fixed maturity securities against widening of spreads. While spreadlocks are
used periodically, there are no spreadlock agreements outstanding at
December 31, 1999.
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swap agreements to hedge its exposure to
floating rate bond coupon payments, replicating a fixed rate bond. An
interest rate swap is a contractual agreement to exchange payments at one or
more times based on the actual or expected price, level, performance or
value of one or more underlying interest rates. The Company is required to
pay the counterparty to the agreement the stream of variable interest
payments based on the coupon payments hedged bonds, and in turn, receives a
fixed payment from the counterparty at a predetermined interest rate. The
net receipts/payments from interest rate swaps are recorded in net
investment income. The Company also uses interest rate swap agreements to
hedge its exposure to interest rate fluctuations related to the anticipated
purchase of assets to support newly acquired blocks of business or to extend
the duration of certain portfolios of assets. Once the assets are purchased
the gains (losses) resulting from the termination of the swap agreements
will be applied to the basis of the assets. The gains (losses) will be
recognized in earnings over the life of the assets. The anticipated purchase
of assets related to extending the duration of certain portfolios of assets
is expected to be completed in 2000.
PUT OPTIONS
The Company uses put options, combined with various perpetual fixed income
securities, and interest rate swaps to replicate fixed income, fixed
maturity investments. The risk being hedged is a drop in bond prices due to
credit concerns with international bond issuers. The put options allow the
Company to put the bonds back to the counterparties at original par.
FOREIGN CURRENCY DERIVATIVES
The Company uses a combination of foreign exchange forward contracts and
foreign currency swaps, which are traded over-the-counter, to hedge some of
the foreign exchange risk of investments in fixed maturity securities
denominated in foreign currencies. The foreign currency forward contracts
obligate the Company to deliver a specified amount of currency at a future
date at a specified exchange rate. A foreign currency swap is a contractual
agreement to exchange the currencies of two different countries at a fixed
rate of exchange in the future.
COMMODITY SWAPS
The Company used a commodity swap to hedge its exposure to fluctuations in
the price of gold. A commodity swap is a contractual agreement to exchange a
certain amount of a particular commodity for a fixed amount of cash. The
Company owned a fixed income security that met its coupon
S-26
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
payment obligations in gold bullion. The Company is obligated to pay to the
counterparty the gold bullion, and in return, receives from the counterparty
a stream of fixed income payments. The fixed income payments were the
product of the swap notional multiplied by the fixed rate stated in the swap
agreement. The net receipts or payments from commodity swaps were recorded
in net investment income. The fixed income security was called in the third
quarter of 1999 and the commodity swap expired.
ADDITIONAL DERIVATIVE INFORMATION
Expenses for the agreements and contracts described above amounted to
$6,200,000, $10,000,000 and $7,000,000 in 1999, 1998 and 1997, respectively.
Deferred gains of $100,000 as of December 31, 1999, were the result of
terminated interest rate swaps. These gains are included with the related
fixed maturity securities to which the hedge applied or as deferred
liabilities and are being amortized over the life of such securities.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on various derivative contracts. However, the Company does
not anticipate nonperformance by any of the counterparties. The credit risk
associated with such agreements is minimized by purchasing such agreements
from financial institutions with long-standing, superior performance
records. The amount of such exposure is essentially the net replacement cost
or market value less collateral held for such agreements with each
counterparty if the net market value is in the Company's favor. At
December 31, 1999, the exposure was $8,500,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and
assumptions used to determine the estimated fair values of
the Company's financial instruments. Considerable judgment
is required to develop these fair values. Accordingly, the
estimates shown are not necessarily indicative of the
amounts that would be realized in a one-time, current market
exchange of all of the Company's financial instruments.
BONDS AND UNAFFILIATED COMMON STOCK
Fair values of bonds are based on quoted market prices,
where available. For bonds not actively traded, fair values
are estimated using values obtained from independent pricing
services. In the case of private placements, fair values are
estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit
quality and maturity of the investments. The fair values of
unaffiliated common stocks are based on quoted market
prices.
PREFERRED STOCK
Fair values of preferred stock are based on quoted market
prices, where available. For preferred stock not actively
traded, fair values are based on values of issues of
comparable yield and quality.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair value of mortgage loans on real estate
was established using a discounted cash flow method based on
credit rating, maturity and future income. The ratings for
mortgages in good standing are based on property type,
location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and
payment record. Fair values for impaired mortgage loans are
based on: 1) the present value of expected future cash flows
discounted at the loan's effective interest rate; 2) the
loan's market price; or 3) the fair value of the collateral
if the loan is collateral dependent.
POLICY LOANS
The estimated fair values of investments in policy loans are
calculated on a composite discounted cash flow basis using
Treasury interest rates consistent with the maturity
durations assumed. These durations are based on historical
experience.
OTHER INVESTMENTS AND CASH AND SHORT-TERM INVESTMENTS
The carrying values for assets classified as other
investments and cash and short-term investments in the
accompanying statutory-basis balance sheets approximate
their fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future policy benefits and
claims" and "Other policyholder funds," include investment
type insurance contracts (i.e.,
S-27
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
deposit contracts and guaranteed interest contracts). The
fair values for the deposit contracts and certain guaranteed
interest contracts are based on their approximate surrender
values. The fair values for the remaining guaranteed
interest and similar contracts are estimated using
discounted cash flow calculations. These calculations are
based on interest rates currently offered on similar
contracts with maturities that are consistent with those
remaining for the contracts being valued.
The remainder of the balance sheet captions "Future policy
benefits and claims" and "Other policyholder funds," that do
not fit the definition of "investment-type insurance
contracts" are considered insurance contracts. Fair value
disclosures are not required for these insurance contracts
and have not been determined by the Company. It is the
Company's position that the disclosure of the fair value of
these insurance contracts is important because readers of
these financial statements could draw inappropriate
conclusions about the Company's capital and surplus
determined on a fair value basis. It could be misleading if
only the fair value of assets and liabilities defined as
financial instruments are disclosed.
SHORT-TERM DEBT
For short-term debt, the carrying value approximates fair
value.
SURPLUS NOTES DUE TO LNC
Fair values for surplus notes are estimated using discounted
cash flow analysis based on the Company's current
incremental borrowing rate for similar types of borrowing
arrangements.
GUARANTEES
The Company's guarantees include guarantees related to
mortgage loan pass-through certificates. Based on historical
performance where repurchases have been negligible and the
current status, which indicates none of the loans are
delinquent, the fair value liability for the guarantees
related to the mortgage loan pass-through certificates is
zero.
DERIVATIVES
The Company employs several different methods for
determining the fair value of its derivative instruments.
Fair values for these contracts are based on current
settlement values. These values are based on quoted market
prices for the foreign currency exchange contracts and
industry standard models that are commercially available for
interest rate cap agreements, swaptions, spread lock
agreements, interest rate swaps, commodity swaps and put
options.
INVESTMENT COMMITMENTS
Fair values for commitments to make investment in fixed
maturity securities (primarily private placements), mortgage
loans on real estate and real estate are based on the
difference between the value of the committed investments as
of the date of the accompanying balance sheets and the
commitment date. These estimates would take into account
changes in interest rates, the counterparties' credit
standing and the remaining terms of the commitments.
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the
accompanying statutory-basis balance sheets at fair value.
The related liabilities are also reported at fair value in
amounts equal to the separate account assets.
S-28
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the
Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------
1999 1998
-------------------------------------------------------------
CARRYING CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE
--------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 22,985.0 $ 22,376.3 $ 23,830.9 $ 25,065.5
-----------------------------------------------
Preferred stocks 253.8 223.6 236.0 242.5
-----------------------------------------------
Unaffiliated common stocks 166.9 166.9 259.3 259.3
-----------------------------------------------
Mortgage loans on real estate 4,211.5 4,104.0 3,932.9 4,100.1
-----------------------------------------------
Policy loans 1,652.9 1,770.5 1,606.0 1,685.9
-----------------------------------------------
Other investments 426.6 426.6 434.4 434.4
-----------------------------------------------
Cash and short-term investments 1,409.2 1,409.2 1,725.4 1,725.4
-----------------------------------------------
Investment-type insurance contracts:
Deposit contracts and certain guaranteed
interest contracts (17,730.4) (17,364.3) (17,845.8) (17,486.4)
--------------------------------------------
Remaining guaranteed interest and similar
contracts (454.7) (465.1) (714.4) (738.2)
--------------------------------------------
Short-term debt (205.0) (205.0) (140.0) (140.0)
-----------------------------------------------
Surplus notes due to LNC (1,250.0) (1,022.1) (1,250.0) (1,335.1)
-----------------------------------------------
Derivatives 17.4 (4.0) 25.5 18.2
-----------------------------------------------
Investment commitments -- (0.8) -- (.6)
-----------------------------------------------
Separate account assets 46,105.1 46,105.1 36,907.0 36,907.0
-----------------------------------------------
Separate account liabilities (46,105.1) (46,105.1) (36,907.0) (36,907.0)
-----------------------------------------------
</TABLE>
12. ACQUISITIONS AND SALES OF SUBSIDIARIES
In 1997, LNC contributed 25,000,000 shares of common stock of American
States to the Company. American States is a property casualty insurance
holding company of which LNC owned 83.3%. The contributed common stock was
accounted for as a capital contribution equal to the fair value of the
common stock received by the Company. Subsequently, the American States
common stock owned by the Company, along with all other American States
common stock owned by LNC and its affiliates, was sold. The Company received
proceeds from the sale in the amount of $1,175,000,000. The Company
recognized no gain or loss on the sale of its portion of the common stock
due to the receipt of the stock at fair value. The proceeds from this sale
of stock were used to partially finance the CIGNA indemnity reinsurance
transaction.
13. TRANSACTIONS WITH AFFILIATES
A wholly owned subsidiary of LNC, Lincoln Life and Annuity
Distributors, Inc. ("LLAD"), has a nearly exclusive general agent's contract
with the Company under which it sells the Company's products and provides
the service that otherwise would be provided by a home office marketing
department and regional offices. For providing these selling and marketing
services, the Company paid LLAD override commissions of $60,400,000 and
$76,700,000 in 1999 and 1998, respectively, and override commissions and
operating expense allowances of $61,600,000 in 1997. LLAD incurred expenses
of $113,400,000, $102,400,000 and
S-29
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH AFFILIATES (CONTINUED)
$5,500,000 in 1999, 1998 and 1997, respectively, in excess of the override
commissions and operating expense allowances received from the Company,
which the Company is not required to reimburse. Effective in January 1998,
the Company and LLAD agreed to increase the override commission expense and
eliminate the operating expense allowance.
Cash and short-term investments at December 31, 1999 and 1998 include the
Company's participation in a short-term investment pool with LNC of
$390,300,000 and $383,600,000, respectively. Related investment income
amounted to $16,700,000, $16,800,000 and $15,500,000 in 1999, 1998 and 1997,
respectively. Short-term loan payable to parent company at December 31, 1999
and 1998 represent notes payable to LNC.
The Company provides services to and receives services from affiliated
companies which resulted in a net payment of $49,400,000, $92,100,000 and
$48,500,000 in 1999, 1998 and 1997, respectively.
The Company cedes and accepts reinsurance from affiliated companies.
Premiums in the accompanying statements of income include premiums on
insurance business accepted under reinsurance contracts and exclude premiums
ceded to other affiliated companies, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------
(IN MILLIONS)
------------------------
<S> <C> <C> <C>
Insurance assumed $ 19.7 $ 13.7 $ 11.9
----------------------
Insurance ceded 777.6 290.1 100.3
</TABLE>
The balance sheets include reinsurance balances with affiliated companies as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN MILLIONS)
-----------------------
<S> <C> <C>
Future policy benefits
and claims assumed
$ 413.7 $ 197.3
------------------------
Future policy benefits
and claims ceded 1,680.4 1,125.0
------------------------
Amounts recoverable on
paid and unpaid losses 146.4 84.2
------------------------
Reinsurance payable on
paid losses 8.8 6.0
------------------------
Funds held under
reinsurance treaties --
net liability 2,106.4 1,375.4
------------------------
</TABLE>
Substantially all reinsurance ceded to affiliated companies is with
unauthorized companies. To take a reserve credit for such reinsurance, the
Company holds assets from the reinsurer, including funds held under
reinsurance treaties, and is the beneficiary on letters of credit
aggregating $917,300,000 and $318,300,000 at December 31, 1999 and 1998,
respectively. The letters of credit are issued by banks and represent
guarantees of performance under the reinsurance agreement. At December 31,
1999 and 1998, LNC had guaranteed $818,900,000 and $237,000,000,
respectively, of these letters of credit. At December 31, 1999 and 1998, the
Company has a receivable (included in the foregoing amounts) from affiliated
insurance companies in the amount of $118,800,000 and $122,400,000,
respectively, for statutory surplus relief received under financial
reinsurance ceded agreements.
14. SEPARATE ACCOUNTS
Separate account assets held by the Company consist primarily of long-term
bonds, common stocks, short-term investments and mutual funds and are
carried at market value. Substantially none of the separate accounts have
any minimum guarantees and the investment risks associated with market
S-30
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
14. SEPARATE ACCOUNTS (CONTINUED)
value changes are borne entirely by the policyholder.
Separate account premiums, deposits and other considerations amounted to
$4,572,600,000, $3,953,300,000 and $4,821,800,000 in 1999, 1998 and 1997,
respectively. Reserves for separate accounts with assets at fair value were
$45,198,900,000 and $36,145,900,000 at December 31, 1999 and 1998,
respectively. All reserves are subject to discretionary withdrawal at market
value.
A reconciliation of transfers to (from) separate accounts is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Transfers as reported in the Summary of Operations of the
various separate accounts:
Transfers to separate accounts $ 4,573.2 $ 3,954.9 $ 4,824.0
------------------------------------------------------------
Transfers from separate accounts (4,933.8) (4,069.8) (2,943.8)
------------------------------------------------------------ --------- --------- ---------
Net transfers to (from) separate accounts as reported in the
Summary of Operations $ (360.6) $ (114.9) $ 1,880.2
------------------------------------------------------------ ========= ========= =========
</TABLE>
15. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue was complex and affected many aspects of the Company's
business. The Company was particularly concerned with Year 2000 issues that
related to the Company's computer systems and interfaces with the computer
systems of vendors, suppliers, customers and business partners. From 1996
through 1999 the Company and its operating subsidiaries redirected a large
portion of internal Information Technology ("IT") efforts and contracted
with outside consultants to update systems to address Year 2000 issues.
Experts were engaged to assist in developing work plans and cost estimates
and to complete remediation activities.
For the year ended December 31, 1999, the Company identified expenditures of
$39,500,000 to address this issue. This brings the expenditures for 1996
through 1999 to $75,300,000. Because updating systems and procedures is an
integral part of the Company's on-going operations, most of the expenditures
shown above are expected to continue after all Year 2000 issues have been
resolved. All Year 2000 expenditures have been funded from operating cash
flows.
The scope of the overall Year 2000 program included the following four major
project areas: 1) addressing the readiness of business applications,
operating systems and hardware on mainframe, personal computer and local
area network platforms (IT); 2) addressing the readiness of non-IT embedded
software and equipment (non-IT); 3) addressing the readiness of key business
partners and 4) establishing Year 2000 contingency plans. The Company
completed these projects prior to year-end.
The Company's businesses have not identified any major problems in their
business processing. Minor problems have been resolved quickly. The
Company's businesses have not experienced any significant interruption in
service to clients or business partners or in reporting to regulators.
S-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Lincoln National Life Insurance Company
We have audited the accompanying statutory-basis balance sheets
of The Lincoln National Life Insurance Company (the "Company"),
a wholly owned subsidiary of Lincoln National Corporation, as of
December 31, 1999 and 1998, and the related statutory-basis
statements of operations, changes in capital and surplus and
cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company
presents its financial statements in conformity with accounting
practices prescribed or permitted by the Indiana Department of
Insurance, which practices differ from accounting principles
generally accepted in the United States. The variances between
such practices and accounting principles generally accepted in
the United States and the effects on the accompanying financial
statements are also described in Note 1.
In our opinion, because of the effects of the matter described
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with accounting
principles generally accepted in the United States, the
financial position of The Lincoln National Life Insurance
Company at December 31, 1999 and 1998, or the results of its
operations or its cash flows for each of the three years in the
period ended December 31, 1999.
However, in our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of The Lincoln National Life Insurance Company at
December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting practices
prescribed or permitted by the Indiana Department of Insurance.
January 31, 2000
S-32
<PAGE>
Part C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements provided in the Statement of Additional Information.
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, 1999
Statement of Operations -- Year ended December 31, 1999
Statements of Changes in Net Assets -- Years ended December 31, 1999 and 1998
Notes to Financial Statements -- December 31, 1999
Report of Ernst & Young LLP, Independent Auditors
3. Part B The following Statutory-Basis Financial Statements of The Lincoln
National Life Insurance Company are included in the SAI:
Balance Sheets Statutory-Basis -- Years ended December 31, 1999 and 1998
Statements of Operations Statutory-Basis -- Years ended December 31, 1999,
1998 and 1997
Statements of Changes in Capital and Surplus Statutory-Basis -- Years ended
December 31, 1999, 1998, and 1997
Statements of Cash Flows Statutory-Basis -- Years ended December 31, 1999,
1998, and 1997
Notes to Statutory-Basis Financial Statements -- December 31, 1999
Report of Ernst & Young LLP, Independent Auditors
(b) Exhibits
(1) Resolution of the Board of Directors and Memorandum from the
President of The Lincoln National Life Insurance Company authorizing
establishment of the Variable Account are incorporated by reference to
Registration Statement on Form N-4 (33-27783) filed on December 5, 1996.
(2) Not Applicable.
(3) (a) Underwriting Agreement incorporated herein by reference to
Registration Statement on Form N-4 (33-27783) filed on December 5, 1996.
(3) (b) Amendment to Underwriting Agreement incorporated herein by
reference to Registration Statement on Form N-4 (333-18419) filed on
March 27, 1998.
(3) (c) Selling Group Agreement incorporated herein by reference to
Registration Statement on Form N-4 (333-18419) filed on March 27, 1998.
(3) (d) Amendment dated October 15, 1999 to Principal Underwriting
Agreement.
(e) Amendment dated September 1999 to Selling Group Agreement.
(f) Amendment dated February 2000 to Selling Group Agreement.
(4) (a) Variable Annuity contract incorporated herein by reference to
Registration Statement on Form N-4 (333-63505) filed on November 25, 1998.
(b) Contract Amendment incorporated herein by reference to Registration
Statement on Form N-4 (333-63505) filed on August 13, 1999.
(c) Contract Amendment.
(5) Application.
(6) (a) Articles of Incorporation of The Lincoln National Life Insurance
Company are incorporated herein by reference to Registration
Statement on Form N-4 (333-40937) filed on November 9, 1998.
(b) By-laws of The Lincoln National Life Insurance Company are
incorporated herein by reference to Registration Statement on Form
N-4 (333-40937) filed on November 9, 1998.
(7) Not applicable.
(8) (a) Participation Agreement incorporated herein by reference to
Registration Statement on Form N-4 (333-18419) filed on April 1,
1997.
(b) Amendment to Participation Agreement incorporated herein by
reference to Registration Statement on Form N-4 (333-18419) filed
on April 1, 1997.
(c) Service Agreement between Delaware Management Holdings, Inc.,
Delaware Services Company, Inc. and The Lincoln National Life
Insurance Company is incorporated herein by reference to the
Registration Statement of Flexible Premium Variable Life Account F,
Form S-6 (333-40745) filed November 21, 1997.
<PAGE>
(d) Amendment dated October 15, 1999 to Participation Agreement
(9) Opinion and Consent of Mary Jo Ardington, Counsel, of The Lincoln
National Life Insurance Company incorporated herein by reference to
Registration Statement on Form N-4 (333-63505) filed on August 13,
1999.
(10) Consent of Ernst & Young LLP, Independent Auditors.
(11) Not applicable.
(12) Not applicable.
(13) Schedule for Computation of Performance Quotations incorporated herein
by reference to Registration Statement on Form N-4 (333-63505) filed
on August 13, 1999.
(14) Not applicable.
(15) Other Exhibits:
(a) Organizational Chart of the Lincoln National Insurance Holding
Company System
(b) Books and Records Report
(16) Power of Attorney
(a) Todd R. Stephenson
(b) Lawrence T. Rowland
(c) Keith J. Ryan
(d) H. Thomas McMeekin
(e) Richard C. Vaughan
(f) Jon A. Boscia
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME POSITIONS AND OFFICES WITH DEPOSITOR
- ---- ------------------------------------
Jon A. Boscia** President and Director
John H. Gotta**** Chief Executive Officer of Life Insurance,
Senior Vice President and Director
Stephen H. Lewis* Interim Chief Executive Officer of Annuities,
Senior Vice President and Director
H. Thomas McMeekin***** Director
Cynthia A. Rose* Secretary and Assistant Vice President
Lawrence T. Rowland*** Executive Vice President and Director
Keith J. Ryan* Vice President, Controller, and Chief Accounting
Officer
Todd R. Stephenson* Senior Vice President, Chief Financial Officer and
Assistant Treasurer
Eldon J. Summers* Second Vice President and Treasurer
Richard C. Vaughan** Director
Roy V. Washington* Vice President and Chief Compliance Officer
* Principal business address is 1300 South Clinton Street,
Fort Wayne, IN 46802-3506
** Principal business address is Center Square West Tower, 1500
Market Street - Suite 3900, Philadelphia, PA 19102-2112
*** Principal business address is One Reinsurance Place, 1700
Magnovox Way, Fort Wayne, IN 46804-1538
**** Principal business address is 350 Church Street, Hartford,
CT 06103
***** Principal business address is One Commerce Square, 2005 Market
Street, 39th Floor, Philadelphia, PA 19103
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
See Exhibit 15(a): Organizational Chart of the Lincoln National Insurance
Holding Company System.
ITEM 27. NUMBER OF PURCHASERS
As of February 29, 2000, there were 266,100 contractowners under
Account H.
ITEM 28. INDEMNIFICATION
(a) Brief description of indemnification provisions.
In general, Article VII of the By-laws of The Lincoln National Life
Insurance Company (Lincoln Life) provides that Lincoln Life will indemnify
certain persons against expenses, judgments and certain other specified
costs incurred by any such person if he/she is made a party or is
threatened to be made a party to a suit or proceeding because he/she was a
director, officer, or employee of Lincoln Life, as long as he/she acted in
good faith and in a manner he/she reasonably believed to be in the best
interests of, or not opposed to the best interests of, Lincoln Life.
Certain additional conditions apply to indemnification in criminal
proceedings.
In particular, separate conditions govern indemnification of directors,
officers, and employees of Lincoln Life in connection with suits by, or in
the right of, Lincoln Life. Please refer to Article VII of the By-laws of
Lincoln Life (Exhibit No. 6(b) hereto) for the full text of the
indemnification provisions. Indemnification is permitted by, and is subject
to the requirements of, Indiana law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 28(a) above or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is again public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Life Insurance (avail. Nov. 28, 1988) no-action letter
with respect to Contracts used in connection with retirement plans meeting
the requirements of Section 403(b) of the Internal Revenue Code, and
represents further that it will comply with the provisions of paragraphs
(1) through (4) set forth in that no-action letter.
<PAGE>
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, 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., New World Fund, Inc., SMALLCAP World 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 and Washington Mutual Investors Fund, Inc.
Lincoln National Variable Annuity Account E and Lincoln Life Flexible Premium
Variable Life Accounts F and J (all registered as investment companies under the
1940 Act) and Lincoln National Flexible Premium Group Variable Annuity Accounts
50, 51, and 52.
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
David L. Abzug Regional Vice President
27304 Park Vista Road
Agoura Hills, CA 91301
John A. Agar Vice President
1501 N. University, Suite 227A
Little Rock, AR 72207
Robert B. Aprison Vice President
2983 Bryn Wood Drive
Madison, WI 53711
L William W. Bagnard Vice President
Steven L. Barnes Senior Vice President
5400 Mount Meeker Rd., Suite 1
Boulder, CO 80301-3508
B Carl R. Bauer Assistant Vice President
Michelle A. Bergeron Senior Vice President
4160 Gateswalk Drive
Smyrna, GA 30080
J. Walter Best, Jr. Regional Vice President
9013 Brentmeade Blvd.
Brentwood, TN 37027
Joseph T. Blair Senior Vice President
148 E. Shore Ave.
Groton Long Point, CT 06340
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
John A. Blanchard Vice President
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President
P.O. Box 1665
Brentwood, TN 37024-1655
Mick L. Brethower Senior Vice President
29003 Colonial Drive
Georgetown, TX 78628
Alan Brown Regional Vice President
4129 Laclede Avenue
St. Louis, MO 63108
B J. Peter Burns Vice President
Brian C. Casey Regional Vice President
8002 Greentree Rd.
Bethesda, MD 20817
Victor C. Cassato Senior Vice President
609 W. Littleton Blvd., Suite 310
Greenwood Village, CO 80120
Christopher J. Cassin Senior Vice President
19 North Grant Street
Hinsdale, IL 60521
Denise M. Cassin Vice President
1301 Stoney Creek Drive
San Ramon, CA 94538
L Larry P. Clemmensen Director
L Kevin G. Clifford Director, President and Co-Chief
Executive Officer
Ruth M. Collier Senior Vice President
29 Landsdowne Drive
Larchmont, NY 10538
<PAGE>
S David Coolbaugh Assistant Vice President
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
--------------------- ---------------------
H Carlo O. Cordasco Assistant Vice President
Thomas E. Cournoyer Vice President
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Senior Vice President
3521 Rittenhouse St., N.W.
Washington, DC 20015
L Carl D. Cutting Vice President
William Daugherty Regional Vice President
1216 Highlander Way
Mechanicsburg, PA 17055
Dan J. Delianedis Regional Vice President
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President
505 E. Main Street
Jenks, OK 74037
Kirk D. Dodge Senior Vice President
633 Menlo Avenue, Suite 210
Menlo Park, CA 94025
Peter J. Doran Director, Executive Vice President
100 Merrick Road, Suite 216W
Rockville Centre, NY 11570
L Michael J. Downer Secretary
Robert W. Durbin Vice President
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Senior Vice President
L Paul H. Fieberg Sr. Vice President
John Fodor Vice President
15 Latisquama Road
Southborough, MA 01772
Daniel B. Frick Regional Vice President
845 Western Avenue
Glen Ellyn, IL 60137
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ----------------------
Clyde E. Gardner Senior Vice President
Route 2, Box 3162
Osage Beach, MO 65065
B Evelyn K. Glassford Vice President
Jeffrey J. Greiner Vice President
12210 Taylor Road
Plain City, OH 43064
L Paul G. Haaga, Jr. Director
B Mariellen Hamann Assistant Vice President
David E. Harper Senior Vice President
150 Old Franklin School Road
Pittstown, NJ 08867
H Mary Pat Harris Assistant Vice President
Ronald R. Hulsey Vice President
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President
1225 Vista Del Mar Drive
Delray Beach, FL 33483
Michael J. Johnston Director
630 Fifth Ave., 36th Floor
New York, NY 10111
<PAGE>
B Damien M. Jordan Vice President
Arthur J. Levine Senior Vice President
12558 Highlands Place
Fishers, IN 46038
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
B Karl A. Lewis Assistant Vice President
T. Blake Liberty Regional Vice President
5506 East Mineral Lane
Littleton, CO 80122
Mark J. Lien Regional Vice President
5570 Beechwood Terrace
West Des Moines, IA 50266
L Lorin E. Liesy Assistant Vice President
L Susan G. Lindgren Vice President - Institutional
Investment Services
LW Robert W. Lovelace Director
Stephen A. Malbasa Vice President
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Senior Vice President
5241 South Race Street
Littleton, CO 80121
L J. Clifton Massar Director, Senior Vice President
L E. Lee McClennahan Senior Vice President
S John V. McLaughlin Senior Vice President
Terry W. McNabb Vice President
2002 Barrett Station Road
St. Louis, MO 63131
L R. William Melinat Vice President - Institutional
Investment Services
David R. Murray Vice President
60 Briant Avenue
Sudbury, MA 01776
Stephen S. Nelson Vice President
P.O. Box 470528
Charlotte, NC 28247-0528
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
William E. Noe Regional Vice President
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Vice President
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Vice President
62 Park Drive
Glenview, IL 60025
Gary A. Peace Regional Vice President
291 Kaanapali Drive
Napa, CA 95864
Samuel W. Perry Regional Vice President
6133 Calle del Diascuno
Scottsdale, AZ 85251
Fredric Phillips Senior Vice President
175 Highland Avenue, 4th Floor
Needham, MA 02494
B Candance D. Pilgrim Assistant Vice President
Carl S. Platou Vice President
7455 80th Place, SE
Mercer Island, WA 98040
<PAGE>
L John O. Post Senior Vice President
S Richard P. Prior Vice President
Steven J. Reitman Senior Vice President
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President
244 Lambeau Lane
Glenville, NC 28736
George S. Ross Senior Vice President
55 Madison Avenue
Morristown, NJ 07962
L Julie D. Roth Vice President
L James F. Rothenberg Director
Douglas F. Rowe Vice President
414 Logan Ranch Road
Georgetown, TX 78628
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
Christopher S. Rowey Regional Vice President
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Senior Vice President
1080 Bay Pointe Crossing
Alpharetta, GA 30005
Richard R. Samson Senior Vice President
4604 Glencoe Avenue, # 4
Marina del Rey, CA 90292
Joseph D. Scarpitti Vice President
31465 St. Andrews
Westlake, OH 44145
L R. Michael Shanahan Director
Brad W. Short Regional Vice President
306 15th Street
Seal Beach, CA 90740
David W. Short Chairman of the Board
1000 RIDC Plaza, Suite 212 and Co-Chief Executive Officer
Pittsburgh, PA 15238
William P. Simon Senior Vice President
912 Castlehill Lane
Devon, PA 19333
L John C. Smith Assistant Vice President - Institutional
Investment Services
Rodney G. Smith Vice President
100 N. Central Expressway,
Suite 1214
Richardson, TX 75080
S Sherrie L. Snyder-Senft Assistant Vice President
Anthony L. Soave Regional Vice President
8831 Morning Mist Drive
Clarkston, MI 48348
Therese L. Souiller Assistant Vice President
2652 Excaliber Court
Virginia Beach, VA 23454
Nicholas D. Spadaccini Regional Vice President
855 Markley Woods Way
Cincinnati, OH 45230
L Kristen J. Spazafumo Assistant Vice President
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
Daniel S. Spradling Senior Vice President
181 Second Avenue, Suite 228
San Mateo, CA 94402
LW Eric H. Stern Director
B Max D. Stites Vice President
Thomas A. Stout Regional Vice President
1004 Ditchley Road
Virginia Beach, VA 23451
Craig R. Strauser Vice President
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Senior Vice President
31641 Saddletree Drive
Westlake Village, CA 91361
L Drew W. Taylor Assistant Vice President
S James P. Toomey Vice President
I Christopher E. Trede Vice President
George F. Truesdail Vice President
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Vice President
60 Reedland Woods Way
Tiburon, CA 94920
J. David Viale Regional Vice President
7 Gladstone Lane
Laguna Niguel, CA 92677
Thomas E. Warren Regional Vice President
119 Faubel St.
Sarasota, FL 34242
L J. Kelly Webb Senior Vice President, Treasurer
and Controller
<PAGE>
(b) (1) (2)
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
Gregory J. Weimer Vice President
206 Hardwood Drive
Venetia, PA 15367
B Timothy W. Weiss Director
George J. Wenzel Regional Vice President
3406 Shakespeare Drive
Troy, MI 48084
J.D. Wiedmaier Assistant Vice President
3513 Riverstone Way
Chesapeake, VA 23325
Timothy J. Wilson Vice President
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Vice President
H Marshall D. Wingo Director, Senior Vice President
L Robert L. Winston Director, Senior Vice President
William R. Yost Vice President
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President
2887 Player Lane
Tustin Ranch, CA 92782
- - -------------
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles,
CA 90025
B Business Address, 135 South State College Boulevard, Brea, CA 92821
S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) Name of Principal Underwriter: American Funds Distributors, Inc.; Net
Underwriting Discounts and Commissions: $15,918,533.87.
Item 30. Location of Accounts and Records
See Exhibit 15(b) is hereby incorporated herein by reference.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
- -------
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a Certificate or an Individual Contract offered by
the Prospectus, a space that an applicant can check to request a Statement
of Additional Information, or (2) a post card or a similar written
communication affixed to or included in the Prospectus that the applicant
can remove to send for a statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to Lincoln Life at the address or
phone number listed in the Prospectus.
(d) The 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.
(e) Registrant hereby represents that it is relying on the American Council of
Life Insurance (avail. Nov. 28, 1988) no-action letter with respect to
Contracts used in connection with retirement plans meeting the requirements
of Section 403(b) of the Internal Revenue Code, and represents further that
it will comply with the provisions of paragraphs (1) through (4) set forth
in that no-action letter.
(f) For Contracts sold in connection with the Texas Option Retirement Program,
Registrant is relying on Rule 6c-7 and represents that paragraphs (a)
through (d) of that rule have been complied with.
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Rule
485 (b) for effectiveness of this Amendment and 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 28th day of March, 2000.
LINCOLN NATIONAL VARIABLE ANNUITY
ACCOUNT H - Shareholder's Advantage
(Registrant)
By: /s/ Kelly D. Clevenger
__________________________________
Kelly D. Clevenger
Vice President, LNL
(Title)
By: THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
By: /s/ Stephen H. Lewis
__________________________________
Stephen H. Lewis
(Signature-Officer of Depositor)
Senior Vice President, LNL
(Title)
(b) As required by 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.
<TABLE>
<CAPTION>
Signatures Title Date
- ----------------------------------- -------------------------------- -----
<S> <C> <C>
*
- ----------------------------------- President & Director March 28, 2000
Jon A. Boscia (Principal Executive Officer)
*
- ----------------------------------- Executive Vice President and March 28, 2000
Lawrence T. Rowland Director
*
- ----------------------------------- Vice President and Controller March 28, 2000
Keith J. Ryan (Principal Accounting Officer)
*
- ----------------------------------- Senior Vice President, Chief March 28, 2000
Todd R. Stephenson Financial Officer and Assistant
Treasurer (Principal Financial Officer)
- ----------------------------------- Chief Executive Officer of Life ___________, 2000
John H. Gotta Insurance, Senior Vice President
and Director
/s/ Stephen H. Lewis
- ----------------------------------- Interim Chief Executive Officer March 28, 2000
Stephen H. Lewis of Annuities, Senior Vice
President and Director
*
- ----------------------------------- Director March 28, 2000
H. Thomas McMeekin
*
- ----------------------------------- Director March 28, 2000
Richard C. Vaughan
</TABLE>
*By /s/ Steven M. Kluever pursuant to a Power of Attorney filed with this
--------------------- Registration Statement
Steven M. Kluever
<PAGE>
EXHIBIT 3D
AMENDMENT TO THE PRINCIPAL UNDERWRITING AGREEMENT
-------------------------------------------------
This amendment, dated as of October 15, 1999 (this "Amendment"), to a
certain Principal Underwriting Agreement effective on the 12th day of July,
1989, as amended as of April 30, 1997 (as so amended, the "Original Agreement"),
is executed by and between LINCOLN NATIONAL LIFE INSURANCE COMPANY ("Lincoln
National"), a life insurance company organized under the laws of the state of
Indiana, on behalf of itself and SEPARATE ACCOUNT H OF THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY ("Separate Account"), a separate account established by
Lincoln National pursuant to the Indiana Insurance Code, and AMERICAN FUNDS
DISTRIBUTORS, INC. ("AID"), a corporation organized under the laws of the state
of California (collectively, the "Parties").
WITNESSETH:
WHEREAS, the Original Agreement provides for AID to serve as principal
underwriter for certain variable annuity contracts defined more fully therein
and marketed under the names "American Legacy II" and "American Legacy 111"; and
WHEREAS, the Parties desire to extend the terms and conditions of the
Original Agreement to cover a new variable annuity contract proposed to be
issued by Lincoln National through the Separate Account, which would provide for
investment in Class 2 shares of the American Variable Insurance Series (the
"Series") and for which AFD would serve as principal underwriter and which would
be marketed under the name "American Legacy Shareholder's Advantage";
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions contained herein and in the Original Agreement, and of
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Lincoln National, the Separate Account and AID hereby agree
as follows:
1. American Legacy Shareholder's Advantage Contracts. Lincoln National
--------------------------------------------------
hereby authorizes AFD to serve as principal underwriter for the American Legacy
Shareholder's Advantage Contracts and, in such capacity, to form a selling group
for the American Legacy Shareholder's Advantage Contracts, and AFD accepts such
authorization, subject to the same terms and conditions of the Original
Agreement as apply to the American Legacy 11 and American Legacy III Contracts
as though set forth in full herein, except as provided otherwise in Section 2 of
this Amendment. For this purpose and subject to Section 2 of this Amendment, all
references to "Contracts" in the Original Agreement, as amended hereby, shall
include the American Legacy Shareholder's Advantage Contracts; all references
therein to "Member" shall include each broker-dealer joining the American Legacy
Shareholder's Advantage selling group; and all references therein to
"Registration Statement" for the Contracts shall include the Registration
Statement of the Lincoln National Variable Annuity Account H as filed with the
Commission on Form N-4 (SEC File No. 333-63505).
<PAGE>
2. Special Terms and Conditions for the American Legacy Shareholder's
------------------------------------------------------------------
Advantage Contracts. The following terms and conditions shall apply with respect
- -------------------
to the American Legacy Shareholder's Advantage Contracts.
a. Effective Date. The duties, warranties, and other undertakings of the
--------------
Parties under the Original Agreement shall not take effect with
respect to American Legacy Shareholder's Advantage Contracts until the
initial registration statement for the American Legacy Shareholder's
Advantage Contracts has been declared effective by the Commission.
b. Compensation. Compensation with respect to the American Legacy
------------
Shareholder's Advantage Contracts shall be paid in accordance with
Schedule A IV which is attached to, and hereby incorporated into, this
Amendment; provided, however, that Lincoln National shall not be
obligated to pay servicing fees or trail commissions to Members in the
event that Lincoln National has not received, or is no longer eligible
to receive, payments under the plan of distribution adopted by the
Class 2 Shares of the Funds of the American Variable Insurance Series
pursuant to rule 12b-1 I under the Investment Company Act of 1940.
Changes may be made to Schedule A-IV from time to time in accordance
with Section 25 of the Original Agreement governing changes to the
Schedules.
3. Counterparts. This Amendment may be executed in two or more counterparts,
------------
each of which, when so executed, shall be deemed to be an original, but such
counterparts taken
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to
be duly executed and attested as follows:
The Lincoln National Life Insurance Company
on behalf of itself and Separate Account H of
the Lincoln National Life Insurance Company
Attest: By:
American Funds Distributors, Inc.
Attest: By:
2
<PAGE>
SCHEDULE A-IV
-------------
COMMISSIONS TO MEMBERS AND REMUNERATION TO AFD
----------------------------------------------
Effective October 15, 1999
1. All Sales of the Contract (also referred to-herein as "American Legacy
----------------------------------------------------------------------
Shareholder's Advantage").
------------------------
a) Lincoln National will make direct payment of commissions to members
and remuneration to AFD with respect to all sales of the above-cited
Contracts according to the schedule set forth below. Where state law
prohibits direct payment to AFD, payment will be made in accordance
with the applicable state law.
The commission to members and remuneration to AFD is based on the
level of sales charge paid by the contract owners on each gross
purchase payment based on the contract owner's investment as described
in the prospectus for American Legacy Shareholder's Advantage.
Sales Charge as
Percentage of Commission Remuneration
Gross To To
Purchase Payment Members AFD
5.75% 5.00% 0.75%
4.50% 3.75% 0.75%
3.50% 2.75% 0.75%
2.50% 2.00% 0.50%
2.00% 1.60% 0.40%
1.00% 1.00% -0-
b) An annual 0.25% continuing commission will be paid to dealers on the
value of all Contract purchase payments beginning in the second
Contract year. This compensation will be paid at the end of each
calendar quarter and will be calculated as follows: At the end of each
calendar quarter, Lincoln National will calculate and pay, for all
Contracts which have been in force for 15 months or more as of the
last day of the quarter, an amount equal to 0.0625% of the quarter
ending account value less any deposits made in the previous 15 months.
These continuing commissions are not paid on Contracts that have been
annuitized.
c) For dealers reaching certain sales levels set by AFD and Lincoln
National from time to time, an additional 0. 10% continuing commission
will be paid to dealers on the value of all Contract purchase payments
beginning in the second Contract year. This compensation will be paid
at the end of each calendar quarter and will be calculated as follows:
At the end of each calendar quarter, Lincoln National will calculate
and pay, for all eligible Contracts which have been in force for 15
months or more as of the. last day of the quarter, an amount equal to
0.025% of the quarter ending account value less any deposits made in
the previous 15 months. These continuing commissions are not paid on
Contracts that have been annuitized.
<PAGE>
2. Annuitization
-------------
Upon annuitization of a Contract to which no surrender charges apply: (1) a
continuing commission of 0.25% annually will be paid to dealers on statutory
reserves for that portion of the Contract which has been annuitized on a
variable basis and which remains annuitized on a variable basis (i.e. excluding
any statutory reserves associated with post-annuitization transfers from a
variable payout status to a fixed payout status). This amount will be based on
the calendar end reserve amount and paid to dealers each calendar quarter;
and/or (2) a one time commission of 3.00% will be paid to dealers on Contract
value which has been annuitized on a fixed basis.
Upon annuitization of a Contract to which no surrender charges apply, AFD
will receive a commission of 0.90% on Contract value which has been annuitized
on a fixed and/or variable basis.
3. Additional Remuneration to AFD.
-------------------------------
In order to permit AFD to make certain additional payments to certain
dealers selling American Legacy Shareholder's Advantage and for other purposes,
Lincoln National will pay AFD an additional 0.25% on all sales of American
Legacy Shareholder's Advantage.
IN WITNESS WHEREOF, the undersigned parties have caused this Schedule A-IV:
Commissions to Members and Remuneration to AFD to be duty executed and attested
as follows:
The Lincoln National Life Insurance Company
on behalf of itself and Separate Account H
of The Lincoln National Life Insurance
Company
Attest: By:
American Funds Distributors, Inc.
Attest: By:
<PAGE>
EXHIBIT 3E
American
Funds American Funds Distributors, Inc.
-----------------------------------------------------------------------
333 South Hope Street . Los Angeles, California 90071 September 20,1999
Dear American Legacy Selling Group Member:
This letter amends your Selling Group Agreement with American Funds
Distributors, Inc. ("AFD") and The Lincoln National Life Insurance Company
("Lincoln Life") to add American Legacy Shareholder's Advantage, our new
flexible premium variable annuity, to the product line.
The following compensation will be paid on American Legacy Shareholder's
Advantage sales:
Commission as Sales Charge as
Percentage of Percentage of
Gross Gross
Contract Owner's Investment* Purchase Payment Purchase Payment
- ---------------------------- ---------------- ----------------
Less than $50,000 5.00% 5.75%
$50,000 but less than $100,000 3.75% 4.50%
$100,000 but less than $250,000 2.75% 3.50%
$250,000 but less than $500,000 2.00% 2.50%
$500,000 but less than $1,000,000 1.60% 2.00%
$1.000,000 or more 1.00% 1.00%
*As defined under "Charges and Other Deductions" in the American Legacy
Shareholder's Advantage prospectus. Includes the value of other American Legacy
contracts and eligible mutual funds of The American Funds Group.
In addition to the commissions described above, a continuing .25% annual
service fee mill be paid to dealers on the value of all Contract purchase
payments beginning in the second Contract year. The service fee will be paid at
the end of each calendar quarter on the quarter ending account value less
purchase payments made in the previous 15 months. A separate compensation
arrangement (as described below) applies to Contracts that have been annuitized.
Service fee payments are subject to the continuation of the plan of distribution
adopted by American Variable Insurance Series, which serves as the investment
vehicle for American Legacy Shareholders Advantage, and such service fee
payments may be varied or discontinued at any time.
American Legacy Shareholder's Advantage
Variable Annuity--Annuitization
- ---------------------------------------
Upon annuitizatlon of American Legacy Shareholder's Advantage contracts, a
continuing commission of 25% annually will be paid to dealers on "statutory
reserves" which have been annuitized on a variable basis. This amount will be
based on end-of-quarter reserve amounts and paid to dealers each calendar
quarter. A commission of 3% will be paid to dealers on account values which have
been annuitized on a fixed basis.
<PAGE>
If you determine that American Legacy Shareholders Advantage does not fit
your marketing plan at this time. please complete and return the enclosed form
to AFD. Otherwise, any order received by us following this notification shall be
deemed an acceptance of this amendment to your Selling Group Agreement.
Very truly yours,
Kevin G. Clifford Jeffrey K. Dellinger
President Vice President
American Funds Distributors, Inc. The Lincoln National Life Insurance Company
<PAGE>
EXHIBIT 3F
February __, 2000
Dear American Legacy Selling Group Member:
This letter amends your Selling Group Agreement with American Funds
Distributors, Inc. ("AFD") and The Lincoln National Life Insurance Company
("Lincoln Life") to add two additional breakpoints to the compensation schedule
for sales of American Legacy Shareholder's Advantage.
Effective for sales made on or after February 22, 2000, the following
compensation will be paid on American Legacy Shareholder's Advantage sales:
Commission as Sales Charge as
Percentage of Percentage of
Gross Gross
Contract Owner's Investment* Purchase Payment Purchase Payment
- ---------------------------- ----------------- -----------------
Less than $25,000 5.00% 5.75%
$25,000 but less than $50,000 4.25% 5.00%
$50,000 but less than $100,000 3.75% 4.50%
$100,000 but less than $250,000 2.75% 3.50%
$250,000 but less than $500,000 2.00% 2.50%
$500,000 but less than $750,000 1.60% 2.00%
$750,000 but less than $1,000,000 1.20% 1.50%
$1,000,000 or more 1.00% 1.00%
*As defined under "Charges and Other Deductions" in the American Legacy
Shareholder's Advantage prospectus. Includes the value of other American Legacy
contracts and eligible mutual funds of The American Funds Group.
The .25% annual service fee and the compensation paid upon annuitization as
described in our September 20, 1999 amendment letter remain unchanged.
As in the past, any order received by us following this notification shall
be deemed an acceptance of this amendment to your Selling Group Agreement.
Very truly yours,
Kevin G. Clifford Jeffrey K. Dellinger
President Vice President
American Funds Distributors, Inc. The Lincoln National Life Insurance Company
<PAGE>
VARIABLE ANNUITY AMENDMENT RIDER
This Rider is made a part of the Contract to which it is attached ("this
Contract").
The following described changes are hereby made to this Contract:
. The below replaces Section 1.13 in its entirety:
1.13
DEATH BENEFIT - The amount payable upon death of the Owner or
Annuitant.
. The below replaces Section 2.01 in its entirety:
2.01 WHERE PAYABLE
All Gross Purchase Payments must be made to LNL or to its designated
agent(s).
. The below replaces the fourth paragraph of Section 2.04 VALUATION OF
ACCUMULATION UNITS:
The daily charges imposed on a Variable Sub-account for any Valuation
Period represent the daily mortality and expense risk charge and the
daily administrative charge adjusted for the number of calendar days
in the Valuation Period. On an annual basis, these charges will not
exceed 0.72%. For any period in which the Enhanced Guaranteed Minimum
Death Benefit (see Section 2.11) is not in effect, these charges will
not exceed 0.60% on an annual basis. The Accumulation Unit value may
increase or decrease the dollar value of benefits under the Contract.
The dollar value of benefits will not be adversely affected by
expenses incurred by LNL.
. The below replaces the first paragraph of Section 2.07 TRANSFERS:
Prior to the earlier of:
a. the Maturity Date;
b. surrender of this Contract;
c. termination of this Contract upon payment of any Death Benefit,
or
d. the Annuity Commencement Date;
the Owner may direct a transfer of Contract Value:
a. from one Variable Sub-account to another Variable Sub-account or
to the DCA Fixed Account; or
b. from the DCA Fixed Account to a Variable Sub-account;
subject to the limitations described below. Such a transfer request
must be made in writing to LNL or may be made by telephone provided
LNL has received the appropriate authorization from the Owner for
telephone transfers in accordance with LNL's procedures.
. The below replaces Section 2.11 in its entirety:
2.11 DEATH BENEFITS
Before the Annuity Commencement Date.
Entitlement.
If there is a single Owner, upon the death of the Owner LNL will pay a
Death Benefit to the designated Beneficiary(s) in accordance with the
terms of Article 4. If the designated Beneficiary of the Death
<PAGE>
Benefit is the surviving spouse of the deceased Owner, the spouse may elect
to continue the Contract as the new Owner. Upon the death of the spouse who
continues the Contract as the new Owner, LNL will pay a Death Benefit to
the designated Beneficiary(s) in accordance with the terms of Article 4.
If there are Joint Owners, upon the death of the first Joint Owner, LNL
will pay a Death Benefit to the surviving Joint Owner. If the surviving
Joint Owner is the spouse of the deceased Joint Owner, then the spouse may
elect to continue the Contract as sole Owner. Upon the death of the Joint
Owner who continues the Contract, LNL will pay a Death Benefit to the
designated Beneficiary(s) in accordance with the terms of Article 4.
If the Annuitant is also the Owner or a Joint Owner, then the Death Benefit
paid upon the death of the Annuitant will be subject to the Contract
provisions regarding death of the Owner. If the surviving spouse of the
Owner/Annuitant elects to continue the Contract as Owner, the contingent
Annuitant becomes the Annuitant. If no contingent Annuitant is named, the
surviving spouse becomes the Annuitant.
If an Annuitant who is not the Owner or a Joint Owner dies, then the
contingent Annuitant, if named, becomes the Annuitant and no Death Benefit
is payable upon the death of the Annuitant. If no contingent Annuitant is
named, the Owner (or younger of Joint Owners) becomes the Annuitant. In
lieu of continuing the Contract, a Death Benefit may be paid to the Owner
(and Joint Owner in equal shares if applicable) if the Annuitant named on
this Contract has not been changed, except on death of a prior Annuitant,
and notification of the election of the Death Benefit is received by LNL
within 75 days of the death of the Annuitant. If no Owner is living on the
date of death of the Annuitant, the Death Benefit will be paid to the
Beneficiary in accordance with the terms of Article 4. This Contract will
terminate when any Death Benefit is paid due to the death of the Annuitant.
A Death Benefit payable upon the death of the Annuitant will not be paid if
the Annuitant has been changed subsequent to the effective date of this
Contract unless the change occurred because of the death of a prior
Annuitant.
If the Owner is a corporation or other non-individual (non-natural person),
the death of the Annuitant will be treated as the death of the Owner.
The Death Benefit will be paid if LNL is in receipt of:
a. proof of death acceptable to LNL;
b. written authorization for payment; and
c. all claim forms, fully completed.
Due proof of death may be a certified copy of a death certificate, a
certified copy of a decree of a court of competent jurisdiction as to the
findings of death, or any other proof of death acceptable to LNL.
All Death Benefit payments will be subject to the laws and regulations
governing death benefits.
Notwithstanding any provisions of this Contract to the contrary, the
payment of Death Benefits provided under this Contract must be made in
compliance with Code Section 72(s) or 401(a)(9) as applicable, as amended
from time to time.
Determination of Amounts.
This Contract provides a Death Benefit called the Enhanced Guaranteed
Minimum Death Benefit (EGMDB), if in effect. If the EGMDB was not available
at issue or was terminated, then the Death Benefit is equal to the
Guarantee of Principal.
The EGMDB is equal to the greater of:
a. the current Contract Value as of the Valuation Date on which the
death claim is approved by LNL for payment; or
b. the highest Contract Value on any Contract anniversary date
(including the amount of the initial Gross Purchase Payment on
the Contract Date) prior to the 81st birthday of the deceased and
prior to the death of the deceased.
<PAGE>
The highest Contract Value is increased by Gross Purchase
Payments made subsequent to such anniversary date on which the
highest Contract Value is obtained. The highest Contract Value is
decreased by partial withdrawals and premium tax (if applicable)
made, effected or incurred subsequent to such anniversary date on
which the highest Contract Value is obtained.
Upon the death of an Owner, Joint Owner, or Annuitant of this Contract, if
a surviving spouse continues the Contract, the EGMDB payable on the death
of the deceased spouse is equal to the excess of "b." over "a." (if "a." is
greater than "b.", then no Death Benefit is payable upon the first death).
This EGMDB will be credited into the Contract and will only apply one time
for each Contract.
The Guarantee of Principal is equal to the greater of:
a. the current Contract Value as of the Valuation Date on which the
death claim is approved by LNL for payment; or
b. the sum of all Gross Purchase Payments decreased by partial
withdrawals and premium tax (if applicable) made, effected or
incurred subsequent to the Contract Date.
Upon the death of an Owner, Joint Owner, or Annuitant of this Contract, if
a surviving spouse continues the Contract, the Guarantee of Principal
payable upon the death of the deceased spouse is equal to the excess of
"b." over "a." (if "a." is greater than "b.", then no Death Benefit is
payable on the first death). This Guarantee of Principal will be credited
into the Contract and will only apply one time for each Contract.
The EGMDB will not be in effect if this Contract is issued to an Owner,
Joint Owner if applicable, and Annuitant with attained ages of 80 or
greater at issue. Under these circumstances, there will be no EGMDB
provided and the Death Benefit will be equal to the Guarantee of Principal.
The EGMDB, unless terminated by the Owner, will only be in effect for Non-
qualified Contracts, Contracts sold as Individual Retirement Annuities
(IRA) under Code Section 408(b) and Contracts sold as Roth Individual
Retirement Annuities under Code Section 408A. For all other Contracts, the
EGMDB will not be in effect and the Death Benefit is equal to the Guarantee
of Principal.
If the Contract is continued by the surviving spouse, the EGMDB will
continue if it was in effect at the time of death of the original Owner,
unless subsequently terminated by the surviving spouse. A surviving spouse
who continues the Contract cannot add the EGMDB to the Contract.
At any time prior to the Annuity Commencement Date, an Owner may choose to
terminate the EGMDB by giving written notice to LNL and the Contract will
then have no EGMDB. The EGMDB will terminate on the next Valuation Date
following receipt of the written notice in the LNL Home Office, and the
Death Benefit will then be the Guarantee of Principal. After termination of
the EGMDB by the Owner or by the surviving spouse who elected to continue
the Contract, the EGMDB may not be re-selected.
Payment of Amounts.
The Death Benefit payable on the death of the Owner, or after the death of
the first Joint Owner, or upon the death of the spouse who continues the
Contract as the new Owner, will be distributed to the designated
Beneficiary(s) as follows:
a. the Death Benefit must be completely distributed within five
years of the Owner's date of death; or
b. the designated Beneficiary may elect, within the one year period
after the Owner's date of death, to receive the Death Benefit in
substantially equal installments over the life of such designated
Beneficiary or over a period not extending beyond the life
expectancy of such designated Beneficiary; provided that such
distributions begin not later than one year after the Owner's
date of death.
The Death Benefit payable upon the death of the Annuitant will be
distributed to the Owner, and Joint Owner if applicable, either as a lump
sum payment or in the form of an Annuity Payment Option. An Annuity Payment
Option must be selected within 60 days after LNL approves the death claim
(as discussed previously in this Section 2.11).
<PAGE>
If a lump sum settlement is elected, the proceeds will be mailed within
seven days of approval by LNL of the claim. This payment may be postponed
as permitted by the Investment Company Act of 1940.
On or After the Annuity Commencement Date.
If the Owner dies on or after the Annuity Commencement Date, any remaining
annuity benefit payments will continue to be distributed under the Annuity
Payment Option then in effect. All of the Owner's rights granted by the
Contract will pass to the Joint Owner, if any; otherwise to the
Beneficiary.
If there is no named Beneficiary at the time of the Owner's death, the
Owner's rights will pass to the Annuitant, if still living; otherwise to
the Joint Annuitant, if applicable. If no named Beneficiary, Annuitant, or
Joint Annuitant survives the Owner, any remaining annuity benefit payments
will continue to the Owner's estate.
On receipt of due proof of death (as described in this Section 2.11) of the
Annuitant or both Joint Annuitants, any remaining annuity benefit payments
under the Annuity Payment Option will be paid to the Owner if living at the
time of death of the Annuitant(s); otherwise, to the Beneficiary. If there
is no Beneficiary, any remaining benefit Payments will continue to the
Annuitant's estate.
. Section 2.12 DEATH OF ANNUITANT is deleted in its entirety.
. The below paragraph is added following the 3rd paragraph of Section 4.01
DESIGNATION:
If the Annuitant dies and a Death Benefit is paid, the Owner (and Joint
Owner if applicable) will be treated as primary Beneficiary(s). Any other
Beneficiary designation on record at the time of death will be treated as a
contingent Beneficiary.
. The below replaces the second paragraph of section 5.02 OWNERSHIP:
The Owner may name a Joint Owner. Joint Owner(s) will be treated as having
equal, undivided interests in the Contract, including rights of
survivorship. Either Joint Owner, independently of the other, may exercise
any ownership rights in the Contract.
. The below replaces section 5.11 in its entirety:
5.11 MAXIMUM ISSUE AGE
The Owner, Joint Owner, and Annuitant must each be under age of 90 when
this Contract is issued.
The Lincoln National Life Insurance Company
/s/ Kathleen Peterson
Kathleen Peterson, Second Vice President
<PAGE>
[LOGO OF The Lincoln National Life
AMERICAN Shareholder's Advantage Insurance Company
LEGACY(R) American Legacy Shareholder's Advantage Fort Wayne, Indiana
APPEARS HERE] is a variable annuity contract.
- --------------------------------------------------------------------------------
Instructions: Please type or print. ANY ALTERATIONS TO THIS APPLICATION MUST BE
INITIALED BY THE CONTRACT OWNER.
- --------------------------------------------------------------------------------
1a Right of Accumulation (If additional space is needed, use Section 12.)
[_] I own an American Funds mutual fund or American Legacy Variable Annuity,
which may entitle me to a reduced sales charge under the terms of the
prospectus. My account numbers are: ________________ ___________________
[_] The registration of some of my shares differs. Their account numbers are
(may include spouse and/or children under 21):
Account no. Name SSN
-------------------------------- ------------------------ ---------------
Account no. Name SSN
-------------------------------- ------------------------ ---------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1b Contract Owner Note: Maximum age of Contract Owner is 90.
<S> <C>
Social Security number/TIN [_][_][_]-[_][_]-[_][_][_][_]
_________________________________________________________
Full legal name or trust name* Date of birth [_][_] [_][_] [_][_] [_] Male [_] Female
Month Day Year
_________________________________________________________
Street address
Home telephone number [_][_][_] [_][_][_]-[_][_][_][_]
_________________________________________________________
City State ZIP
_________________________________________________________ Date of trust* [_][_] [_][_] [_][_] Is trust revocable?*
Trustee name* Month Day Year [_] Yes [_] No
*This information is required for trusts.
- -----------------------------------------------------------------------------------------------------------------------------------
1c Joint Contract Owner Note: Maximum age of Joint Contract Owner is 90.
Social Security number/TIN [_][_][_]-[_][_]-[_][_][_][_]
_________________________________________________________
Full legal name Date of birth [_][_] [_][_] [_][_] [_] Male [_] Female
Month Day Year
[_] Spouse [_] Non-Spouse
- -----------------------------------------------------------------------------------------------------------------------------------
2a Annuitant Note: Maximum age of Annuitant is 90. (If no Annuitant is specified, the Contract Owner, or Joint Owner
if younger, will be the Annuitant.)
Social Security number/TIN [_][_][_]-[_][_]-[_][_][_][_]
_________________________________________________________
Full legal name or trust name* Date of birth [_][_] [_][_] [_][_] [_] Male [_] Female
Month Day Year
_________________________________________________________
Street address
Home telephone number [_][_][_] [_][_][_]-[_][_][_][_]
_________________________________________________________
City State ZIP
- -----------------------------------------------------------------------------------------------------------------------------------
2b Contingent Annuitant Note: Maximum age of Contingent Annuitant is 90.
Social Security number/TIN [_][_][_]-[_][_]-[_][_][_][_]
_________________________________________________________
Full legal name
- -----------------------------------------------------------------------------------------------------------------------------------
3 Beneficiary(ies) of Contract Owner (List additional beneficiaries on separate sheet. If listing children, use full legal names.)
_________________________________________________________ _________________________________ _________________ -------%
Primary: Full legal name or trust name* Relationship to Contract Owner SSN/TIN
_________________________________________________________ _________________________________ _________________ -------%
Primary: Full legal name Relationship to Contract Owner SSN/TIN
_________________________________________________________ _________________________________ _________________ -------%
Contingent: Full legal name or trust name Relationship to Contract Owner SSN/TIN
_________________________________________________________ Date of trust* [_][_] [_][_] [_][_] Is trust revocable?*
Executor/Trustee name* Month Day Year [_] Yes [_] No
*This information is required for trusts.
To specify an annuity payment option for your beneficiary, please complete the Beneficiary Payment Options form (29953).
- -----------------------------------------------------------------------------------------------------------------------------------
4 Type of American Legacy Contract
Nonqualified: [_] Initial Contribution OR [_] 1035 Exchange
Tax-Qualified (must complete plan type): [_] Initial Contribution, Tax Year______ OR [_] Transfer OR [_] Rollover
Plan Type (check one): [_] Roth IRA [_] Traditional IRA [_] Non-ERISA 403(b)* (transfers only) *Indicate plan year-end:
[_][_] [_][_]
Month Day
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
5a Allocation (This section must be completed.)
Initial minimums:
Nonqualified/403(b) $1,500 Qualified $300
Future contributions will follow the allocation below. If DCA option is
selected, the entire amount of each future contribution will follow the
allocation in Section 5b.
If no allocations are specified in Section 5a or 5b, the entire amount will
be allocated to the Cash Management Fund pending instructions from the
Contract Owner.
- --------------------------------------------------------------------------
Please allocate my contribution of:
$ _________________________ OR $ ____________________________
Initial contribution Approximate amount
from previous carrier
- --------------------------------------------------------------------------
INTO THE FUND(S) BELOW
- --------------------------------------------------------------------------
Use whole percentages
________% Global Growth Fund
________% Global Small Capitalization Fund
________% Growth Fund
________% International Fund
________% New World Fund
________% Growth-income Fund
________% Asset Allocation Fund
________% High-Yield Bond Fund
________% Bond Fund
________% U.S. Govt./AAA-Rated Securities Fund
________% Cash Management Fund
Guaranteed Interest Account Periods:
____% 1 year ____% 3 years ____% 5 years
____% 7 years ____% 10 years
____% Other (if currently available)
______% DCA Fixed Account (must complete 5b)
======% Total (must = 100%)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5b Dollar Cost Averaging (Complete only if electing DCA.)
$1,500 minimum required in the Holding Account
--------------------------------------------------------------------
Total amount to DCA: $ __________________
OR
MONTHLY amount to DCA: $ __________________
--------------------------------------------------------------------
OVER THE FOLLOWING PERIOD: __________________
MONTHS (6-60)
--------------------------------------------------------------------
FROM THE FOLLOWING HOLDING ACCOUNT (check one):
[_] DCA Fixed Account
[_] Cash Management Fund*
[_] U.S. Govt./AAA-Rated Securities Fund*
--------------------------------------------------------------------
INTO THE FUND(S) BELOW
--------------------------------------------------------------------
Use whole percentages *The DCA Holding Account
The DCA fund elected
cannot be the same.
________% Global Growth Fund
________% Global Small Capitalization Fund
________% Growth Fund
________% International Fund
________% New World Fund
________% Growth-income Fund
________% Asset Allocation Fund
________% High-Yield Bond Fund
________% Bond Fund
________% U.S. Govt./AAA-Rated Securities Fund
________% Cash Management Fund
Guaranteed Interest Account Periods:
____% 1 year ____% 3 years ____% 5 years
____% 7 years ____% 10 years
____% Other (if currently available)
=========% Total (must = 100%)
Future contributions will not automatically start a new DCA program.
Instructions must accompany each DCA contribution
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
5C Cross-Reinvestment or Portfolio Rebalancing
To elect either of these options, please complete the Cross-Reinvestment
form (28051) or the Portfolio Rebalancing form (28887).
- --------------------------------------------------------------------------------
6 Automatic Withdrawal $10,000 minimum account balance required.
---------------------------------------------------------------------------
[_] Please provide me with automatic withdrawals of $ ______________
[_] Monthly [_] Quarterly [_] Semiannually [_] Annually
[_] Begin withdrawals in [__] [__]
Month Year
---------------------------------------------------------------------------
ELECT ONE: [_] Do withhold taxes [_] Do not withhold taxes
ELECT ONE: [_] Send check to address of record OR [_] Send check
to the following alternate address:
Note: If no tax withholding selection is made, taxes will be withheld.
For direct deposit into your bank account,
an electronic fund transfer form must be completed
and submitted with a voided check.
Page 2 of 4
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
7 Automatic Bank Draft
_____________________________________________________________________________
Print account holder name(s) EXACTLY as shown on bank records
_________________________________________________________ ATTACH VOIDED CHECK
Bank name ABA number
_____________________________________________________________________________
Bank street address City State ZIP
<TABLE>
<S> <C> <C> <C> <C> <C>
Automatic bank draft start date: [__] [__] [__] _______________________ $_______________
Month Day (1-28) Year Checking account number Monthly amount
</TABLE>
I/We hereby request and authorize you to pay and charge to my/our account
checks or electronic fund transfer debits processed by and payable to the
order of Lincoln Life, P.O. Box 2348, Fort Wayne, IN 46801-2348, provided
there are sufficient collected funds in said account to pay the same upon
presentation. It will not be necessary for any officer or employee of Lincoln
Life to sign such checks. I/We agree that your rights in respect to each such
check shall be the same as if it were a check drawn on you and signed
personally by me/us. This authority is to remain in effect until revoked by
me/us, and until you actually receive such notice I/we agree that you shall
be fully protected in honoring any such check or electronic fund transfer
debit. I/We further agree that if any such check or electronic fund transfer
debit be dishonored, whether with or without cause and whether intentionally
or inadvertently, you shall be under no liability whatsoever even though such
dishonor results in the forfeiture of insurance or investment loss to me/us.
________________________________________________________________________________
________________________________________________________________________________
8 Telephone Transfer (Check box if this option is desired.)
[_] I/We hereby authorize and direct Lincoln Life to accept telephone
instructions from any person who can furnish proper identification to
exchange units from subaccount to subaccount and/or change the allocation of
future investments. I/We agree to hold harmless and indemnify Lincoln Life,
American Funds Distributors, Inc. and their affiliates and any mutual fund
managed by such affiliates and their directors, trustees, officers, employees
and agents for any losses arising from such instructions.
________________________________________________________________________________
________________________________________________________________________________
9 Replacement Will the proposed contract replace any existing annuity or life
insurance contract?
ELECT ONE: [_] No [_] Yes If yes, complete the 1035 Exchange or
Qualified Retirement Account Transfer form.
(Attach a replacement form if required by the state in which the application
is signed.)
_____________________________________________________________________________
Company name
_____________________________________________________________________________
Plan name Year issued
________________________________________________________________________________
Fraud Warning: Residents of all states except Virginia and Washington, please
note: Any person who knowingly, and with intent to defraud any insurance
company or other person, files or submits an application or statement of
claim containing any materially false or deceptive information, or conceals,
for the purpose of misleading, information concerning any fact material
thereto, commits a fraudulent insurance act, which is a crime and subjects
such person to criminal and civil penalties.
________________________________________________________________________________
10 Signatures
All statements made in this application are true to the best of my/our
knowledge and belief, and I/we agree to all terms and conditions as shown.
I/We acknowledge receipt of current prospectuses for American Legacy III and
American Variable Insurance Series and verify my/our understanding that all
payments and values provided by the contract, when based on investment
experience of the funds in the Series, are variable and not guaranteed as to
dollar amount. Under penalty of perjury, the Contract Owner(s) certifies that
the Social Security (or taxpayer identification) number(s) is correct as it
appears in this application.
<TABLE>
<S> <C> <C> <C> <C>
_____________________________________________________________________
Signed at (city) State Date [__] [__] [__]
Month Day Year
___________________________ ________________________________________
Signature of Contract Owner Joint Contract Owner (if applicable)
_____________________________________________________________________
Signed at (city) State Date [__] [__] [__]
Month Day Year
</TABLE>
________________________________________________________________________________
Signature of Annuitant (Annuitant must sign if Contract Owner is a trust or
custodian)
________________________________________________________________________________
FINANCIAL ADVISER MUST COMPLETE REVERSE SIDE (PAGE 4)
________________________________________________________________________________
Page 3 of 4
<PAGE>
- --------------------------------------------------------------------------------
THE FOLLOWING SECTIONS MUST BE COMPLETED BY THE SECURITIES DEALER OR
FINANCIAL ADVISER. Please type or print.
- --------------------------------------------------------------------------------
11 Insurance in Force Will the proposed contract replace any existing annuity or
life insurance contract?
ELECT ONE: [_] No [_] Yes If yes, please list the insurance in force on
the life of the proposed Contract Owner(s) and
Annuitant(s):
(Attach a state replacement form if required by the state in which the
application was signed.)
$
_____________________________________________________________________________
Company name Year issued Amount
- --------------------------------------------------------------------------------
12 Additional Remarks
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
- --------------------------------------------------------------------------------
13 Dealer Information Note: Licensing appointment with Lincoln Life is
required for this application to be processed.
If more than one representative, please indicate
names and percentages in Section 12.
<TABLE>
<S> <C>
_____________________________________________________________________________ [_][_][_] [_][_][_]-[_][_][_][_]
Registered representative's name (print as it appears on NASD licensing) Registered representative's telephone number
_____________________________________________________________________________ [_][_][_]-[_][_]-[_][_][_][_]
Client account number at dealer (if applicable) Registered representative's SSN
</TABLE>
_____________________________________________________________________________
Dealer's name
_____________________________________________________________________________
Branch address City State ZIP
[_] CHECK IF BROKER CHANGE OF ADDRESS
- --------------------------------------------------------------------------------
14 Representative's Signature
The representative hereby certifies that he/she witnessed the signature(s) in
section 10 and that all information contained in this application is true to
the best of his/her knowledge and belief.
_____________________________________________________________________________
Signature
- --------------------------------------------------------------------------------
________________________________________________________________________________
Send completed application - with a check made payable to Lincoln
[LOGO OF Life - to your investment dealer's home office or to:
AMERICAN
LEGACY Lincoln Life By Express Mail: Lincoln Life
APPEARS P.O. Box 2348 Attention: American Legacy
HERE] Fort Wayne, IN 46801-2348 Operations
1300 South Clinton Street
Fort Wayne, IN 46802
Page 4 of 4
<PAGE>
AMENDMENT TO FUND PARTICIPATION AGREEMENT
-----------------------------------------
This amendment (this "Amendment"), dated as of October 15, 1999, to a Fund
Participation Agreement effective July 12, 1989, as amended as of April 30, 1997
(as so amended, the "Original Agreement"), is executed by and among LINCOLN
NATIONAL LIFE INSURANCE COMPANY ("Lincoln National"), a life insurance company
organized under the laws of the State of Indiana, on behalf of itself and
SEPARATE ACCOUNT H OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (the
"Account"), a separate account established by Lincoln National pursuant to the
Indiana Insurance Code, and AMERICAN VARIABLE INSURANCE SERIES (the "Series"),
an open-end management investment company organized under the laws of the
Commonwealth of Massachusetts (collectively, the "Parties").
WITNESSETH:
WHEREAS, the Original Agreement provides for the purchase and sale of
shares of the funds of the Series by the Account in connection with the American
Legacy II and American Legacy III variable annuity contracts; and
WHEREAS, the Parties desire to amend the Original Agreement to provide for
the purchase and sale of shares of the funds of the Series by the Account in
connection with additional variable annuity contracts as agreed by the Parties
from time to time;
NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants
and conditions contained herein and in the Original Agreement, and of other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lincoln National, the Account and the Series hereby agree as
follows:
1. Shares. Shares of each fund of the Series shall be made available to
the Account to fund the variable annuity contracts listed on Schedule I attached
to this Amendment, as such schedule may be amended from time to time, subject to
the same terms and conditions as set forth in the Original Agreement.
2. Defined Terms. Unless the context otherwise requires, all references
--------
in the Original Agreement to the "Contracts" shall include the variable annuity
contracts listed in Schedule I attached to this Amendment.
3. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which, when so executed, shall be deemed to be an
original, but such counterparts taken together shall constitute but one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to
be duly executed and attested as follows:
The Lincoln National Life Insurance Company
on behalf of itself and Separate Account H
of the Lincoln National Life Insurance
Company
Attest: By:
American Variable Insurance Series
Attest: By:
2
<PAGE>
Schedule 1
----------
Variable Annuity Contracts:
American Legacy II
American Legacy III
American Legacy Shareholder's Advantage
3
<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. 3 to the Registration Statement (Form N-4
No. 333-63505) and the related Statement of Additional Information appearing
therein and pertaining to Lincoln National Variable Annuity Account H, and to
the use therein of our reports dated (a) January 31, 2000, with respect to the
statutory-basis financial statements of The Lincoln National Life Insurance
Company, and (b) March 10, 2000, with respect to the financial statements of
Lincoln National Variable Annuity Account H.
Fort Wayne, Indiana
March 27, 2000
<PAGE>
PC Docs 12752 3/8/99
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Management Corporation |
| | 100% - Pennsylvania - Management Company |
|
|--| City Financial Partners Ltd. |
| | 100% - England/Wales - Distribution of life|
| | assurance & pension products |
|
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
|
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka 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. |
| |--| (fka Financial Services Department, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| | | Financial Investments, Inc. |
| |--| (fka 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 |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - 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 |
|
| | Lincoln Life and Annuity Distributors, Inc. |
|--| (fka Lincoln Financial Group, Inc.) |
| | 100% - Indiana - Insurance Agency |
| |
| |--| Lincoln Financial Advisors Corporation |
| | | (fka LNC Equity Sales Corporation) |
| | | 100% - Indiana - Broker-Dealer |
| |
| | |Corporate agencies: Lincoln Life and Annuity Distributors, |
| | | Inc. ("LLAD")has subsidiaries of which LLAD 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 |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |--| Delaware International Advisers Ltd.|
| | | | | 81.1% - England - Investment Advisor |
| | |
| | |--| Delaware Management Trust Company |
| | | | 100% - Pennsylvania - Trust Service|
| | | |
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Mktg & Admin Services|
| | | | |
| | | | |--| Delaware International Advisers, Ltd.|
| | | | | 18.9% - England - Investment Advisor |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Holding Company |
| | | | | | ________________________________________
| | | | | |--|Delaware Management Business Trust |
| | | | | | |100% - Delaware - Investment Advisor |
| | | | | | |consists of: |
| | | | | | |Delaware Management Company Series |
| | | | | | | and Delaware Investment Advisers
Series |
| | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-MutualFund Distrib. |
| | | | | | |& Broker/Dealer |
| | | | | | |1%Equity-Delaware Capital |
| | | | |Management, Inc. |
| | | | |1% Equity-Delaware Distributors, |
| | | | |Inc.(G.P) |
| | | | | |
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General
| | | | | | | Partner |
| | | | | |
| | | | | |--| Founders CBO, L.P. |
| | | | | | |1%-Delaware-Investment |
| | | | | | | Partnership |
| | | | | | |99% held by outside |
| | | | | | |investors |
| | | | | |
| | | | | |--|Founders CBO Corporation|
| | | | |100%-Delaware-Co-Issuer |
| | | | |with Founders CBO |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |__| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | |
| | | | |--| Delaware Distributors, Inc.
| | | | | | | 100% - Delaware - General Partner |
| | | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | |98%-Delaware-Mutual Fund Distributor & |
| | | | | | |Broker/Dealer |
| | | | | |1% Equity-Delaware Capital |
| | | | | |Management, Inc. |
| | | | | |1% Equity-Delaware Distributors, Inc.|
| | | | | |(G.P) |
| | | | | |
| | | | |--| Delaware Capital Management, Inc. |
| | | | | |(fka Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | | |
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & |
Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital
| | | | | | | Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, |
| | | | | | | Inc. |
| | | | |--| Delaware Service Company, Inc. |
| | | | |100%-Delaware-Shareholder Services & |
| | | | |Transfer Agent |
| | | | | |
| | | | |__| Retirement Financial Services, Inc. |
| | | | | |(fka Delaware Investment & Retirement
| | | | | | Services,Inc.) |
| | | | | | 100% - Delaware - Registered Transfer
| | | | | | Agent & I/A |
| | |
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | |
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | |
| | | | Vantage Global Advisors, Inc. |
| | |--| (fka Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| | | Lincoln Investment Management, Inc. |
| |--| (fka Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| |--|AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | |
| | |--| AnnuityNet Insurance Agency, Inc. |
| | | | 100% - Indiana - Insurance Agency |
| |
| |--|Lincoln National Insurance Associates, Inc.|
| | | (fka Cigna Associates, Inc.) |
| | | 100% - Connecticut - Insurance Agency |
| | |
| | |--|Lincoln National Insurance Associates of Alabama, Inc. |
| | | | 100% - Alabama - Insurance Agency |
| | |
| | | | Lincoln National Insurance Associates of Massachusetts,|
| | | | Inc. (fka Cigna Associates of Massachusetts, Inc.) |
| | |--| 100% - Massachusetts - Insurance Agency |
| |
| |--|Sagemark Consulting, Inc. |
| | | (fka Cigna Financial Advisors, Inc.) |
| | | 100% - Connecticut - Broker Dealer |
| |
| |--| 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. |
| |--| (fka Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (fka Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| |
| |--| 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 |
| |
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| |
| |--| 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 |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National Reinsurance Company Limited |
| | (fka Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| |
| | | 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.) |
|
|--| 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 |
| | | (fka One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| |
| |--| 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 |
| |
| |--| Lincoln Financial Advisers Limited |
| | | (fka: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln ISA Management Limited |
| | | | (fka Lincoln Unit Trust Management Limited; |
| | | | Laurentian Unit Trust Management Limited) |
| | | | 100% - England/Wales - Unit Trust Management |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln Financial Group PLC |
| | | (fka: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln Milldon Limited |
| | | |(fka: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | |
| | |--| Laurtrust Limited |
| | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | |
| | |--| Lincoln Management Services Limited |
| | | |(fka: Laurentian Management Services Limited) |
| | | | 100% - England/Wales - Management Services |
| | | |
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| |
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| |
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | |
| | |--| UK Mortgage Securities Limited |
| | | | 100% - England/Wales - Inactive |
| |
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
<PAGE>
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| |
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | | |
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | |
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | |
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | |
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment
| | | | |(Inactive) |
| | | |
| | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | |
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | |
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension |
| | | | | Fund (Inactive) |
| | | |
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| | |
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | |
| |--| LIV Limited (fka Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | |
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| |
| |--| Lincoln Independent Limited |
| | |(fka: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | |
| |--| Lincoln Investment Management Limited |
| | |(fka: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| |
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| |
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| |
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| |
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| |
| |--| Lincoln Independent (Jersey) Limited |
| | | (fka Lincoln National (Jersey) Limited) |
| | | 100% - England/Wales - Dormat |
| |
| |--| Lincoln National(Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| |
| |--| Lincoln SBP Trustee Limited |
| | | 100% - England/Wales |
<PAGE>
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
| | Linsco Reinsurance Company |
|--| (fka 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.) |
| |
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | |
| | |--|Solutions Reinsurance Limited |
| | | | 100% - Bermuda - Class III Insurance Co|
|
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
|
| | 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.
<PAGE>
ATTACHMENT #1
LINCOLN LIFE AND ANNUITY DISTRIBUTORS, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3) 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 Financial Services and Insurance Brokerage of New England, Inc.
(fka: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (fka: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (fka: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18, 1995.
Company is dormat and was formed for tax reasons per Barbara Benoit,
Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware Capital
Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National Sales
Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and was
incorporated on November 26, 1996; it was formed to act ast Trustee for
Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an Indiana
corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage Global
Advisors, Inc. were transferred via capital contribution to Lincoln
National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln National
Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to Lincoln
National Investments, Inc. effective January 24, 1997.
JANUARY 1997 CON'T
<PAGE>
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (fka Laurentian
Financial Group PLC); Lincoln Milldon Limited (fka Laurentian Milldon
Limited); Lincoln Management Services Limited (fka Laurentian Management
Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc. which was
dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved effective
March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997. Company
then changed its name to Delvoy, Inc. The acquisition included the mutual
fund group of companies as part of the Voyager acquisition. The following
companies all then were moved under the newly formed holding company,
Delvoy, Inc. effective April 30, 1997: Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund Distributors,
Inc. on April 30, 1997; merger is scheduled for May 31, 1997 for Voyager
Fund Managers, Inc. into Delaware Management Company, Inc. and Voyager Fund
Distributors, Inc. is to merge into Delaware Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y Reaseguros,
Grupo Financiero InverMexico. Stock was sold to Grupo Financiero
InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National Financial
Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company, Inc.
effective May 30, 1997 at 10:00 p.m. with Delaware Management Company, Inc.
surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged into a
newly formed company Voyager Fund Distributors (Delaware), Inc.,
incorporated as a Delaware corporation on May 23, 1997. Voyager Fund
Distributors (Delaware), Inc. then merged into Delaware Distributors, L.P.
effective May 31, 1997 at 2:01 a.m. Delaware Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on June
30, 1997.
<PAGE>
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial Advisors
Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial Corporation,
American States Insurance Company, American Economy Insurance Company,
American States Insurance Company of Texas, American States Life Insurance
Company, American States Lloyds Insurance Company, American States
Preferred Insurance Company, City Insurance Agency, Inc. and Insurance
Company of Illinois -- all were sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International Holdings
PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Partners Ltd. as a result of its acquisition by
Lincoln National Corporation on December 22, 1997. This company will
distribute life assurance and pension products of Lincoln Assurance
Limited.
b. Removal of Lynch & Mayer Asia, Inc. which was dissolved December 24, 1997.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln National
Life Insurance Company on January 1, 1998. Cigna Associates of
Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was dissolved
on January 12, 1998 and Lincoln National Mezzanine Fund, L.P. was cancelled
January 12, 1998.
c. Corporate organizational changes took place in the UK group of companies on
January 21, 1998: Lincoln Insurance Services Limited and its subsidiaries
were moved from Lincoln National (UK) PLC to Lincoln Assurance Limited;
Lincoln General Insurance Co. Ltd. was moved from Lincoln Insurance
Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation on
January 16, 1998 and a wholly-owned subsidiary of The Lincoln National Life
Insurance Company.
JUNE 1998
<PAGE>
a. Name Change of CIGNA Financial Advisors, Inc. to Sagemark Consulting, Inc.
effective June 1, 1998.
b. Name Change of CIGNA Associates, Inc. to Lincoln National Insurance
Associates, Inc. effective June 1, 1998.
c. Addition of Lincoln National Insurance Associates of Alabama, Inc.,
incorporated as a wholly-owned subsidiary of Lincoln National Insurance
Associates, Inc. as an Alabama domiciled corporation.
d. Dissolution of LUTM Nominees Limited effective June 10, 1998.
e. Dissolution of Cannon Fund Managers Limited June 16, 1998.
f. Dissolution of P.N. Kemp Gee & Co. Ltd. June 2, 1998.
JULY 1998
a. Name change of CIGNA Associates of Massachusetts, Inc. to Lincoln National
Insurance Associates of Massachusetts, Inc. effective July 22, 1998.
SEPTEMBER 1998
a. Removal of Lincoln Financial Group of Michigan, Inc., voluntarily dissolved
September 15, 1998.
b. Name change of Lincoln Financial Group, Inc. to Lincoln Life and Annuity
Distributors, Inc. on September 29, 1998.
c. Removal of Lincoln European Reinsurance S.A. -- company dissolved September
30, 1998.
d. Removal of Lincoln Funds Corporation -- company voluntarily dissolved
September 30, 1998.
OCTOBER 1998
a. Addition of AnnuityNet Insurance Agency, Inc., incorporated as an Indiana
corporation October 2, 1998., a wholly-owned subsidiary of AnnuityNet, Inc.
b. Removal of Lincoln National (India) Inc., voluntarily dissolved October 26,
1998.
DECEMBER 1998
a. Removal of The Insurers' Fund, Inc., voluntarily dissolved December 10,
1998.
b. Addition of Lincoln National Management Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Lincoln National Corporation,
incorporated on December 17, 1998.
JANUARY 1999
Lincoln Unit Trust Management changed its name on January 5, 1999 to Lincoln ISA
Management Limited.
FEBRUARY 1999
Removal of Lincoln Southwest Financial Group, Inc. -- company's term of
existence expired July 18, 1998.
<PAGE>
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 Finance Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Finance Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Finance 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 CSRM Nancy Alford Permanently, the first two
of securities years in an easily accessible
transactions Finance Eric Jones place
Portfolio Securities
- ----------------------
C--Port Purchase/ Finance Eric Jones Permanently, the first two
Sales Reports years in an easily accessible
place
</TABLE>
<PAGE>
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
- ---------------------------------------------------------------
Daily Journals CSRM Nancy Alford Permanently, the
Finance Eric Jones first two years in
an easily
accessible place
(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
- --------------
LNL trial Finance Eric Jones Permanently, the
Balance (5000 first two years in
series) an easily
accessible place
Securities in Transfer
- ----------------------
Not Applicable.
Securities in Physical Possession
- ---------------------------------
Not Applicable.
Securities Borrowed and Loaned
- ------------------------------
Not Applicable.
Monies Borrowed and Loaned
- --------------------------
Not Applicable.
Dividends and Interest Received
- -------------------------------
LNL Trial Finance Eric Jones Permanently, the
Balance (5000 first two years in
series) an easily
accessible place
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Dividends Receivable and Interest Accrued
- -----------------------------------------
<PAGE>
LNL Trial Finance Eric Jones Permanently, the
Balance (5000 first two years in
series) an easily
accessible 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 Finance Eric Jones Permanently, the
of Securities first two years in
accessible an easily
transactions (Daily accessible place
Trade File)
(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 Record Finance Eric Jones Permanently,
(Daily Trade File & CSRM Nancy Alford the first two
years in an easily
Leg. Syst. Client Rept) 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
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
- --------- -------- ----------------- ---------
Not Applicable
(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
- -------------------
Memorandum Legal Janet Lindenberg Permanently, the
Establishing SA. first two years in
an easily
accessible place
(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- CSRM Nancy Alford Six years, the
tions and Finance Eric Jones first two years in
daily reports accessible
of securities place
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.
(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 Finance Eric Jones Permanently, the
Balance (5000 first two years in
series) an easily
accessible 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 Legal Products and Six years, the
Agreements Distribution, first two years in
LNL Law Division 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.
Correspondence CSRM Nancy Alford Six years, the
first two years in
an easily
accessible place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Proxy State- CSRM Nancy Alford Six years, the
ments and first two years in
Proxy Cards an easily
accessible place
Pricing Sheets Finance Eric Jones Permanently, the
first two years in
an easily
accessible place
Bank State- Treasurers Rusty Summers Six years, the
ments first two years in
an easily
accessible place
March 16, 2000
<PAGE>
POWER OF ATTORNEY
I undersigned officer of The Lincoln National Life Insurance Company, hereby
revoke all powers of attorney authorizing any person to act as attorney-in-fact
relative to Lincoln National Variable Annuity Account H (Shareholders
Advantage), which were previously executed by me and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, my true and lawful attorneys-in-fact, with full power in each of them
to sign for me, in my name and in the capacities indicated below, any and all
amendments to Registration Statement No. 333-63505 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming my signature as it may be signed by any of my attorneys-in-fact
to any such amendment to that Registration Statement. The power of attorney was
signed on April 30, 1999.
Signature Title
- --------- -----
/s/ Todd R. Stephenson Senior Vice President, Chief Financial Officer
- ---------------------- and Assistant Treasurer
Todd R. Stephenson (Principal Financial Officer)
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
30/th/ day of April, 1999.
/s/ Kimberly J. DeLong
-----------------------------------------
Notary public
Commission Expires: 1-29-2007
---------
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
H (Shareholders Advantage), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-63505 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be singed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
_____________________________
Gabriel L. Shaheen President, Chief Executive Officer and
(Principal Executive Officer) Director
/s/ Lawrence T. Rowland Executive Vice President and Director
_____________________________
Lawrence T. Rowland
_____________________________
Keith J. Ryan Senior Vice President, Assistant Treasurer
and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
_____________________________
H. Thomas McMeekin Director
_____________________________
Richard C. Vaughan Director
_____________________________
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3/rd/ day of February, 1999.
/s/ Janet L. Lindenberg
--------------------------------------
Notary public
Commission Expires: 7-10-2001
<PAGE>
POWER OF ATTORNEY
I undersigned officer of The Lincoln National Life Insurance Company, hereby
revoke all powers of attorney authorizing any person to act as attorney-in-fact
relative to Lincoln National Variable Annuity Account H (Shareholders
Advantage), which were previously executed by me and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, my true and lawful attorneys-in-fact, with full power in each of them
to sign for me, in my name and in the capacities indicated below, any and all
amendments to Registration Statement No. 333-63505 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming my signature as it may be signed by any of my attorneys-in-fact
to any such amendment to that Registration Statement. The power of attorney was
signed on April 29, 1999.
Signature Title
- --------- -----
/s/ Keith J. Ryan Vice President and Controller
- ----------------- (Principal Accounting Officer)
Keith J. Ryan
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
29/th/ day of April, 1999.
/s/ Janet L. Lindenberg
--------------------------------------
Notary public
Commission Expires: 7-10-2001
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
H (Shareholders Advantage), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-63505 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be singed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
__________________________
Gabriel L. Shaheen President, Chief Executive Officer and Director
(Principal Executive Officer)
__________________________
Lawrence T. Rowland Executive Vice President and Director
__________________________
Keith J. Ryan Senior Vice President, Assistant Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
/s/ H. Thomas McMeekin Director
- --------------------------
H. Thomas McMeekin
__________________________
Richard C. Vaughan Director
__________________________
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/ Janet L. Lindenberg
-------------------------------------
Notary public
Commission Expires: 7-10-2001
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of The Lincoln National Life
Insurance Company, hereby revoke all powers of attorney authorizing any person
to act as attorney-in-fact relative to Lincoln National Variable Annuity Account
H (Shareholders Advantage), which were previously executed by us and do hereby
severally constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and
Steven M. Kluever, our true and lawful attorneys-in-fact, with full power in
each of them to sign for us, in our names and in the capacities indicated below,
any and all amendments to Registration Statement No. 333-63505 filed with the
Securities and Exchange Commission under the Securities Act of 1933, on behalf
of the Company in its own name or in the name of one of its Separate Accounts,
hereby ratifying and confirming our signatures as they may be singed by any of
our attorneys-in-fact to any such amendment to that Registration Statement. The
power of attorney was signed by us on February 3, 1999.
Signature Title
- --------- -----
_____________________________
Gabriel L. Shaheen President, Chief Executive Officer and
(Principal Executive Officer) Director
_____________________________
Lawrence T. Rowland Executive Vice President and Director
_____________________________
Keith J. Ryan Senior Vice President, Assistant Treasurer
and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
_____________________________
H. Thomas McMeekin Director
/s/ Richard C. Vaughan
- -----------------------------
Richard C. Vaughan Director
_____________________________
Jon A. Boscia Director
STATE OF INDIANA)
)SS:
COUNTY OF ALLEN)
Subscribed and sworn to before me this
3rd day of February, 1999.
/s/ Janet L. Lindenberg
--------------------------------------
Notary public
Commission Expires: 7-10-2001
<PAGE>
POWER OF ATTORNEY
I undersigned officer of The Lincoln National Life Insurance Company, hereby
revoke all powers of attorney authorizing any person to act as attorney-in-fact
relative to Lincoln National Variable Annuity Account H (Shareholders
Advantage), which were previously executed by me and do hereby severally
constitute and appoint Kelly D. Clevenger, Jeffrey K. Dellinger, and Steven M.
Kluever, my true and lawful attorneys-in-fact, with full power in each of them
to sign for me, in my name and in the capacities indicated below, any and all
amendments to Registration Statement No. 333-63505 filed with the Securities and
Exchange Commission under the Securities Act of 1933, on behalf of the Company
in its own name or in the name of one of its Separate Accounts, hereby ratifying
and confirming my signature as it may be signed by any of my attorneys-in-fact
to any such amendment to that Registration Statement. The power of attorney was
signed on January 6, 2000.
Signature Title
- --------- -----
/s/ Jon A. Bosica President and Director
- -------------------
Jon A. Boscia (Principal Executive Officer)
STATE OF PENNSYLVANIA)
)SS:
COUNTY OF PHILADELPHIA)
Subscribed and sworn to before me this
6th day of January, 2000.
/s/ Judith M. Callihan
---------------------------------------------
Notary public
Commission Expires: Oct. 18, 2003
