-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GrNd0npX4xDHUhalkBsLPlTng+tf7aAEdip7sCvH/uV8bZAzNzIvAjdmoOqM0BUU XTuqp+LPYJ18eRBtIy1FNQ== 0000950131-00-002091.txt : 20000329 0000950131-00-002091.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950131-00-002091 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20000328 EFFECTIVENESS DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H CENTRAL INDEX KEY: 0000847552 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 35472300 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 333-18419 FILM NUMBER: 581355 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-05721 FILM NUMBER: 581356 BUSINESS ADDRESS: STREET 1: 1300 S CLINTON ST STREET 2: PO BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46801 BUSINESS PHONE: 2194273018 MAIL ADDRESS: STREET 1: P O BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46801 485BPOS 1 AMENDMENT LINCOLN NAT'L VA ACCOUNT H-LEGACY III Legacy III As filed with the Securities and Exchange Commission on March 28, 2000 Registration No.: 333-18419 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] POST-EFFECTIVE AMENDMENT NO. 4 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] AMENDMENT NO. 23 [X] LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H (Exact Name of Registrant) THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (Name of Depositor) 1300 South Clinton Street Post Office Box 1110 Fort Wayne, Indiana 46801 - -------------------------------------------------------------------------------- (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number, including Area Code: (219)455-2000 Elizabeth A. Frederick, Esq. The Lincoln National Life Insurance Company 1300 S. Clinton St. Post Office Box 1110 Fort Wayne, Indiana 46802 - -------------------------------------------------------------------------------- (Name and Address of Agent for Service) Copy to: Kimberly J. Smith Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 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) [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 on _____________ pursuant to paragraph (a)(1) of Rule 485 American Legacy III Lincoln National Variable Annuity Account H individual variable annuity contracts 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 for use with nonqualified and qualified retirement plans. Generally, you do not pay federal income tax on the contract's growth until it is paid out. Qualified 403(b) business will only be accepted for pur- chase payments that are either lump sum transfers or rollovers. 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 vari- able or fixed amount or a combination of both. If you die before the annuity commencement date, we will pay your beneficiary a death benefit. The minimum initial purchase payment for the contract is: 1. $1,500 for a nonqualified plan and a 403(b) transfer/rollover or 2. $300 for a qualified plan. Additional purchase payments may be made to the contract and must be at least $100 per payment ($25 if transmitted electronically), and at least $300 annu- ally. Note, however, that for contracts purchased in the State of Oregon, no purchase payments may be made after the first contract year. You choose whether your contract value accumulates on a variable or a fixed (guaranteed) basis or both. If you put all your 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 purchase payments for benefits on a variable basis will be placed in Lin- coln 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 purchase payments into one or more of the contract's variable options you take all the investment risk on the contract value and the retirement in- come. If the subaccounts you select make money, your contract value goes up; if they lose money, it 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. Govern- ment nor any federal agency insures or guarantees your investment in the con- tract. The available funds, listed below, are each part of American Funds Insurance Series (series) Class 2 Shares, also known as American Variable Insurance Se- ries: 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 This Prospectus gives you information about the contracts that you should know before you decide to buy a contract and make purchase payments. You should also review the prospectus for the funds that is attached, and keep both pro- spectuses for 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 current Statement of Additional Information (SAI), dated the same date as this prospectus, about the contracts which 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 Ac- count 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 Table of contents
Page - ------------------------------------------------- Special terms 2 - ------------------------------------------------- Expense tables 3 - ------------------------------------------------- Summary 5 - ------------------------------------------------- Condensed financial information 6 - ------------------------------------------------- Investment results 7 - ------------------------------------------------- Financial statements 7 - ------------------------------------------------- Lincoln National Life Insurance Co. 7 - ------------------------------------------------- Fixed side of the contract 7 - ------------------------------------------------- Variable annuity account (VAA) 7 - ------------------------------------------------- Investments of the variable annuity account 7 - ------------------------------------------------- Charges and other deductions 10 - ------------------------------------------------- The contracts 11 - -------------------------------------------------
Page - ------------------------------------------------------------------------ Annuity payouts 16 - ------------------------------------------------------------------------ Federal tax matters 17 - ------------------------------------------------------------------------ Voting rights 20 - ------------------------------------------------------------------------ Distribution of the contracts 21 - ------------------------------------------------------------------------ Return privilege 21 - ------------------------------------------------------------------------ State regulation 21 - ------------------------------------------------------------------------ Restrictions under the Texas Optional Retirement Program 21 - ------------------------------------------------------------------------ Records and reports 21 - ------------------------------------------------------------------------ Other information 21 - ------------------------------------------------------------------------ Statement of additional information table of contents for Variable Annuity Account H American Legacy III 22 - ------------------------------------------------------------------------
Special terms (We have italicized the terms that have special meaning throughout the Pro- spectus) Account or variable annuity account (VAA) -- The segregated investment ac- count, 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 vari- able side of the contract before the annuity commencement date. Annuitant -- The person on whose life the annuity benefit payments made after the annuity commencement date are based. 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 com- mencement date under one of several options available to the annuitant and/or any other payee. This amount may be paid on a variable or fixed basis, or a combination of both. Annuity unit -- A measure used to calculate the amount of annuity payouts for the variable side of the contract 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 fixed side of the contract. Contract year -- Each one-year period starting with the effective date of the contract and starting with each contract anniversary after that. Death benefit (GMDB, EGMDB) -- The amount payable to your designated benefi- ciary if the owner dies before the annuity commencement date. An enhanced guaranteed minimum death benefit is also available. Free amount -- First withdrawal in a contract year, equal to the greater of 10% of the current contract value or 10% of the total purchase payments. Lincoln Life (we, us, our) -- The Lincoln National Life Insurance Company. Purchase payments -- Amounts paid into the contract. Series -- American Funds Insurance Series (series), the funds to which you di- rect purchase payments. American Legacy III subaccount -- The portion of the VAA that reflects invest- ments in accumulation and annuity units of a class of a particular fund avail- able 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 (valua- tion date) and ending at the close of such trading on the next valuation date. 2 Expense tables Summary of Contractowner expenses: The maximum surrender charge (contingent deferred sales charge) (as a percentage of purchase payments surrendered/withdrawn): 6% The surrender charge percentage is reduced over time. The later the redemption occurs, the lower the surrender charge with respect to that surrender or with- drawal. We may waive this charge in certain situations. See Surrender charges. - -------------------------------------------------------------------------------- Account H annual expenses for American Legacy III subaccounts:* (as a percentage of average account value):
With Enhanced Without Enhanced Death Benefit Death Benefit Mortality and expense risk charge 1.30% 1.15% Administrative charge .10% .10% ----- ----- Total annual charge for each American Legacy III subaccount 1.40% 1.25%
Annual expenses of the funds for the year ended December 31, 1999: (as a percentage of each fund's average net assets):
Management 12b-1 Other Total fees + fees + expenses = expenses - ------------------------------------------------------------------------------- 1. Global Growth .68% .25% .03% .96% - ------------------------------------------------------------------------------- 2. Global Small Capitalization .78 .25 .03 1.06 - ------------------------------------------------------------------------------- 3. Growth .38 .25 .01 .64 - ------------------------------------------------------------------------------- 4. International .55 .25 .05 .85 - ------------------------------------------------------------------------------- 5. New World** .89 .25 .06 1.20 - ------------------------------------------------------------------------------- 6. Growth-Income .34 .25 .01 .60 - ------------------------------------------------------------------------------- 7. Asset Allocation .43 .25 .01 .69 - ------------------------------------------------------------------------------- 8. Bond .51 .25 .02 .78 - ------------------------------------------------------------------------------- 9. High-Yield Bond .50 .25 .01 .76 - ------------------------------------------------------------------------------- 10. U.S. Govt./AAA-Rated Securities .51 .25 .01 .77 - ------------------------------------------------------------------------------- 11. Cash Management .44 .25 .01 .70 - -------------------------------------------------------------------------------
*The VAA is divided into separately-named subaccounts, eleven of which are available under the contracts. Each subaccount, in turn, invests purchase pay- ments in shares of a class of its respective fund. **These expenses are annualized. The fund began operations on June 17, 1999. 3 Examples (expenses of the subaccounts and of the funds): 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 re- turn:
1 year 3 years 5 years 10 years - ---------------------------------------------------------------------------------- 1. Global Growth $84 $124 $156 $270 - ---------------------------------------------------------------------------------- 2. Global Small Capitalization 85 127 161 280 - ---------------------------------------------------------------------------------- 3. Growth 81 114 140 237 - ---------------------------------------------------------------------------------- 4. International 83 120 150 258 - ---------------------------------------------------------------------------------- 5. New World 86 131 168 293 - ---------------------------------------------------------------------------------- 6. Growth-Income 80 113 138 233 - ---------------------------------------------------------------------------------- 7. Asset Allocation 81 115 142 242 - ---------------------------------------------------------------------------------- 8. Bond 82 118 147 251 - ---------------------------------------------------------------------------------- 9. High-Yield Bond 82 118 146 249 - ---------------------------------------------------------------------------------- 10. U.S. Govt./AAA-Rated Securities 82 118 146 250 - ---------------------------------------------------------------------------------- 11. Cash Management 81 116 143 243 - ---------------------------------------------------------------------------------- If you do not surrender your contract, you would pay the following expenses on a $1,000 investment, assuming a 5% annual return: 1 year 3 years 5 years 10 years - ---------------------------------------------------------------------------------- 1. Global Growth $24 $74 $126 $270 - ---------------------------------------------------------------------------------- 2. Global Small Capitalization 25 77 131 280 - ---------------------------------------------------------------------------------- 3. Growth 21 64 110 237 - ---------------------------------------------------------------------------------- 4. International 23 70 120 258 - ---------------------------------------------------------------------------------- 5. New World 26 81 138 293 - ---------------------------------------------------------------------------------- 6. Growth-Income 20 63 108 233 - ---------------------------------------------------------------------------------- 7. Asset Allocation 21 65 112 242 - ---------------------------------------------------------------------------------- 8. Bond 22 68 117 251 - ---------------------------------------------------------------------------------- 9. High-Yield Bond 22 68 116 249 - ---------------------------------------------------------------------------------- 10. U.S. Govt./AAA-Rated Securities 22 68 116 250 - ---------------------------------------------------------------------------------- 11. Cash Management 21 66 113 243 - ----------------------------------------------------------------------------------
We provide these examples to help you understand the direct and indirect costs and expenses of the contract. The examples assume that an enhanced death bene- fit is in effect. Without this benefit, expenses would be lower. For more information, see Charges and other deductions in this Prospectus, and Fund Organization and Management in the Prospectus for the funds. Premium taxes may also apply, although they do not appear in the examples. We also re- serve the right to impose a charge on transfers between subaccounts and to and from the fixed account--currently, there is no charge. These examples should not be considered a representation of past or future expenses. Actual expenses may be more or less than those shown. 4 Summary What kind of contract am I buying? It is an individual annuity contract be- tween you and Lincoln Life. It may provide for a fixed annuity and/or a vari- able 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 estab- lished under Indiana insurance law, and registered with the SEC as a unit in- vestment 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 your purchase payments to buy series shares in one or more of the investment funds of the series: Global Growth, Global Small Capitalization, Growth, In- ternational, 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 Re- search and Management Company (CRMC), Los Angeles, California. CRMC is regis- tered as an investment advisor with the SEC. See Investments of the variable annuity account and Investment advisor. How does the contract work? If we approve your application, we will send you a contract. When you make 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? If you withdraw contract value, you pay a surrender charge from 0% to 6%, depending upon how many contract years those payments have been in the contract. We may waive surrender charges in certain situations. See Surrender charges. We will deduct any applicable premium tax from purchase payments or contract value at the time the tax is incurred or at another time we choose. We apply an annual charge totaling 1.40% to the daily net asset value of the VAA. This charge includes 0.10% as an administrative charge and 1.30% as a mortality and expense risk charge. If the enhanced death benefit is not in ef- fect, the mortality and expense risk charge is 1.15%, for an annual charge to- taling 1.25%. See Charges and other deductions. The 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--Invest- ment advisor. Each fund also has a 12b-1 fee and additional operating ex- penses. These are described in the Prospectus for the series. What purchase payments do I make, and how often? Subject to the minimum and maximum payment amounts, your payments are completely flexible. See The con- tracts--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 enhanced death bene- fit or the contract value. If the enhanced death benefit is not in effect, your beneficiary will receive the greater of the guaranteed minimum death ben- efit or the contract value. Your beneficiary has options as to how the death benefit is paid. 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 between subaccounts on or before the annuity commencement date and Transfers following the annuity commencement date. Transfers to and from the General Ac- count on or before 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. If you sur- render the contract or make a withdrawal, certain charges may apply. See Charges and other deductions. A portion of surrender/withdrawal proceeds may be taxable. 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 purchase payments you allo- cate to the variable side of the contract. See Return privilege. 5 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 III subaccounts for the following periods 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.
1997* 1998 1999 --------------- --------------- --------------- with without with without with without EGMDB* EGMDB EGMDB EGMDB EGMDB EGMDB - -------------------------------------------------------------------------------- Global Growth Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.073 1.075 1.363 1.367 . End of period unit value..... $ 1.073 1.075 1.363 1.367 2.280 2.291 . End of period number of units (000's omitted)............... 41,077 8,579 81,692 17,005 137,048 28,155 - -------------------------------------------------------------------------------- Global Smallcap Subaccount** . Beginning of period unit value......................... $ 1.000 1.000 1.013 1.014 . End of period unit value..... $ 1.013 1.014 1.912 1.917 . End of period number of units (000's omitted)............... 18,001 3,048 44,616 7,789 - -------------------------------------------------------------------------------- Growth Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.255 1.256 1.673 1.677 . End of period unit value..... $ 1.255 1.258 1.673 1.677 2.595 2.605 . End of period number of units (000's omitted)............... 60,965 13,488 178,721 35,434 349,497 61,623 - -------------------------------------------------------------------------------- International Subaccount . Beginning of period unit value ........................ $ 1.000 1.000 1.024 1.025 1.024 1.025 . End of period unit value..... $ 1.024 1.025 1.221 1.224 2.119 2.127 . End of period number of units (000's omitted)............... 44,693 8,808 93,698 17,705 146,312 27,037 - -------------------------------------------------------------------------------- New World Subaccount*** . Beginning of period unit value ........................ $ 1.000 1.000 . End of period unit value..... $ 1.174 1.175 . End of period number of units (000's omitted)............... 23,253 3,836 - -------------------------------------------------------------------------------- Growth-Income Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.186 1.187 1.381 1.385 . End of period unit value..... $ 1.186 1.187 1.381 1.385 1.514 1.520 . End of period number of units (000's omitted)............... 131,937 32,455 356,164 88,143 614,233 130,919 - -------------------------------------------------------------------------------- Asset Allocation Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.139 1.141 1.269 1.272 . End of period unit value..... $ 1.139 1.141 1.269 1.272 1.338 1.343 . End of period number of units (000's omitted)............... 34,572 10,024 112,045 33,206 191,454 51,276 - -------------------------------------------------------------------------------- Bond Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.080 1.081 1.108 1.111 . End of period unit value .... $ 1.080 1.081 1.108 1.111 1.121 1.125 . End of period number of units (000's omitted)............... 10,398 2,682 34,413 8,700 55,097 14,425 - -------------------------------------------------------------------------------- High-Yield Bond Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.095 1.096 1.083 1.085 . End of period unit value..... $ 1.095 1.096 1.083 1.085 1.127 1.131 . End of period number of units (000's omitted)............... 19,000 3,839 52,869 12,122 70,525 16,641 - -------------------------------------------------------------------------------- U.S. Government/AAA-Rated Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.066 1.067 1.134 1.137 . End of period unit value..... $ 1.066 1.067 1.134 1.137 1.110 1.114 . End of period number of units (000's omitted)............... 6,326 1,860 23,722 6,575 32,310 10,766 - -------------------------------------------------------------------------------- Cash Management Subaccount . Beginning of period unit value......................... $ 1.000 1.000 1.023 1.024 1.059 1.061 . End of period unit value..... $ 1.023 1.024 1.059 1.061 1.092 1.096 . End of period number of units (000's omitted)............... 10,861 3,422 24,318 7,953 34,892 8,695 - --------------------------------------------------------------------------------
*The VAA began operations on August 1, 1989. However, the subaccounts did not begin operations until April 30, 1997, so the figures for 1997 represent experience of less than one year. **The Global Small Capitalization subaccount began operations on April 30, 1998 so the figures for 1998 represent experience of less than one year. ***The New World subaccount began operations on June 17, 1999 so the figures for 1999 represent experience of less than one year. 6 Investment results At times, the VAA may compare its investment results to various unmanaged in- dices or other variable annuities in reports to shareholders, sales literature and advertisements. The results will be calculated on a total return basis for various periods, with or without contingent deferred sales charges. Results calculated without contingent deferred sales charges will be higher. Total re- turns include the reinvestment of all distributions, which are reflected in changes in unit value. See the SAI for further information. Financial statements The financial statements of the VAA and the statutory-basis financial state- ments 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 National Corp. (LNC) which is also organized under Indiana law. LNC's primary businesses are insurance and financial services. Fixed side of the contract Purchase payments allocated to the fixed side of the contract become part of Lincoln Life's general account, and do not participate in the investment expe- rience of the VAA. The general account is subject to regulation and supervi- sion 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 com- pany under the Investment Company Act of 1940. Accordingly, neither the gen- eral 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 fixed account under the contract. These dis- closures, however, may be subject to certain provisions of the federal securi- ties laws relating to the accuracy and completeness of statements made in Pro- spectuses. This Prospectus is generally intended to serve as a disclosure doc- ument only for aspects of the contract involving the VAA, and therefore con- tains only selected information regarding the fixed side of the contract. Com- plete details regarding the fixed side of the contract are in the contract. Purchase payments allocated to the fixed side of the contract are guaranteed to be credited with a minimum interest rate, specified in the contract, of at least 3.0%. A 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 IN 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 liabili- ties 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 ac- cordance 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 sepa- rate account under the federal securities laws. We do not guarantee the in- vestment 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 con- tracts 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 performance of the subaccount. Investments of the variable annuity account You decide the subaccount(s) to which you allocate purchase payments. There is a separate subaccount which corresponds to each class of each fund of the se- ries. You 7 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 or- der 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 substi- tute funds. Investment advisor The investment advisor for the series is Capital Research and Management Com- pany (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 reg- istered as a diversified, open-end management investment company under the 1940 Act. Diversified means not owning too great a percentage of the securi- ties of any one company. An open-end company is one which, in this case, per- mits Lincoln Life to sell its shares back to the series when you make a with- drawal, surrender the contract or transfer from one fund to another. Manage- ment 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 share- holder 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 or 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, pow- ers, restrictions, limitations, qualifications and terms and conditions, ex- cept 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 sub- mitted to shareholders in which the interests of one class differ from the in- terests 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 Lin- coln 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 objec- tives and policies to other portfolios managed by the advisor. The investment results of the funds, however, may be higher or lower than the other portfo- lios that are managed by the advisor. There can be no assurance, and no repre- sentation 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 ad- visor. 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 lo- cated around the world that typically have market capitalizations of $50 million to $1.5 billion. 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. 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 fluc- tuations. 8 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 apprecia- tion through stocks. Investors in the fund should have a long-term perspec- tive and be able to tolerate potentially wide price fluctuations. 5. New World Fund--The fund seeks to make your investment grow over time by investing primarily in stocks of companies with significant exposure to countries which have developing economies and/or markets. The fund may also invest 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 capi- tal 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 matur- ing 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 cap- ital 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 In- vestors 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 fund- ing. 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 Pro- spectus for the series. Reinvestment of dividends and capital gain distributions All dividend and capital gain distributions of the funds are automatically re- invested 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 substi- tutions for the series and/or any funds within the series in which the VAA participates. (We may substitute shares of other funds for shares already pur- chased, or to be purchased in the future, under the contract. This substitu- tion might occur if shares of a fund should no longer be available, or if in- vestment 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 approval by the SEC. We will also notify you. 9 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 ad- ministrative 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 calcula- tion 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; the risk that more owners than expected will qualify for waivers of the con- tingent deferred sales charge; and the risk that our costs in providing the services will exceed our revenues from 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 descrip- tion of the charge. For example, the contingent deferred sales load collected may not fully cover all of the sales and distribution expenses actually in- curred by us. Deductions from the VAA for American Legacy III We deduct from the VAA an amount, computed daily, which is equal to an annual rate of 1.40% (1.25% for contracts without the EGMDB) of the daily net asset value. The charge consists of a 0.10% administrative charge and a 1.30% (1.15% for contracts without the EGMDB) mortality and expense risk charge. Surrender charge A surrender charge applies (except as described below) to surrenders and with- drawals of other purchase payments that have been invested for the periods in- dicated as follows:
Number of complete contract years that a purchase payment has been invested - ------------------------------------------------------------------------------ Less than At least 2 years 2 3 4 5 6 7+ Surrender charge as a percentage of the surrendered or withdrawn purchase payments 6% 5 4 3 2 1 0
A surrender charge does not apply to: 1. A surrender or withdrawal of purchase payments that have been invested at least seven full contract years. 2. The first four withdrawals of contract value during a contract year to the extent that the total contract value withdrawn during the current contract year does not exceed the free amount which is equal to the greater of 10% of the current contract value or 10% of the total purchase payments; 3. Automatic withdrawals in total not in excess of the greater of 10% of the contract value or 10% of the purchase payments during a contract year, made by non-trustee contractowners who are at least 59 1/2; 4. Electing an annuity option available within the contract; 5. A surrender of a contract or withdrawal of contract value as a result of the permanent and total disability of the owner as defined in Section 22(e)(3) of the tax code, after the effective date of the contract and be- fore the 65th birthday of the owner. For contracts issued in the State of New Jersey permanent and total disability is defined as: (1) during the first 24 months of disability, the owner must be unable to engage in his or her regular occupation and (2) after 24 months of disability, or if the owner was not engaged in an occupation when the disability began, the owner must be unable to engage in any occupation for which he or she is or could be suited by reason of education, training or experience. Being a homemaker or student is considered engaging in an occupation. 6. When the surviving spouse assumes ownership of the contract as a result of the death of the original owner; 7. A surrender of a contract as a result of 90 days of continuous confinement of the contractowner in an accredited nursing home or equivalent health care facility subsequent to the effective date of the contract; 8. A surrender of a contract as a result of terminal illness of the contractowner that results in a life expectancy of less than one year as determined by a qualified professional medical practitioner subsequent to the effective date of the contract; 9. A surrender of the contract as a result of the death of the contractowner or annuitant. However if an annuitant is changed for any reason other than death, the surrender charge is not waived. See Death Benefit before annuity commencement date. 10. A surrender of a contract or withdrawal of contract value of a contract issued to employees and registered representatives of any member of the selling group and their spouses and minor children, or to officers, direc- tors, trustees or bona-fide full-time employees and their spouses and mi- nor children, of LNC or The Capital Group, Inc. or their affiliated or 10 managed companies (based upon the contractowner's status at the time the contract was purchased), provided the contract was not issued with the as- sistance of a sales representative under contract with Lincoln Life. For purposes of calculating the surrender charge on withdrawals on contracts where the contractowner is not a Charitable Remainder Trust, Lincoln Life as- sumes that: a. The free amount will be withdrawn from purchase payments on a "first in- first out (FIFO)" basis. b. Prior to the seventh anniversary of the contract, any amount withdrawn above the free amount during a contract year will be withdrawn in the fol- lowing order: 1. from purchase payments (on a FIFO basis) until exhausted; then 2. from earnings. c.On or after the seventh anniversary of the contract, any amount withdrawn above the free amount during a contract year will be withdrawn in the follow- ing order: 1. from purchase payments (on a FIFO basis) to which a surrender charge no longer applies until exhausted; then 2. from earnings until exhausted; then 3. from purchase payments (on a FIFO basis) to which a surrender charge still applies. In some states, paragraph c. does not apply and paragraph b. continues to ap- ply after the 7th anniversary of the contract. In most states, for purposes of calculating the surrender charge on withdraw- als on contracts where the contractowner is a Charitable Remainder Trust, Lin- coln Life assumes that: a.the free amount will be withdrawn from purchase payments on a "first in- first out (FIFO)" basis. b.Any amount withdrawn above the free amount during a contract year will be withdrawn in the following order: 1. from purchase payments (on a FIFO basis) to which a surrender charge no longer applies until exhasted; then 2. from earnings until exhausted; then 3. from purchase payments (on a FIFO basis) to which a surrender charge still applies. The surrender charge is calculated separately for each contract year's pur- chase payments to which a charge applies. The surrender charges associated with surrender or withdrawal are paid to us to compensate us for the loss we experience on contract distribution costs when contractowners surrender or withdraw before distribution costs have been recovered. If the contractowner is a corporation or other non-individual (non-natural person), the annuitant or joint annuitant will be considered the contractowner or joint owner for purposes of determining when a surrender charge does not apply. Deductions for premium taxes Any premium tax or other tax levied by any governmental entity as a result of the existence of the contracts or the VAA will be deducted from the contract value when incurred, or at another time of our choosing. The applicable premium tax rates that states and other governmental entities impose on the purchase of an annuity are subject to change by legislation, by administrative interpretation or by judicial action. These premium taxes gen- erally 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 under- lying 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 services provided to the series. Additional information The administrative and surrender charges described previously may be reduced or eliminated for any particular contract. However, these charges will be re- duced only to the extent that we anticipate lower distribution and/or adminis- trative 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 em- ployer 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 adminis- trative and surrender 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 rep- resentative 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 con- tract is prepared and executed by our legally authorized officers. The con- tract is then sent to you through your sales representative. See Distribution of the contracts. When a completed application and all other information necessary for process- ing a purchase order is received, an initial purchase payment will be priced no later than two business days after we receive the order. 11 While attempting to finish an incomplete application, we may hold the initial purchase payment for no more than five business days. If the incomplete appli- cation cannot be completed within those five days, you will be informed of the reasons, and the purchase payment will be returned immediately. Once the ap- plication is complete, the initial purchase payment must be priced within two business days. Who can invest To apply for a contract, you must be of legal age in a state where the con- tracts 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 and annuitant cannot be older than age 90 (or older than age 83 for IRA's in Pennsylvania). Purchase payments Purchase payments are payable to us at a frequency and in an amount selected by you in the application. Note, however, that for contracts purchased in the State of Oregon, no purchase payments may be made after the first contract year. The minimum initial purchase payment is $1,500 for nonqualified con- tracts and Section 403(b) transfers/rollovers; and $300 for qualified con- tracts. The minimum annual amount for additional purchase payments is $300 for nonqualified and qualified contracts. The minimum payment to the contract at any one time must be at least $100 ($25 if transmitted electronically). Pur- chase payments in total may not exceed $2 million for an owner or $1 million for each joint owner. If you stop making 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 annui- ties. Except in Oregon (see above), purchase payments may be made or, if stopped, resumed at any time until the annuity commencement date, the surren- der of the contract, maturity date or the payment of any death benefit, which- ever 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 Purchase payments are placed into the VAA's subaccounts, each of which invests in shares of the class of its corre- sponding fund of the series, accord- ing to your instructions. The minimum amount of any purchase payment which can be put into any one subaccount is $20. Upon allocation to a subaccount, purchase payments are con- verted into accumulation units. The number of accumulation units credited is determined by dividing the amount allocated to each subaccount by the value of an accumulation unit for that subaccount on the valuation date on which the purchase payment is received at our home office if received before 4:00 p.m., New York time. If the 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 valua- tion date. The number of accumulation units determined in this way is not changed by any subsequent change in the value of an accumulation unit. Howev- er, the dollar value of an accumulation unit will vary depending not only upon how well the underlying fund's investments perform, but also upon the expenses of the VAA and the underlying funds. Valuation of accumulation units Purchase payments allocated to the VAA are converted into accumulation units. This is done by dividing each purchase payment by the value of an accumulation unit for the valuation period during which the purchase payment is allocated to the VAA. The accumulation unit value for each subaccount was or will be es- tablished 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 be- ginning 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 valua- tion 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. Be- cause 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 corre- sponding accumulation unit values on any given day. Transfers between subaccounts 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 and the purchase of accumulation units in the other subaccount. A transfer will be done using the respective 12 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- reinvestment program elected on forms available from us. (The SAI contains more information about these programs.) The minimum amount which may be transferred between subaccounts is $300 (or the entire amount in the subaccount, if less than $300). If the transfer from a subaccount would leave you with less than $300 in the subaccount, we may transfer the total balance of the subaccount. A transfer may be made by writing to our home office or, if a Telephone Ex- change 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 instruc- tions. 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 re- corded and 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 cus- tomer service center before 4 p.m. New York time. When thinking about a transfer of contract value, you should consider the in- herent risk involved. Frequent transfers based on short-term expectations may increase the risk that a transfer will be made at an inopportune time. Transfers to and from the General Account on or before the annuity commencement date You may transfer all or any part of the contract value from the subaccount(s) to the fixed side of the contract. The minimum amount which can be transferred to the fixed side is $300 or the total amount in the subaccount, if less than $300. However, if a transfer from a subaccount would leave you with less than $300 in the subaccount, we may transfer the total amount to the fixed side. You may also transfer all or any part of the contract value from the fixed side of your contract to the various subaccount(s) subject to the following restric- tions: (1) the sum of the percentages of fixed value transferred is limited to 25% of the value of the fixed side in any 12 month period; (2) the minimum amount which can be transferred is $300 or the amount in the fixed account; and (3) a transfer cannot be made during the first 30 days after the issue date of the contract. These transfers cannot be elected more than six times every contract year. We reserve the right to waive these restrictions. These restrictions do not apply to transfers made under a dollar cost averaging, portfolio rebalancing or cross-reinvestment program elected on forms available from us. Currently, there is no charge to you for a transfer. However, we reserve the right to impose a charge in the future for any transfers to and from the General Account. Transfers after the annuity commencement date You may transfer all or a portion of your investment in one subaccount to an- other subaccount 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 these transfers. However, we reserve the right to impose a charge. No transfers are allowed from the fixed side of the contract to the subaccounts. Death benefit before the annuity commencement date You may designate a beneficiary during 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 bene- ficiary. 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 an- nuitant will be treated as death of the contractowner. Death benefits are tax- able. See Federal tax matters. If the death occurs before the annuity commencement date and the enhanced guar- anteed 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 inception date) on ages up to, and including, the deceased's age 80. The highest contract value is increased by purchase payments and is decreased by partial withdrawals, par- tial annuitizations, and any premium taxes made, effected or incurred subse- quent 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 purchase payments minus any withdrawals, partial annuitizations or premium taxes incurred. 13 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 de- ceased joint owner he/she may continue the contract as sole contractowner. Upon the death of the spouse who continues the contract, Lincoln Life will pay a death benefit to the designated beneficiary(s). 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 ap- plies only one time for each contract. If an annuitant who is not the contractowner or 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. Alterna- tively, 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 liv- ing 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 an- nuitant 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 beneficiary is the spouse of the contractowner, then the spouse may elect to continue the contract as owner. 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 pay- ment; 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 available under contracts used for qualified plans (other than IRAs) or contracts issued to a contractowner, joint owner or annu- itant who is age 80 or older at the time of issuance. After a contract is issued, the contractowner may discontinue the EGMDB at any time by completing the Enhanced Guaranteed Minimum Death Benefit Discontinu- ance 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. The death benefit payable on the death of the annuitant will be distributed in either a lump sum settlement 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. 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 inter- est will go to any other beneficiaries named, according to their respective interests (There are no restrictions on the beneficiary's use of the pro- ceeds.); 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 benefi- ciary 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 re- ceiving 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 be- yond the beneficiary's life expectancy. 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, in- dependently of the other, may exercise any ownership rights in this contract. Joint owners may be established pending state approval. Please see your in- vestment dealer for assistance. 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 con- tract or a withdrawal of the contract value upon your written request, subject to the rules discussed below. Surrender or withdrawal rights after the annuity commencement date depend upon the annuity option you select. The amount available upon surrender/withdrawal is the cash surrender value (contract value less any applicable charges, fees, and taxes) at the end of the valuation pe- 14 riod during which the written request for surrender/withdrawal is received at the home office. The minimum amount which can be withdrawn is $300. Unless a request for withdrawal specifies otherwise, withdrawals will be made from all subaccounts within the VAA and from the General Account in the same proportion that the amount of withdrawal bears to the total contract value. Unless pro- hibited, surrender/ withdrawal payments will be mailed within seven days after we receive a valid written request at the home office. The payment may be postponed as permitted by the 1940 Act. There are charges associated with surrender of a contract or withdrawal of contract value. You may specify whether these charges are deducted from the amount you request to be withdrawn or from the remaining contract value. See Charges and other deductions. 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 pur- chased as part of a retirement plan of a public school system or 501(c)(3) or- ganization 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) pro- hibits 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 contribu- tions and earnings through December 31, 1988, are not subject to the previ- ously stated restriction. Funds transferred to the contract from a 403(b)(7) custodial account will also be subject to the 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 sur- rendered in accordance with applicable law for individual deferred annuities. Participants in the Texas Optional Retirement Program should refer to the Re- strictions under the Texas Optional Retirement Program, later in this Prospec- tus 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 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, and we will recredit that portion of the surrender/withdrawal charges attributable to the amount returned. This elec- tion 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 representa- tion must be made that the proceeds being used to make the purchase have re- tained 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 re- investment 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 Commissions are paid to dealers under different commission options. The maxi- mum commission paid as a percentage of each purchase payment is 6.25%. Alter- nate commission schedules are available with lower initial commission amounts based on purchase payments, plus ongoing annual compensation of up to 1.00%. At times, additional sales incentives (up to an annual continuing 0.10% of contract value) may be provided to dealers maintaining certain sales volume levels. Upon annuitization, the commissions paid to dealers are a maximum of 6.00% of account annuitized and/or an annual continuing commission of up to 1.00% (or up to 1.10% for dealers maintaining certain sales volume levels) of statutory reserves. These commissions are not deducted from purchase payments or contract value; they are paid by us. Ownership As contractowner, you have all rights under the contract. According to Indiana law, the assets of the VAA are held for the exclusive benefit of all contractowners and their designated beneficiaries; 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. Non-qualified contracts may not be collater- ally assigned. We assume no responsibility for the validity or 15 effect of any assignment. Consult your tax advisor about the tax consequences of an assignment. Contractowner questions The obligations to purchasers under the contracts are those of Lincoln Life. 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 Section 401(a) and tax exempt under Section 501(a) of the tax code] and qualified an- nuity plans [described in Section 403(a) of the tax code], including H.R.10 trusts and plans covering self-employed individuals and their employees, pro- vide for annuity payouts to start at the date and under the option specified in the plan.) The contract provides optional forms of payouts of annuities (annuity op- tions), each of which is payable on a variable basis, a fixed basis or a com- bination 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 in- stallments. 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 beneficia- ries. 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 guaran- tees 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 con- tinue 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 dur- ing the joint lifetime of the annuitant and a designated joint annuitant. The payouts continue during the lifetime of the survivor. The designated period is selected 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 annu- itant. When one of the joint annuitants dies, the 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 fur- ther 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, di- vided 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 pay- ment 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. Op- tions are only available to the extent they are consistent with the require- ments 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 admin- istrative 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 op- tion 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 16 guaranteed for 10 years (on a fixed, variable or combination fixed and vari- able 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 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 de- pend 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 payments 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 un- certain. The Federal income tax rules may vary with your particular circum- stances. 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 ap- plicable 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. Tax deferral on earnings The Federal income tax law generally does not tax any increase in your con- tract value until you receive a contract distribution. However, for this gen- eral 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 pur- poses. This means that the entity owning the contract pays tax currently on the excess of the contract value over the purchase payments for the contract. Examples of contracts where the owner pays current tax on the contract's earn- ings 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 em- ployees. 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 de- fine standards for determining whether the investments of the VAA are ade- quately 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 purchase payments. Although we do not control the investments of the underlying investment options, we expect that the un- derlying 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 17 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 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 pos- sible 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 ex- cess of the contract value over the 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 pur- poses and that the tax law will not tax any increase in your contract value un- til 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 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 ordi- nary income than on capital gains. You will pay tax on a surrender to the ex- tent the amount you receive extends your purchase payments. In certain circum- stances, your purchase payments are reduced by amounts received from your con- tract that were not included in income. Taxation of annuity payouts The tax code imposes tax on a portion of each annuity payout (at ordinary in- come tax rates) and treats a portion as a nontaxable return of your 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 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 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 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 purchase payments not yet distributed from the contract. All annuity payouts in excess of the 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 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 con- tract which you must include in your gross income. The 10% penalty tax does not apply if one of several exceptions exists. These exceptions include withdraw- als, 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 an- nuity 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 insur- ance 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 con- tract 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. 18 Loans and assignments Except for certain qualified contracts, the tax code treats any amount re- ceived 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 ex- tent it exceeds your purchase payments not previously received. The new own- er's 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 indi- vidual, 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 enti- ties 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 re- tirement plans that receive favorable treatment under the tax code. Contracts issued to or in connection with a qualified retirement plan are called "quali- fied 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 issue contracts in connection with the following types of quali- fied plans: . Individual Retirement Accounts and Annuities ("Traditional IRAs") . 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 neces- sary 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 con- sent. Tax treatment of qualified contracts The Federal income tax rules applicable to qualified plans and qualified con- tracts 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 purchase pay- ments. These limits vary depending on the type of qualified plan and the plan participant's specific circumstances, e.g., the participant's compensa- tion. . Under most qualified plans, e.g., 403(b) plans and Traditional IRAs, the an- nuitant must begin receiving payments from the contract in certain minimum amounts by a certain age, typically age 70 1/2. However, these "minimum dis- tribution 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 sub- ject 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. 19 Tax treatment of payments Federal income tax rules generally include distributions from a qualified con- tract in the recipient's income as ordinary income. These taxable distribu- tions will include purchase payments that were deductible or excludible from income. Thus, under many qualified contracts the total amount received is in- cluded in income since a deduction or exclusion from income was taken for pur- chase 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 min- imum 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 im- pose 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 ap- ply 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 al- ways be consulted before you move or attempt to move funds between any quali- fied plan or contract and another qualified plan or contract. The direct rollover rules apply to certain payments (called "eligible rollover distributions") from section 401(a) plans, section 403(a) or (b) plans, H.R. 10 plans and contracts used in connection with these types of plans. (The di- rect 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 pro- vided 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 re- sult 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 in- vestment 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 in- come 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 interpreta- tions 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 any subaccounts which in- vest in classes of funds of the series. If the 1940 Act or any regulation un- der it should be amended or if present interpretations should change, and if as a result we determine that we are permitted to vote the series shares in our own right, we may elect to do so. 20 The number of votes which you have the right to cast will be determined by ap- plying 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 inter- est in a subaccount will receive proxy voting material, reports and other ma- terials 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 purchase payments. With respect to the VAA, except as explained in the following paragraph, we will return the con- tract value as of the date of receipt of the cancellation, plus any premium taxes which had been deducted. No contingent deferred sales charge will be as- sessed. 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 pur- chase 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 partic- ipants 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 de- fined 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 re- sponsible for maintaining all records and accounts relating to the VAA. We have entered into an agreement with the Delaware Management Company, 2005 Mar- ket 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 infor- mation required by 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 informa- tion about the VAA, Lincoln Life and the contracts offered. Statements in this Prospectus about the content of contracts and other legal instruments are sum- maries. For the 21 complete text of those contracts and instruments, please refer to those docu- ments as filed 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 ad- vertisements. 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 rou- tine 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 ad- verse 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 pro- spectus, 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 pu- tative 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. Statement of additional information table of contents for Separate Account H
Item - ---------------------------------------------------- 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
For a free copy of the SAI please see page one of this booklet.
Item - -------------------------------------- Calculation of investment results B-2 - -------------------------------------- Annuity payouts B-5 - -------------------------------------- Advertising and sales literature B-5 - -------------------------------------- Financial statements B-7
22 The American Legacy III Lincoln NationalVariable Annuity Account H (Registrant) The Lincoln NationalLife Insurance Company (Depositor) Statement of Additional Information (SAI) This Statement of Additional Information should be read in conjunction with the American Legacy III Prospectus of Lincoln National Variable Annuity Account H dated April 1, 2000. You may obtain a copy of the American Legacy III Prospectus on request and without charge. Please write American Legacy Customer Service, The Lincoln National Life Insur- ance Company, P.O. Box 2348, Fort Wayne, Indiana 46801 or call 1-800-942-5500. Table of Contents
Item Page - ------------------------------------------ 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 - ------------------------------------------
Item Page Calculation of investment results B-2 Annuity payouts B-5 Advertising and sales literature B-5 Financial statements B-7
This SAI is not a Prospectus. The date of this SAI is April 1, 2000. General information and history of the Lincoln National Life Insurance Company (Lincoln Life) The Lincoln National Life Insurance Company (Lincoln Life), organized in 1905, is an Indiana stock insurance corporation, engaged primarily in the direct in- surance of life and health insurance contracts and annuities, and is also a professional reinsurer. Lincoln Life is wholly owned by Lincoln National Cor- poration (LNC), a publicly held insurance and financial services holding com- pany 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 cur- rently 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 oc- curs on a weekend day, the Exchange may also be closed on the business day oc- curring just before or just after the holiday. Services Independent auditors The financial statements of the variable annuity account (VAA) and the statu- tory-basis financial statements of Lincoln Life appearing in this SAI and Reg- istration Statement have been audited by Ernst & Young LLP, independent audi- tors, 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 re- sponsible to Lincoln Life. We have entered into an agreement with the Delaware Management Company, 2005 Market Street, Philadelphia, PA 19203, to provide ac- counting 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 contingent deferred sales charge normally assessed upon surrender or withdrawal of con- tract value will be waived for officers, directors or bona fide full time em- ployees of LNC, The Capital Group, Inc., their affiliated or managed compa- nies, and certain other persons. See Charges and other deductions in the Pro- spectus. Both before and after the annuity commencement date, there are exchange privi- leges between subaccounts, and from the VAA to the General Account subject to restrictions set out in the Prospectus. See The contracts, in the Prospectus. No exchanges are permitted between the VAA and other 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 an- nual compounded rate of return over each period that would equate the initial B-2 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
10 Years 1- 5- or Since Year Years Inception With With With EGMDB EGMDB EGMDB - ------------------------------------------------------------------------------ Global Growth Subaccount 61.31% N/A 35.01% (commenced activity 4/30/97) Global Small Capitalization Subaccount 82.71 N/A 44.58 (commenced activity 4/30/98) Growth Subaccount (commenced activity 8/1/89) 49.08 30.96% 19.40 International Subaccount 67.53 23.09 14.86 (commenced activity 5/1/90) New World Subaccount (commenced activity 6/17/99) N/A N/A 11.43 Growth-Income Subaccount 3.65 19.10 12.78 (commenced activity 8/1/89) Asset Allocation Subaccount (0.57) 14.87 10.36 (commenced activity 8/1/89) High-Yield Bond Subaccount (1.93) 8.41 8.44 (commenced activity 8/1/89) Bond Subaccount (commenced activity 1/2/96) (4.87) N/A 3.14 U.S. Gov't./AAA Subaccount (commenced activity (8.16) 4.72 5.42 8/1/89) Cash Management Subaccount (2.89) 3.09 3.18 (commenced activity 8/1/89)
The performance figures shown reflect 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 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 an- nuities 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-standard 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 un- derlying fund adjusted for Contract charges. This information represents past performance and does not indicate or represent future performance. The invest- ment return and value of a Contract will fluctuate so that contractowner's in- vestment 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 express- ing 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
1- 3- 5- 10- Since YTD year year year year Inception With With With With With With EGMDB EGMDB EGMDB EGMDB EGMDB EGMDB - -------------------------------------------------------------------------------- Global Growth Subaccount 67.31% 67.31% N/A N/A N/A 36.14% (commenced activity 4/30/97) Global Small Capitalization 88.71 88.71 N/A N/A N/A 47.37 Subaccount (commenced activity 4/30/98) Growth Subaccount 55.08 55.08 38.34% 31.09% 19.40% 17.99 (as if commenced activity 2/8/84) International Subaccount 73.53 73.53 30.46 23.27 N/A 14.86 (as if commenced activity 5/1/90) New World Subaccount N/A N/A N/A N/A N/A 17.43 (as if commenced activity 6/17/99) Growth-Income Subaccount 9.65 9.65 16.49 19.29 12.78 13.97 (as if commenced activity 2/8/84) Asset Allocation Subaccount 5.43 5.43 11.63 15.10 10.36 10.14 (as if commenced activity 8/1/89) High-Yield Bond Subaccount 4.07 4.07 4.38 8.70 8.44 9.89 (as if commenced activity 2/8/84) Bond Subaccount 1.13 1.13 4.00 N/A N/A 4.04 (as if commenced activity 1/2/96) U.S. Gov't./AAA Subaccount (2.16) (2.16) 3.58 5.05 5.42 5.87 (as if commenced activity 12/1/85) Cash Management Subaccount 3.12 3.12 3.34 3.44 3.18 4.10 (as if commenced activity 2/8/84)
The performance figures shown reflect 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 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 calcula- tion: 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 con- tract valued as of the annuity commencement date (less any premium taxes) to the annuity tables contained in the contract. The first variable annuity pay- out 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 bene- fit per $1,000 of value shown in the contract tables by the number of thou- sands 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 mea- suring 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 as- sociated with employer sponsored plans and where not prohibited by law. At an annuity commencement date, the contract is credited with annuity units for each 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 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 subaccount by the appro- priate annuity unit value for the valuation date ending 14 days prior to the date that payout is due. The value of each subaccount's annuity unit will be set initially at $1.00. The annuity unit value for each subaccount at the end of any valuation date is determined by multiplying the subaccount annuity unit value for the immedi- ately preceding valuation date by the product of: (a) The net investment factor of the subaccount for the valuation period for which the annuity unit value is being determined, and (b) A factor to neutralize the assumed investment return in the annuity table. The value of the annuity units is determined as of a valuation date 14 days prior to the payment date in order to permit calculation of amounts of annuity 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 orga- nizations (and others) in its marketing materials: A.M. Best's Rating System is designed to evaluate the various factors affect- ing 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 quantita- tive 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 mea- sures performance of 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 di- versification representing over 1,000 companies across 20 different countries. B-5 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, includ- ing 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 sta- tistical 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 con- tracts. 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 company's and 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 but currently including Ameri- can 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 ac- count; 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 subaccounts and adver- tisement 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 the fixed side of the contract. 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 un- til 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 re- quest or by telephone if we have your telephone authorization on file. Cur- rently, 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 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 re- quired 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 tele- phone authorization has been elected, certain changes may be made by tele- phone. 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. To the extent B-6 that withdrawals under AWS do not qualify for an exemption from the contingent deferred sales charge, we will assess any applicable surrender charges on those withdrawals. See Contingent deferred sales charges. 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 ter- minate 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 con- tract value allocated to each variable account subaccount (e.g., 20% Money Mar- ket, 50% Growth, 30% Utilities). This pre-determined level will be the alloca- tion 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-an- nual or annual basis, as selected by the contractowner. Once the portfolio rebalancing option is activated, any variable account subaccount transfers exe- cuted 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 ter- mination of the portfolio rebalancing option. Any such termination will be con- firmed 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 com- mencement date. Currently, there is no charge for this service. However, we re- serve 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 Fi- nancial Group has consolidated assets of over $103 billion and annual consoli- dated 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 fi- nancial 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 cli- ents 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 as- sets of over $79 billion. Financial Statements Financial statements of the VAA and the statutory-basis financial statements of Lincoln Life appear on the following pages. B-7 Lincoln National Variable Annuity Account H Statement of assets and liability December 31, 1999
Growth-Income Growth-Income Class II Combined Subaccount Subaccount - ------------------------------------------------------------------------------- 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 - -------------------------------- ============== ==============
See accompanying notes. H-2
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 - ------------------------------------------------------------------------------------------------------------------------- $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 ============== ============== ============== ============ ============ =========== ============ =========== ============
H-3 Lincoln National Variable Annuity Account H Statement of assets and liability (continued) December 31, 1999
Cash Management International Class II International Class II Subaccount Subaccount Subaccount - ------------------------------------------------------------------------------ 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 - ------------------------------------- =========== ============== ============
See accompanying notes. H-4
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 - --------------------------------------------------------------------------------------------------------- $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 ============ =========== ============ ============ ============ ============ =========== ===========
H-5 Lincoln National Variable Annuity Account H Statement of Operations Year Ended December 31, 1999
Growth-Income Growth-Income Class II Combined Subaccount Subaccount - --------------------------------------------------------------------------------- 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 - ---------------------------------- ============== ============= =============
See accompanying notes. H-6
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 - ------------------------------------------------------------------------------------------------------------------------------- $ 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 ================ ============ ============ ============ ============ =========== ============ =========== ===========
H-7 Lincoln National Variable Annuity Account H Statement of Operations (continued) Year Ended December 31, 1999
Cash Management International Class II International Class II Subaccount Subaccount Subaccount - -------------------------------------------------------------------------------- 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 - ------------------------------------- ========== ============== ============
See accompanying notes. H-8
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 - ------------------------------------------------------------------------------------------------------------ $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 =========== =========== ============ ============ =========== =========== ========== ==========
H-9 Lincoln National Variable Annuity Account H Statements of changes in net assets Years Ended December 31, 1998 and 1999
Growth-Income Growth-Income Class II Combined Subaccount Subaccount - ------------------------------------------------------------------------------ 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 - --------------------------- =============== =============== ==============
See accompanying notes to financial stlatements. H-10
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 - ------------------------------------------------------------------------------------------------------------------------- $ 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 Cash Management Subaccount - ------------------------------------------------------------------------------------------------------------------------- $ 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 ===============
H-11 Lincoln National Variable Annuity Account H Statements of changes in net assets (continued) Years Ended December 31, 1998 and 1999
Cash Management International Class II International Class II Subaccount Subaccount Subaccount - ------------------------------------------------------------------------------- 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 - ----------------------------------- =========== ============== ============
See accompanying notes. H-12
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 - ------------------------------------------------------------------------------------------------------------------ $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 ============ =========== ============ ============ ============ ============ =========== ===========
H-13 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 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: 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 ===========
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 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.
Growth-Income Growth-Income Class II Combined Subaccount Subaccount - ------------------------------------------------------------------------------- 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 - -------------------------- =============== ============== ============== Cash Management International Class II International Class II Subaccount Subaccount Subaccount === - ------------------------------------------------------------------------------- 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 - -------------------------- =============== ============== ==============
H-16
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 - ---------------------------------------------------------------------------------------------------------------------- $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 ============== ============== ============== ============ ============ ============ ============ =========== 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 - --------------------------------------------------------------------------------------------------------------------- $ 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 ============== ============== ============== ============ ============ ============ ============ =========== Cash Management Subaccount - ----------------------------------------------------------------------------------------------------- $214,734,073 558,589 - ------------- 215,292,662 55,517,996 1,507,120 (881,860) - ------------- $271,435,918 ============= - ----------------------------------------------------------------------------------------------------
H-17 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.
Aggregate Aggregate Cost of Proceeds from Purchases Sales - ---------------------------------------------------------------------------- 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 ============== ==============
5. Investments The following is a summary of investments owned at December 31, 1999.
Net Shares Asset Value of Cost of Outstanding Value Shares Shares - ------------------------------------------------------------------------------- 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 =============== ===============
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 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 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY BALANCE SHEETS -- STATUTORY BASIS
DECEMBER 31 1999 1998 --------- --------- (IN MILLIONS) --------------------- 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 - ------------------------------------------------------------ ========= =========
See accompanying notes. S-1 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS -- STATUTORY BASIS
YEAR ENDED DECEMBER 31 1999 1998 1997 --------- --------- -------- (IN MILLIONS) -------------------------------- 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 - ------------------------------------------------------------ ========= ========= ========
See accompanying notes. S-2 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
YEAR ENDED DECEMBER 31 1999 1998 1997 -------- -------- -------- (IN MILLIONS) ------------------------------ 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 - ------------------------------------------------------------ ======== ======== ========
See accompanying notes. S-3 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
YEAR ENDED DECEMBER 31 1999 1998 1997 --------- ---------- --------- (IN MILLIONS) ---------------------------------- 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 - ------------------------------------------------------------ ========= ========== =========
See accompanying notes. S-4 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 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 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:
CAPITAL AND SURPLUS NET INCOME (LOSS) ---------------------------------------------------------------------- DECEMBER 31 YEAR ENDED DECEMBER 31 1999 1998 1999 1998 1997 ---------------------------------------------------------------------- (IN MILLIONS) ---------------------------------------------------------------------- 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 ----------------------------------------- ========= ========= ========= ========= ======
S-7 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 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 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 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:
YEAR ENDED DECEMBER 31 1999 1998 1997 -------------------------------------- (IN MILLIONS) -------------------------------------- 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 ------------------------------------------------------------ ======== ======== ========
S-11 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:
COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------------------------------------------------- (IN MILLIONS) ----------------------------------------------------------- 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 ========= ======== ====== =========
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:
COST OR AMORTIZED FAIR COST VALUE ------------------------- (IN MILLIONS) ------------------------- 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 ------------------------------------------------------------ ========= =========
S-12 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:
COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------------------------------- (IN MILLIONS) ----------------------------------------- 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 ----------------------------------------
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 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:
DECEMBER 31 1999 1998 ------------------- (IN MILLIONS) ------------------- 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 ------------------------------------------------------------ ====== ======
Net realized capital gains are reported net of federal income taxes and amounts transferred to the IMR as follows:
1999 1998 1997 -------------------------------- (IN MILLIONS) -------------------------------- 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 ------------------------------------------------------------ ====== ====== ======
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 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):
DECEMBER 31, 1999 ---------------------------------- FIRST PENN LNH&C LNRAC LNY ---------------------------------- 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 --------------------------------------------------------- ======== ====== ====== ========
YEAR ENDED DECEMBER 31, 1999 ----------------------------------------------- FIRST PENN LNH&C LNRAC LNY ----------------------------------------------- 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 ----------------------------------------------------------- ====== ====== ====== ========
DECEMBER 31, 1998 ---------------------------------- FIRST PENN LNH&C LNRAC LNY ---------------------------------- 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 ---------------------------------------------------------- ======== ====== ====== ========
S-15 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) 4. SUBSIDIARIES (CONTINUED)
YEAR ENDED DECEMBER 31, 1998 --------------------------------- FIRST PENN LNH&C LNRAC LNY --------------------------------- 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) ----------------------------------------------------------- ====== ======= ====== ========
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 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:
DECEMBER 31 1999 1998 ----------------------- (IN MILLIONS) ----------------------- Insurance ceded $5,340.0 $4,081.8 ------------------------------------------------------------ Amounts recoverable from other insurers 81.2 79.9 ------------------------------------------------------------
Reinsurance transactions, excluding assumption reinsurance, included in the income statement caption, "Premiums and deposits," are as follows:
YEAR ENDED DECEMBER 31 1999 1998 1997 ------------------------------------ (IN MILLIONS) ------------------------------------ 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 ------------------------------------------------------------ ======== ======== ======
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:
DECEMBER 31 1999 1998 ------------------------- (IN MILLIONS) ------------------------- 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 ========= =========
S-17 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:
DECEMBER 31, 1999 --------------------------------- NET OF GROSS LOADING LOADING --------------------------------- (IN MILLIONS) --------------------------------- 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 ===== ===== =====
DECEMBER 31, 1998 --------------------------------- NET OF GROSS LOADING LOADING --------------------------------- (IN MILLIONS) --------------------------------- 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) ===== ===== =====
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:
AMOUNT PERCENT ----------------------- (IN MILLIONS) ----------------------- 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 ------------------------------------------------------------ =========
S-18 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):
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 ----------- -------------- -------------- ------------- ----------- --------------- January 5, 1998 $ 500.0 $ 500.0 $ 32.8 $ 65.1 $ -- ------------------------------- December 18, 1998 750.0 750.0 46.7 46.7 -- -------------------------------
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 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 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): 2000 $ 28.7 -------------------------------- 2001 28.8 -------------------------------- 2002 27.5 -------------------------------- 2003 26.2 -------------------------------- 2004 26.5 -------------------------------- Thereafter 123.5 -------------------------------- ------ $261.2 ======
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 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 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 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:
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) ----------------------------------------------------- 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 ======== ======== ===== ====== ===== =====
S-24 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:
INTEREST RATE CAPS SWAPTIONS ----------------------------------------------------- 1999 1998 1999 1998 ----------------------------------------------------- (IN MILLIONS) ----------------------------------------------------- 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 ------------------------------------------------------- ======== ======== ======== ========
INTEREST RATE SWAPS ----------------------- 1999 1998 ----------------------- 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 ------------------------------------------------------------ ======= =========
COMMODITY PUT OPTIONS SWAPS ---------------------------------------- 1999 1998 1999 1998 ---------------------------------------- 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 ------------------------------------------------------------ ===== ===== ===== ====
FOREIGN CURRENCY DERIVATIVES (FOREIGN INVESTMENTS) ------------------------------------------- FOREIGN CURRENCY SWAPS FOREIGN EXCHANGE ------------------------------------------- FORWARD CONTRACTS 1999 1998 1999 1998 ------------------------------------------- (IN MILLIONS) ------------------------------------------- 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 ------------------------------------------------------------ ===== ======= ===== =====
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 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 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 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 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:
DECEMBER 31 ------------------------------------------------------------- 1999 1998 ------------------------------------------------------------- CARRYING CARRYING ASSETS (LIABILITIES) VALUE FAIR VALUE VALUE FAIR VALUE -------------------------------------------------------------------------------------------------------------- (IN MILLIONS) ------------------------------------------------------------- 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) -----------------------------------------------
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 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:
YEAR ENDED DECEMBER 31 1999 1998 1997 ------------------------ (IN MILLIONS) ------------------------ Insurance assumed $ 19.7 $ 13.7 $ 11.9 ---------------------- Insurance ceded 777.6 290.1 100.3
The balance sheets include reinsurance balances with affiliated companies as follows:
DECEMBER 31 1999 1998 ----------------------- (IN MILLIONS) ----------------------- 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 ------------------------
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 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:
YEAR ENDED DECEMBER 31 1999 1998 1997 ----------------------------------- (IN MILLIONS) ----------------------------------- 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 ------------------------------------------------------------ ========= ========= =========
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 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 LINCOLN NATIONAL VARIABLE ANNUITY ACCOUNT H REGISTRATION STATEMENT ON FORM N-4 PART C - OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) List of Financial Statements 1. Part A The Table of Condensed Financial Information is included in Part A of this Registration Statement. 2. Part B The following Financial Statements for the Variable Account are included in Part B of this Registration Statement. Statement of Assets and Liability -- December 31, 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--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 Item 24. (Continued) (b) List of Exhibits (1) Resolutions of the Board of Directors of The Lincoln National Life Insurance Company establishing Separate Account H are incorporated herein by reference to Registration Statement on Form N-4 (33-27783) filed on December 5, 1996. (2) None. (3)(a) Underwriting Agreement incorporated herein by reference to Registration Statement on Form N-4 (33-27783) filed on March 31, 1997. (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 Underwriting Agreement incorporated herein by reference to Registration Statement on Form N-4 (333-63505) filed on March 28, 2000. (3)(e) Amendment dated September 1999 to Selling Group Agreement incorporated herein by reference to Registration Statement on Form N-4 (333-63505) filed on March 28, 2000. (3)(f) Amendment dated February 2000 to Selling Group Agreement incorporated herein by reference to Registration Statement on From N-4 (333-63505) filed on March 28, 2000. (4)(a) Variable Annuity Contract incorporated herein by reference to Registration Statement on Form N-4 (333-18419) filed on April 1, 1997. (4)(b) Amendment No. 1 effective July 1, 1999 to Variable Annuity Contract. (c) Amendment No. 2 to Variable Annuity Contract. (d) Variable Annuity Contract - version A. (e) Amendment No. 1 to Variable Annuity Contract - version A. (f) Amendment No. 2 to Variable Annuity Contract - version A and to Variable Annuity Contract. (g) Amendment No. 3 to Variable Annuity Contract - version A. (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) Services Agreement between Delaware Management Holdings, Inc., Delaware Service Company, Inc. and The Lincoln National Life Insurance Company is incorporated herein by reference to the Registration Statement on Form S-6 (333-40745) filed on November 21, 1997. (8)(b) Participation Agreement incorporated herein by reference to Registration Statement on Form N-4 (333-18419) filed on April 1, 1997. (8)(c) Amendment to Participation Agreement incorporated herein by reference to Registration Statement on Form N-4 (333-18419) filed on April 1, 1997. (d) Amendment dated October 15, 1999 to Participation Agreement incorporated herein by reference to Registration Statement on Form N-4 (333-63505) filed on March 28, 2000. (9) Opinion and consent of Jeremy Sachs, Senior Counsel of The Lincoln National Life Insurance Company as to legality of securities being issued incorporated herein by reference to Registration Statement on Form N-4 (333-18419) filed on April 1, 1997. (10) Consent of Ernst & Young LLP, Independent Auditors (11) Not applicable. (12) Not applicable. (13) Schedule for Computation for Performance Quotations incorporated herein by reference to Registration Statement on Form N-4 (333-18419) filed on April 1, 1997. (14) Not applicable (15) Other Exhibits: (a) Organizational Chart of the Lincoln National Insurance Holding Company System (b) Books and Records Report (16) Powers 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 LNL - ---- ------------------------------ 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, Indiana 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 Magnavox Way, Fort Wayne, Indiana 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 CONTRACTOWNERS As of February 29, 2000, there were 266,100 (variable and fixed) Contract Owners 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 (LNL) provides that LNL 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 LNL, 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 act opposed to the best interests of, LNL. Certain additional conditions apply to indemnification in criminal proceedings. In particular, separate conditions govern indemnification of directors, officers, and employees of LNL in connection with suits by, or in the right of, LNL. Please refer to Article VII of the By-Laws of LNL (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 against 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 Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 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, U.S. Treasury Money Fund of America and Washington Mutual Investors Fund, Inc. Lincoln National Variable Annuity Account E, 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 Cagoura 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 Road, STE 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 37024-1665 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 Road 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 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 Street, N.W. Washington, D.C. 20015 L Carl D. Cutting Vice President William Daugherty Regional Vice President 1216 Highlander Way Mechanicsburg, PA 17055 Daniel 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 Robart 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 (b) (1) (2) Name and Principal Positions and Offices Business Address with Underwriter ------------------ ---------------------- Daniel B. Frick Regional Vice President 845 Western Avenue Glen Ellyn, IL 60137 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 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 94558 Samuel W. Perry Regional Vice President 6133 Calle del Paisano 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, S.E. Mercer Island, WA 98040 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 07960 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 and 1000 RIDC Plaza, Suite 212 Co-Chief Executive Officer Pittsburgh, PA 15238 William P. Simon, Jr. Senior Vice President 912 Castlehill Lane Devon, PA 19333 L John C. Smith 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 94401 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 Street Sarasota, FL 34242 L J. Kelly Webb Senior Vice President, Treasurer and Controller
(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. 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 - Legacy III (Registrant) /s/ Kelly D. Clevenger By: ___________________________ Kelly D. Clevenger Vice President, LNL (Title) By: THE LINCOLN NATIONAL LIFE INSURANCE COMPANY (Depositor) /s/ Stephen H. Lewis By: ___________________________ 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.
Signatures Title Date - ---------- ----- ------ * President & Director March 28, 2000 - --------------------- (Principal Executive Officer) Jon A. Boscia * Executive Vice President and March 28, 2000 - --------------------- Director Lawrence T. Rowland * Vice President and Controller March 28, 2000 - --------------------- (Principal Accounting Officer) Keith J. Ryan * Senior Vice President, Chief March 28, 2000 - --------------------- Financial Officer and Assistant Todd R. Stephenson Treasurer (Principal Financial Officer) Chief Executive Officer of Life _________, 2000 - --------------------- Insurance, Senior Vice President John H. Gotta and Director /s/ Stephen H. Lewis Interim Chief Executive Officer March 28, 2000 - --------------------- of Annuities, Senior Vice Stephen H. Lewis President and Director * Director March 28, 2000 - --------------------- H. Thomas McMeekin * Director March 28, 2000 - --------------------- Richard C. Vaughan
*By /s/ Steven M. Kluever pursuant to a Power of Attorney filed with this ---------------------- Registration Statement Steven M. Kluever EX-99.4.B 2 VARIABLE ANNUITY CONTRACT #1 VARIABLE ANNUITY AMENDMENT Made a part of the CONTRACT TO WHICH IT IS ATTACHED ("this Contract") The following shall replace the definition of DEATH BENEFIT, section 1.13, in its entirety: DEATH BENEFIT - The amount payable upon death of the Owner or Annuitant. The following shall replace Section 2.01 WHERE PAYABLE, in its entirety: All Purchase Payments must be made to LNL or to its designated agent(s). The following shall replace the first sentence in the first paragraph of Section 2.08 TRANSFERS: Prior to the earlier of: the Maturity Date, surrender of the Contract, termination of Contract upon payment of any Death Benefit, or the Annuity Commencement Date, the Owner may direct a transfer of assets from one Sub- account to another Sub-account or to the Fixed Account of the Contract. The following shall replace the second paragraph of Section 2.11 CONTINGENT DEFERRED SALES CHARGE, in its entirety: A CDSC will be waived under certain circumstances (see section 2.13 for details). The following shall replace Section 2.12 DEATH BENEFITS, in its entirety: 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 the terms of Article 4. If the designated Beneficiary of the Death Benefit is the surviving spouse of the deceased Owner, the spouse may elect to continue the contract as the new Owner. If there are no designated Beneficiaries, LNL will pay a Death Benefit to the Owner's estate. 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) named by the spouse as the new Owner in accordance with 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 Article 4. If the Annuitant is also the Owner or a Joint Owner, then the Death Benefit paid on the death of the Annuitant will be subject to the Contract provisions regarding death of Owner. If the surviving spouse of the Owner/Annuitant assumes the contract, 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 on 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 Article 4. This Contract will terminate 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. 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: (1) proof, satisfactory to LNL, of the death; (2) written authorization for payment; and (3) 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 provision 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 date on which the death claim is approved by LNL for payment; or b. the highest Contract Value at the time of Fund valuation on any policy anniversary date (including the inception date) prior to the 81st birthday of the deceased and prior to the death of the deceased. The highest Contract Value is increased by Purchase Payments subsequent to such anniversary date on which the highest Contract Value is obtained. The highest Contract Value is decreased by partial withdrawals, partial annuitizations, and premium tax made, effected or incurred subsequent to such anniversary date on which the highest Contract Value is obtained. Upon the death of an Owner or Joint Owner 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 on the first death). This EGMDB will be credited into the Contract and will only apply one time for each Contract. This Contract option is not available upon the death of the Annuitant. The Guarantee of Principal is equal to the greater of: a. the current Contract Value as of the date on which the death claim is approved by LNL for payment; or b. the sum of all Purchase Payments decreased by partial withdrawals, partial annuitizations, and premium tax made, effected or incurred subsequent to the inception date. Upon the death of an Owner or Joint Owner of this Contract, if the surviving spouse continues the Contract and if the EGMDB is not in effect, the Guarantee of Principal 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 on the first death). This Guarantee of Principal is credited into the Contract and will only apply one time for each Contract. This Contract option is not available upon the death of the Annuitant. 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 is equal to the Guarantee of Principal. The EGMDB will only be in effect, unless terminated by the Owner, for Non- Qualified Contracts and Contracts sold as Individual Retirement Annuities (IRA) under Code Section 408(b) and 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 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 the termination of the EGMDB by the Owner, 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, 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 on the death of the Annuitant will be distributed to the Owner and Joint Owner if applicable in either the form of a lump sum or an Annuity Payment Option. An Annuity Payment Option must be selected within 60 days after LNL approves the death claim as discussed previously. 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 an or after the Annuity Commencement Date, any remaining benefits payable 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, then 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 above, 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 2.13 DEATH OF ANNUITANT shall be omitted. The following shall replace (6) in the first paragraph of section 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES: (6) a surrender of the Contract as a result of the payment of a Death Benefit on the death of the Owner or a Joint Owner or the Annuitant; The following shall replace the third paragraph of Section 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES: If a non-natural person is the Owner of the Contract, the Annuitant will be considered the Owner of the Contract for purposes of this Section 2.13. Section 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES shall become Section 2.13 WAIVER OF CONTINGENT DEFERRED SALES CHARGES: The following shall be added after the first sentence of the first paragraph of section 3.02 CHOICE OF ANNUITY PAYMENT OPTION - By Owner: In addition, the Owner may select an Annuity Payment Option as a method of paying the Death Benefit to a Beneficiary. The following shall replace the third paragraph of section 4.01 DESIGNATION: If the surviving Joint Owner is the spouse of the deceased Joint Owner and continues the Contract as the sole Owner, then the designated Beneficiary(s) move up, in the order of their original designation, to replace the spouse as original Beneficiary, unless the Beneficiary designation is subsequently changed by the surviving spouse as the new Owner. The following shall be added after the third 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 following shall replace the first sentence of the second paragraph of section 5.02 OWNERSHIP: The Owner may name a Joint Owner. The following shall replace the first paragraph of section 5.11 MAXIUM ISSUE AGE The Owner, Joint Owner, and Annuitant must be under the age of 90 when this Contract is issued. The Lincoln National Life Insurance Company /S/ Kathleen Peterson Kathleen Peterson, Second Vice President [Effective Date: July 1, 1999] EX-99.4.C 3 VARIABLE ANNUITY CONTRACT #2 VARIABLE ANNUITY AMENDMENT Made a part of the Contract to which it is attached ("this Contract"). For purposes of this Amendment, Earnings shall be defined as the excess of the Contract Value over Purchase Payments which have not yet been withdrawn from this Contract. The following shall replace the first paragraph of Section 2.09, WITHDRAWAL OPTION: The Owner may withdraw a part of the surrender value of this Contract, subject to the Contingent Deferred Sales Charge (CDSC) outlined under Surrender Option (see Section 2.10). However, the Owner may withdraw up to the Free Amount during a Contract Year, in up to twelve withdrawals, without incurring a CDSC. The Free Amount is equal to the greater of: a. 10% of the Contract Value, where the percentages are based upon the Contract Value at the time of the current withdrawal, to the extent that the sum of the percentages of the Contract Value withdrawn does not exceed the 10% maximum; or b. 10% of the total Purchase Payments, where the percentages are based upon the total Purchase Payments to the Contract at the time of the current withdrawal, to the extent that the sum of the percentages of the Purchase Payments withdrawn does not exceed the 10% maximum. This 10% withdrawal exemption from the CDSC does not apply to a surrender of this Contract. For purposes of calculating the CDSC on withdrawals, LNL assumes that: a. The Free Amount will be withdrawn from Purchase Payments on a "first in-first out (FIFO)" basis. b. Any amount withdrawn above the Free Amount during a Contract Year will be withdrawn in the following order: 1. from Purchase Payments (on a FIFO basis) to which a CDSC no longer applies until exhausted; then 2. from Earnings until exhausted; then 3. from Purchase Payments (on a FIFO basis) to which a CDSC still applies. A withdrawal will be effective an the Valuation Date on which LNL receives a written request for withdrawal at its Home Office. The last paragraph of Section 2.11, CONTINGENT DEFERRED SALES CHARGES, shall be deleted. The following shall replace the fifth paragraph of Section 2.12, DEATH BENEFITS, Before the Annuity Commencement Date, Entitlement, as amended by Form 29870 0699: If the Owner is a corporation or other non-individual (non natural person), the Death Benefit is payable only with respect to the death of the Annuitant or Joint Annuitant. In such cases, if there is a single Annuitant, then upon the death of the Annuitant, LNL will pay a Death Benefit to the designated Beneficiary. If there are Joint Annuitants, upon the death of the first Joint Annuitant to die, LNL will pay a Death Benefit to the Owner. If the Contract is continued in force until the death of the second Joint Annuitant to die, then upon that second death LNL will pay a Death Benefit to the designated Beneficiary. The following shall be added after the third paragraph of Section 2.12, DEATH BENEFITS, Before the Annuity Commencement Date, Determination of Amounts, as amended by Form 29870 0699: If the Owner is a corporation or other non-individual (non-natural person) and there are Joint Annuitants, upon the death of the first Joint Annuitant to die, if the Owner continues the Contract, the Death Benefit payable on the death of that Joint Annuitant is equal to the excess of "b." over "a.". If "a." is greater than "b." then no EGMDB is payable upon the death of that Joint Annuitant. This EGMDB will be credited into the Contract and will only apply one time for each Contract. The following shall be added after the fifth paragraph of Section 2.12, DEATH BENEFITS, Before the Annuity Commencement Date, Determination of Amounts, as amended by Form 29870 0699: If the Owner is a corporation or other non-individual (non-natural person) and there are Joint Annuitants, upon the death of the first Joint Annuitant to die, if the Owner continues the Contract, the Guarantee of Principal payable on the death of that Joint Annuitant is equal to the excess of "b." over "a.". If "a." is greater than "b." then no Death Benefit is payable upon the death of that Joint Annuitant. This Guarantee of Principal will be credited into the Contract and will only apply one time for each Contract. The following shall replace the last paragraph of section 2.13, WAIVER OF CONTINGENT DEFERRED SALES CHARGES, as amended by Form 29870 0699: If the Owner is a corporation or other non-individual (non-natural person), the Annuitant or Joint Annuitant will be considered the Owner or Joint Owner of the Contract for purposes of this section 2.13. The following shall replace the language through part (1) of the first paragraph of Section 2.13, WAIVER OF CONTINGENT DEFERRED SALES CHARGES, as amended by Form 29870 0699: A surrender of this Contract or withdrawal of Contract Value prior to the Annuity Commencement Date may be subject to a Contingent Deferred Sales Charge as described in Sections 2.09 and 2.10, except that such charges do not apply to: (1) the Free Amount (as defined in Section 2.09); The following shall be added after the fourth paragraph of Section 4.01, DESIGNATION, as amended by Form 29870 0699: if the Owner is a corporation or other non-individual (non-natural person), if the Annuitant dies and a Death Benefit is paid, the Owner 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. Unless otherwise stated in the Beneficiary designation, if there is more than one Beneficiary they are presumed to share equally. The following shall replace the third paragraph of Section 5.02, OWNERSHIP: if the Owner is a corporation or other non-individual (non-natural person), the Owner may name an Annuitant or Joint Annuitants. The Annuitant or Joint Annuitants will be considered the Owner or Joint Owners for purposes of waiver of CDSC (see section 2.13, as amended by Form 29870 0699). For such Contracts, the Annuitant or Joint Annuitants may not be changed. The Owner may also name a Contingent Annuitant by notifying LNL in writing. The Contingent Annuitant designation is no longer applicable after the Annuity Commencement Date. The following shall replace Section 5.11, MAXIMUM ISSUE AGE in its entirely. The Annuitant or Joint Annuitants must be under the age of 90 when this Contract is issued. The Lincoln National Life Insurance Company /s/ Kathleen Peterson Kathleen Peterson, Second Vice President EX-99.4.D 4 VARIABLE ANNUITY CONTRACT - A VERSION Abraham Lincoln XX-0123456 LINCOLN NATIONAL LIFE INSURANCE CO. ------------------ A part of LINCOLN NATIONAL CORPORATION ANNUITY CONTRACT Flexible Premium Deferred Variable Annuity or Variable and Fixed Annuity Benefit Payment Options Nonparticipating The Lincoln National Life Insurance Company (LNL) agrees to provide the benefits and other rights described in this Contract in accordance with the terms of this Contract. NOTICE OF 10-DAY RIGHT TO EXAMINE CONTRACT. Within 10 days after this Contract is first received, it may be cancelled for any reason without penalty (e.g., no contingent deferred sales charge will be deducted) by delivering or mailing it to the Home Office of LNL. Upon cancellation, LNL will return the value of any payments made to the Variable Account and/or any Purchase Payment paid under the fixed portion of the Contract. All payments and values provided by this Contract, when based on investment experience of a separate account, are variable and are not guaranteed as to fixed dollar amount. See pages 5 and 10. Signed for The Lincoln National Life Insurance Company at its Home Office in Fort Wayne, Indiana. /s/ Jon A. Boscia /s/ Nancy J. Alford Jon A. Boscia, President Nancy J. Alford, Vice President Table of Contents
Article Page 1 Definitions................................................ 4 2 Purchase Payments, Options and Benefits.................... 5 3 Annuity Payment Option Benefits............................ 9 4 Beneficiary................................................ 11 5 General Provisions......................................... 12 6 Annuity Purchase Rates Under a Variable Payment Option..... 13 7 Annuity Purchase Rates Under A Fixed Payment Option........ 14 8 Guaranteed Values for Fixed Allocations.................... 15
CONTRACT DATA Contract Number XX-0123456 Annuitant Abraham Lincoln Age at Issue 35 Contract Date April 1, 1989 Purchase Payment $1,500.00 Purchase Payment Frequency Monthly Maturity Date April 1, 2039 Owner Abraham Lincoln Mary Lincoln Todd Lincoln Beneficiary Designation PLEASE REFER TO THE CLIENT INFORMATION PROFILE FOR BENEFICIARY DESIGNATION. VARIABLE ACCOUNT There are currently eleven Sub-accounts in the Variable Account available to the Owner. The Owner may direct Purchase Payments under the Contract to any of the available Sub-accounts, subject to limitations. The amounts allocated to each Sub-account will be invested at net asset value in the shares of one of the Funds of the American Variable Insurance Series (Series). The Funds are: 1. Growth Fund 2. International Fund 3. Global Growth Fund 4. Growth-income Fund 5. Asset Allocation Fund 6. High-Yield Bond Fund 7. Bond Fund 8. U.S. Government/AAA-Rated Securities Fund 9. Cash Management Fund 10. Global Small Cap Fund 11. New World Fund 12. Other funds made available by LNL. See Section 2.03 for provisions governing any limitations, substitution or elimination of Funds. Page 3 ARTICLE 1 DEFINITIONS 1.01 ACCOUNT or VARIABLE ACCOUNT -- The segregated investment account into which The Lincoln National Life Insurance Company sets aside and invests the variable assets attributable to this Variable Annuity Contract. 1.02 ACCUMULATION UNIT -- A unit of measure used to calculate the variable Contract Value during the accumulation period. 1.03 ANNUITANT -- The person upon whose life the annuity benefit payments made after the Annuity Commencement Date will be based. 1.04 ANNUITY COMMENCEMENT DATE -- The Valuation Date when the funds are withdrawn for payment of annuity benefits under the Annuity Payment Option selected. 1.05 ANNUITY PAYMENT OPTION -- An optional form of payment of the annuity provided for under this Contract. 1.06 ANNUITY UNIT -- A unit of measure used after the Annuity Commencement Date to calculate the amount of variable annuity payments. 1.07 BENEFICIARY -- The person or entity designated by the Owner to receive the Death Benefit, if any, payable upon the death of the Owner. 1.08 CODE -- The Internal Revenue Code (IRC) of 1986, as amended. 1.09 CONTINGENT DEFERRED SALES CHARGE (CDSC) -Charges assessed on premature surrender of the Contract, calculated according to the Contract provisions. 1.10 CONTRACT -- The agreement, between LNL and the Owner, providing a variable annuity. 1.11 CONTRACT VALUE -- The sum of the values of all the Accumulation Units attributable to this Contract at a given time and the value of monies in the Fixed Account. 1.12 CONTRACT YEAR -- The period from the anniversary of the date on your Contract Data Page 3 to the anniversary of the Contract in the following year. 1.13 DEATH BENEFIT -- The amount payable to the Owner's designated Beneficiary upon death of the Owner. 1.14 FUND -- Underlying investment options available in the Series. 1.15 FIXED ACCOUNT -- The fixed portion of this Contract which is invested in the general account of LNL. 1.16 HOME OFFICE -- The principal office of LNL located at 1300 South Clinton Street, Fort Wayne, Indiana, 46802. 1.17 LNL -- The Lincoln National Life Insurance Company. 1.18 MATURITY DATE -- The date specified on Page 3 of this Contract. 1.19 OWNER -- The individual or entity who exercises rights of ownership under this contract. 1.20 PURCHASE PAYMENTS -- Amounts paid into this Contract. 1.21 QUALIFIED PLAN -- A retirement plan qualified for special tax treatment under the Internal Revenue Code of 1986, as amended, including Sections 401, 403, 408 and 457. All other plans are considered Non-Qualified. 1.22 SERIES -- American Variable Insurance Series, the mutual fund into which Purchase Payments allocated to the Variable Account are invested. Page 4 1.23 SUB-ACCOUNT -- That portion of the Variable Account which pertains to investments in the Accumulation Units and Annuity Units of a particular Fund. 1.24 VALUATION DATE -- Close of the market of each day that the New York Stock Exchange is open for business. 1.25 VALUATION PERIOD -- The period commencing at the close of business on a particular Valuation Date and ending at the close of business on the next succeeding Valuation Date. ARTICLE 2 PURCHASE PAYMENTS, OPTIONS, AND BENEFITS 2.01 WHERE PAYABLE All Purchase Payments must be made to LNL at its Home Office. 2.02 AMOUNT AND FREQUENCY Purchase Payments are made in an amount and at the frequency shown on page 3. The Owner may change the frequency or amount of Purchase Payments subject to LNL's rules in effect at the time of the change. The minimum initial Purchase Payment is $1,500 for Non-Qualified Plans and $300 for Qualified Plans. The minimum annual amount of subsequent Purchase Payments is $300 for either Non-Qualified Plans or Qualified Plans. The minimum payment to the Contract at any one time must be at least $25.00 if transmitted electronically; otherwise the minimum amount is $100.00. Purchase Payments may be made until the earliest of the Annuity Commencement Date, the surrender of the Contract, Maturity Date or payment of any Death Benefit. 2.03 VARIABLE ACCOUNT Purchase Payments under the Contract may be allocated to the Lincoln National Variable Annuity Account H (Variable Account) and/or to the Fixed Account of the Contract. The Variable Account is for the exclusive benefit of persons entitled to receive benefits under variable annuity contracts. The Variable Account will not be charged with the liabilities arising from any other part of LNL's business. The Owner may direct Purchase Payments under the Contract to any of the available Sub-accounts subject to the following limitations. A minimum payment to any one Sub-account must be at least $20. If the Owner elects to direct Purchase Payments to a new Sub-account not previously selected, the election must be in writing to LNL or by telephone transfer provided LNL has received the appropriate authorization. The amounts allocated to each Sub- account will be invested at net asset value in the shares of one of the Funds of the American Variable Insurance Series (Series). The Funds are shown on Page 3 of the Contract. LNL reserves the right to eliminate the shares of any Fund and substitute the securities of a different Fund or investment company or mutual fund if the shares of a Fund are no longer available for investment, or, if in the judgment of LNL, further investment in any Fund should become inappropriate in view of the purposes of the Contract. LNL may add a new Sub-account in order to invest the assets of the Variable Account into a Fund. LNL shall give the Owner written notice of the elimination and substitution of any Fund within fifteen days after such substitution occurs. LNL shall use each Purchase Payment allocated to the Variable Account by the Owner to buy Accumulation Units in the Sub-account(s) selected by the Owner. The number of Accumulation Units bought shall be determined by dividing the amount directed to the Sub-account by the dollar value of an Accumulation Unit in such Sub-account as of the point of the next valuation of such Sub-account immediately following receipt of the Purchase Payment at the Home Office of LNL. The number of Accumulation Units held for the Variable Account of an Owner shall not be changed by any change in the dollar value of Accumulation Units in any Sub-account. 2.04 VALUATION OF ACCUMULATION UNITS The variable Contract Value of an Owner's Contract at any time prior to the Annuity Commencement Date equals the sum of the values of the Accumulation Units credited in the Variable Account under the Contract. The value of a Sub-account is the number of units in the Sub-account multiplied by the value of an Accumulation Unit in the sub-account. Accumulation Units for each Sub-account are valued separately. Initially, the value of an Accumulation Unit was set at $1.00. Thereafter, the value of an Accumulation Unit in any Sub-account on any Valuation Date equals the value of an Accumulation Unit in that Sub-account as of the immediately preceding Valuation Date, multiplied by the "Net Investment Factor" of that Sub-account for the current Valuation Period. The Net Investment Factor is an index which measures the investment performance of a Sub-account from one Valuation Period to the next. The Net Investment Factor for any Sub-account for any Valu- Page 5 ation Period is equal to (1) divided by (2) and subtracting (3) from the result, where: 1. is the result of: a. the net asset value per share of the Fund held in the Sub-account, determined at the end of the current Valuation Date; plus b. the per share amount of any dividend or capital gain distribution made by the Fund in the Sub-account, if the "ex-dividend" date occurs during the Valuation Period; plus or minus c. per share charge or credit for any taxes re-served for; 2. is the net asset value per share of the Fund held in the Sub-account, determined at the end of the prior Valuation Date; 3. is a daily factor representing the mortality and expense risk and administrative charge deducted from the Sub-account adjusted for the number of days in the Valuation Period. On an annual basis, this charge will not exceed 1.40%. For any period in which the Enhanced Guaranteed Minimum Death Benefit (see Section 2.12) is not in effect, this charge will not exceed 1.25% on an annual basis. The Accumulation Unit value and Annuity 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 LN L. 2.05 FIXED ALLOCATIONS Purchase Payments under the Contract may be allocated to the Variable Account and/or to the Fixed Account of the Contract. A minimum allocation to the Fixed Account must be at least $20. 2.06 CREDITING OF INTEREST ON FIXED ALLOCATIONS Interest shall be credited daily on all Purchase Payments that are allocated to the Fixed Account of this Contract. Prior to: the Maturity Date; the Annuity Commencement Date; payment of any Death Benefit; or surrender of this Contract; whichever occurs first, LNL guarantees that it will credit interest on fixed allocations at an effective annual rate not less than 3.0% during all years. A table of guaranteed values for the fixed allocations may be found in Article 8. LNL may credit interest at rates in excess of the guaranteed rates at any time. 2.07 AUTOMATIC NONFORFEITURE OPTION In the event that Purchase Payments are stopped, this Contract will continue as a paid-up Contract until the earlier of: the Maturity Date, surrender of the Contract, payment of any Death Benefit, or the Annuity Commencement Date. Purchase Payments may be resumed at any time prior to: the Maturity Date, surrender of the Contract, payment of any Death Benefit, or the Annuity Commencement Date. LNL reserves the right to surrender this Contract in accordance with the terms set forth in the nonforfeiture law, applicable in your state, for individual deferred annuities. 2.08 TRANSFERS Prior to the earlier of: the Maturity Date; surrender of the Contract; payment of any Death Benefit; or the Annuity Commencement Date, the Owner may direct a transfer of assets from one Sub-account to another Sub-account or to the Fixed Account of the Contract. The Owner may also direct a transfer of assets from the Fixed Account of the Contract to one or more Sub-accounts of the Variable Account, subject to the limitations described below. Such a transfer request must be in writing or by telephone provided LNL has received the appropriate authorization from the Owner. Amounts transferred to the Sub-account(s) will purchase Accumulation Units as described in Section 2.03. A transfer will result in the purchase of Accumulation Units in one Sub-account and the redemption of Accumulation Units in the other Sub-account. Such a transfer will be accomplished at relative Accumulation Unit values as of the Valuation Date the transfer request is received. The valuation of Accumulation Units is described in Section 2.04. LNL reserves the right to impose a charge in the future for transfers between Sub-accounts. The minimum transfer amount is $300 or the entire amount in the Sub- account/Fixed Account, whichever is less. If, after the transfer, the amount remaining under this Contract in the Sub-account/Fixed Account from which the transfer is taken is less than $300, the entire amount held in that Sub- account/Fixed Account will be transferred with the transfer amount. For transfers between Sub-accounts and from the Sub-account(s) to the Fixed Account of the Contract, there are no restrictions on the maximum amount which may be transferred. For transfers from the Fixed Account of the Contract to the Variable Account, the sum of the percentages of fixed value transferred will be limited to 25% in any 12 month period. Transfers cannot be made during the first 30 days after the Contract Date and no more than six transfers will be allowed in any Contract Year. LNL reserves the right to waive any of these restrictions. 2.09 WITHDRAWAL OPTION The Owner may withdraw a part of the surrender value of this Contract, subject to the charges outlined under Surrender Option (see Section 2.10). The first four partial withdrawals of Contract Value during a Contract Year will be free of Contingent Deferred Page 6 Sales Charges to the extent that the sum of the percentages of the Contract Value withdrawn, where the percentages are based upon the Contract Value at the time of the current withdrawal, does not exceed 10%. This 10% withdrawal exemption from CDSC does not apply to a surrender of a Contract. Withdrawals will be treated as "first in-first out (FIFO)" for purposes of calculating the Contingent Deferred Sales Charge (see Section 2.11). Withdrawal will be effective on the Valuation Date on which LNL receives a written request at its Home Office. The remaining value will be subject to the charges as provided under Surrender Option (see Section 2.10). The request should specify from which Subaccount the withdrawal will be made. If no Subaccount is specified, LNL will withdraw, on a pro-rata basis from each Sub-account, the amount requested. Any cash payment will be mailed from LNL's Home Office within seven days after the date of withdrawal; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time such request of withdrawal is received. For purposes of this Section, the Fixed Account of the Contract is considered a Sub-account. The Withdrawal Option is not available after the Annuity Commencement Date. The minimum withdrawal is $300- LNL reserves the right to surrender this Contract if any withdrawal reduces the total Contract Value to a level in which this Contract may be surrendered in accordance with the terms set forth in the nonforfeiture law, applicable in your state, for individual deferred annuities. LNL may surrender the Contract for its surrender value. 2.10 SURRENDER OPTION The Owner may surrender this Contract for its surrender value. On surrender, this Contract terminates. Surrender will be effective on the Valuation Date on which LNL receives a written request at its Home Office. The surrender value will be the total Contract Value on the Valuation Date, less a Contingent Deferred Sales Charge. Any cash payment will be mailed from LNL's Home Office within seven days after the date of surrender; however, LNL may be permitted to defer such payment under the Investment Company Act of 1940, as in effect at the time a request for surrender is received in its Home Office. The Surrender Option is not available after the Annuity Commencement Date. 2.11 CONTINGENT DEFERRED SALES CHARGE The Contingent Deferred Sales Charge (CDSC) is calculated separately for each Contract Year's Purchase chase Payments to which a charge applies. Charges are applied as follows: Number of complete CDSC as a percentage Contract Years that of the surrendered a Purchase Payment or withdrawn has been invested Purchase Payments Less than 2 Years 6% At least 2 Years 5% At least 3 Years 4% At least 4 Years 3% At least 5 Years 2% At least 6 Years 1% At least 7 + Years 0% A CDSC will be waived under certain circumstances (see Section 2.14 for details). For purposes of calculating CDSC, LNL assumes that Purchase Payments are withdrawn on a "first in-first out (FIFO)" basis, and that all Purchase Payments are withdrawn before any earnings are withdrawn. 2.12 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). If the designated Beneficiary of the Death Benefit is the surviving spouse of the deceased Owner, the designated Beneficiary may elect to continue the Contract as the new Owner in lieu of receiving the Death Benefit. If there are no designated Beneficiaries, LNL will pay a Death Benefit to the Owner's estate. Upon the death of the designated Beneficiary who continues the Contract as the new Owner, LNL will pay a Death Benefit to the designated Beneficiary(s) named by the spouse as new Owner. If there are Joint Owners, upon the death of the first Joint Owner, LNL will pay a Death Benefit to the surviving Joint Owner. The surviving Joint Owner, as the spouse of the deceased Joint Owner, may elect to continue the Contract as sole Owner in lieu of receiving the Death Benefit. Upon the death of the Joint Owner who continues the Contract, LNL will pay a Death Benefit to the designated Beneficiary(s). The Death Benefit will be paid if LNL is in receipt of: (1) proof, satisfactory to LNL, of the death; (2) written authorization for payment; and (3) all claim forms, fully completed. Page 7 Due proof of death may be a certified copy of a death certificate, a certified copy of the statement of death from the attending physician, a certified copy of a decree of a court of competent jurisdiction as to the 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 provision of this Contract to the contrary, no payment of Death Benefits provided under the Contract will be allowed that does not satisfy the requirements of 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 equal to an Enhanced Guaranteed Minimum Death Benefit (EGMDB) or the Guarantee of Principal. The EGMDB is equal to the greater of: a. the current Contract Value as of the date on which the death claim is approved by LNL for payment; or b. the highest Contract Value at the time of Fund valuation on any policy anniversary date (including the inception date) on ages up to, and including, the Owner's age 75. The highest Contract Value is increased by Purchase Payments and is decreased by partial withdrawals, partial annuitizations, and premium tax made, effected, or incurred subsequent to such anniversary date on which the highest Contract Value is obtained. The Guarantee of Principal is equal to the greater of: a. the current Contract Value as of the date on which the death claim is approved by LNL for payment; or b. the sum of all Purchase Payments minus withdrawals, partial annuitizations, and premium tax incurred. The EGMDB will not be in effect if this Contract is issued to an Owner with an attained age of 75 or greater at issue. Under these circumstances, there will be no EGMDB provided and the Death Benefit is equal to the Guarantee of Principal. The EGMDB will only be in effect, unless terminated by the Owner, for Non- Qualified Contracts and Contracts sold as Individual Retirement Annuities (IRA) under Code Section 408(b). For all other Contracts the EGMDB will not be in effect and the Death Benefit is equal to the Guarantee of Principal. Upon the death of the sole Owner, this Contract provides a Death Benefit of an EGMDB, if still in effect. If the EGMDB was not available at issue of the Contract or has been terminated at any time, then the Death Benefit will be equal to the Guarantee of Principal. If the designated Beneficiary, as the surviving spouse of the deceased Owner, continues the Contract as the new Owner in lieu of receiving the Death Benefit, then upon the death of the new Owner this Contract will provide a Death Benefit of an EGMDB, if still in effect. If the EGMDB was not available at issue of the Contract or has been terminated at any time, then the Death Benefit will be equal to the Guarantee of Principal. If there are Joint Owners, upon the death of the first Joint Owner, this Contract will provide a Death Benefit of an EGMDB, if still in effect upon this death, to the surviving Joint Owner. If the EGMDB was not available at issue of the Contract or has been terminated at any time, this Contract will provide a Death Benefit equal to the Guarantee of Principal to the surviving Joint Owner. If the surviving Joint Owner, as the spouse of the deceased Joint Owner, continues the Contract in lieu of receiving the Death Benefit, then the EGMDB, if in effect at the time of the death of the first Joint Owner, will continue in effect unless it has been terminated. Upon the death of the surviving Joint Owner this Contract will provide a Death Benefit of the EGMDB, if still in effect. If the EGMDB was not available at issue of the Contract or has been terminated at any time, then the Death Benefit will be equal to the Guarantee of Principal. At any time prior to the Annuity Commencement Date, an Owner may choose to terminate the EGMDB by giving written notice to LNL, and 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. Termination of the EGMDB by the Owner will be permanent and final. 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 EGMDB, if applicable, will apply on the death of the Annuitant only in this situation. 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, 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 Page 8 the life expectancy of such designated Beneficiary; provided that such distributions begin not later than one year after the Owner's date of death. 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 Com-mencement Date, any remaining benefits payable 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, then 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. 2.13 DEATH OF ANNUITANT Before the Annuity Commencement Date If the Annuitant is also the Owner or a Joint Owner, then the Death Benefit paid will be subject to the Contract provisions regarding death of the Owner. If the surviving spouse of the Owner/Annuitant assumes the Contract, 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 Joint Owner dies, then the Contingent Annuitant, if any, becomes the Annuitant. If no Contingent Annuitant is named, the Owner (or the younger of the Joint Owners) becomes the Annuitant. On or After the Annuity Commencement Date On receipt of due proof of death, as described in Section 2.12, 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; otherwise, to the Beneficiary. If there is no Beneficiary, any remaining benefit payments will continue to the Annuitant's estate. 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES A surrender of this Contract or withdrawal of Contract Value prior to the Annuity Commencement Date may be subject to a Contingent Deferred Sales Charge as described in Sections 2.09 and 2.10, except that such charges do not apply to: (1) the first four withdrawals of Contract Value during a Contract Year to the extent that the sum of the percentages of the Contract Value withdrawn by the first four withdrawals, where the percentages are based on the Contract Value at the time of the current withdrawal, does not exceed 10% (this 10% withdrawal exemption from CDSC does not apply to a surrender of a Contract); (2) a surrender of the Contract as a result of "permanent and total disability of the Owner as defined in section 22(e)(3) of the Internal Revenue Code subsequent to the effective date of this Contract and prior to the 65th birthday of the Owner; (3) a surrender of this Contract as a result of 90 days of continuous confinement of the Owner, where the 90 day period begins subsequent to the effective date of this Contract, in an accredited nursing home or equivalent health care facility; (4) a surrender of this Contract as a result of the onset of a terminal illness of the Owner subsequent to the effective date of this Contract that results in a life expectancy of less than one year as determined by a qualified professional medical practitioner; (5) a surrender of the Contract as a result of the death of the Owner or a Joint Owner; (6) annuitization. The Contingent Deferred Sales Charge will only be waived if LNL is in receipt of proof, satisfactory to LNL, of the exception. If a non-natural person is the Owner of the Contract, the Annuitant will be considered the Owner of the Contract for purposes of this Section 2.14. ARTICLE 3 ANNUITY PAYMENT OPTION BENEFITS 3.01 ANNUITY PAYMENTS An election to receive payments under an Annuity Payment Option must be made by the Maturity Date. If an Annuity Payment Option is not chosen prior to the Maturity Date, payments will commence to the Owner on the Maturity Date under the Annuity Payment Option providing a Life Annuity with annuity payments guaranteed for 10 years. The Maturity Date is set forth on Page 3. Upon written request by the Owner and any Beneficiary who cannot be changed, the Maturity Date may be deferred. Purchase Payments may be made until the new Maturity Date. 3.02 CHOICE OF ANNUITY PAYMENT OPTION By Owner Prior to the Annuity Commencement Date, the Owner may choose or change any Annuity Payment Option. For a 100% fixed annuity payment, the Annuity Commencement Date must be at least thirty days prior to the time annuity payments are to begin. Page 9 By Beneficiary At the time proceeds are payable to a Beneficiary, a Beneficiary may choose or change any Annuity Payment Option that meets the requirements of Code Section 72(s) or 401(a)(9) if proceeds are available to the Beneficiary in a lump sum. The Beneficiary then becomes the Annuitant. A choice or change must be in writing to LNL. After the Annuity Commencement Date, the Annuity Payment Option may not be changed. 3.03 ANNUITY PAYMENT OPTIONS a. Life Annuity / Life Annuity with Guaranteed Period --Payments will be made for the lifetime of the Annuitant with no certain period, or life and a 10 year certain period, or life and a 20 year certain period. b. Unit Refund Life Annuity -- Payments will be made for the lifetime of the Annuitant with the guarantee that upon death a payment will be made of the value of the number of Annuity Units equal to the excess, if any, of (a) over (b) where (a) is the total amount applied under the option divided by the Annuity Unit Value at the Annuity Commencement Date and (b) is the product of the number of Annuity Units represented by each payment and the number of payments paid prior to death. C. Joint Life Annuity / Joint Life Annuity with Guaranteed Period -- Payments will be made during the joint life of the Annuitant and a Joint Annuitant of the Owner's choice. Payments will be made for life with no certain period, or life and a 10 year certain period, or life and a 20 year certain period. Payments continue for the life of the survivor at the death of the Annuitant or Joint Annuitant. d. Other options may be available as agreed upon in writing by LNL. At the time an Annuity Payment Option is selected under the provisions of this Contract, the Owner may elect to have the total Contract Value applied to provide a variable annuity payment, a fixed annuity payment, or a combination fixed and variable annuity payment. If no election is made, the value of the Owner's Variable Account shall be used to provide a variable annuity payment, and the value of the Owner's Fixed Account shall be used to provide a fixed annuity payment. The amount of annuity payment will depend on the age and sex (except in cases where unisex rates are required) of the Annuitant as of the Annuity Commencement Date. A choice may be made to receive payments once each month, four times each year, twice each year, or once each year. The Contract Value and Annuity Unit value used to effect benefit payments will be calculated as of the Annuity Commencement Date. If any portion of the annuity payment will be on a variable basis, the first payment will be made fourteen days after the Annuity Commencement Date. Article 6 of this Contract illustrates the minimum payment amounts and the age adjustments which will be used to determine the first monthly payment under a variable annuity payment option. The tables show the dollar amount of the first monthly payment which can be purchased with each $1,000 of Contract Value, after deduction of any applicable premium taxes. Amounts shown use the 1983 'a' Individual Annuity Mortality Table, modified, with an assumed rate of return of 4% per year. Article 7 of this Contract illustrates the minimum payment amounts and the age adjustments which will be used to determine the monthly payments under a fixed annuity payment option. The tables show the dollar amount of the guaranteed monthly payments which can be purchased with each $1,000 of Contract Value, after deduction of any applicable premium taxes. Amounts shown use the 1983 'a' Individual Annuity Mortality Table, modified, with an interest rate of 3.0% per year and a 2.0% expense load. 3.04 DETERMINATION OF THE AMOUNT OF VARIABLE ANNUITY PAYMENTS AFTER THE FIRST PAYMENT The first variable annuity payment is sub-divided into components each of which represents the product of: (a) the percentage elected by the Contract Owner of a specific Sub-account the performance of which will determine future variable annuity payments, and (b) the entire first variable annuity payment. Each variable annuity payment after the first payment attributable to a specific Sub- account will be determined by multiplying the Annuity Unit value for that Sub- account for the date each payment is due by a constant number of Annuity Units. This constant number for each specific Sub-account is determined by dividing the component of the first payment attributable to such Sub-account as described above by the Annuity Unit value for that Sub-account on the Annuity Commencement Date. The total variable annuity payment will be the sum of the payments attributable to each Sub-account. The Annuity Unit value for any Valuation Period for any Sub-account is determined by multiplying the Annuity Unit value for the immediately preceding Valuation Period by the product of (a) 0.9998926 raised to a power equal to the number of days in the current Valuation Period and (b) the Net Investment Factor of the Sub-account for the Valuation Period for which the Annuity Unit value is being determined. Page 10 The valuation of all assets in the Sub-account shall be determined in accordance with the provisions of applicable laws, rules, and regulations. The method of determination by LNL of the value of an Accumulation Unit and of an Annuity Unit will be conclusive upon the Owner and any Beneficiary. LNL guarantees that the dollar amount of each installment after the first shall not be affected by variations in mortality experience from mortality assumptions on which the first installment is based. After the Annuity Commencement Date, if any portion of the annuity payment is a variable annuity payment, the Owner may direct a transfer of assets from one Sub-account to another Sub-account or to a fixed annuity payment. Such transfers will be limited to three (3) times per Contract Year. Assets may not be transferred from a fixed annuity payment to a variable annuity payment. A transfer from one Sub-account to another Subaccount will result in the purchase of Annuity Units in one Sub-account and the redemption of Annuity Units in the other Sub-account. Such a transfer will be accomplished at relative Annuity Unit values as of the Valuation Date the transfer request is received. The valuation of Annuity Units is described above. A transfer from one Sub- account to a fixed annuity payment will result in the redemption of Annuity Units in one Sub-account and the purchase of a minimum fixed annuity payment based on the tables in Article 7. 3.05 PROOF OF AGE Payment will be subject to proof of age that LNL will accept such as a certified copy of a birth certificate. 3.06 MINIMUM ANNUITY PAYMENT REQUIREMENTS If the Annuity Payment Option chosen results in payments of less than $50 per Sub-account, the frequency will be changed so that payments will be at least $50. For the purposes of this Section, the fixed annuity payment of the Contract is considered a Sub-account. 3.07 EVIDENCE OF SURVIVAL LNL has the right to ask for proof that the person on whose life the payment is based is alive when each payment is due. 3.08 CHANGE IN ANNUITY PAYMENT OPTION The Annuity Payment Option may not be changed after the Annuity Commencement Date. ARTICLE 4 BENEFICIARY 4.01 DESIGNATION The Owner may designate a Beneficiary(s). If there is a single Owner, the designated Beneficiary(s) will receive the Death Benefit proceeds upon the death of the Owner. If there are Joint Owners, upon the death of the first Joint Owner, the surviving Joint Owner will receive the Death Benefit proceeds. 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, as spouse of the deceased Joint Owner, continues the Contract as the sole Owner in lieu of receiving the Death Benefit proceeds, then the designated Beneficiary(s) will receive the Death Benefit proceeds upon the death of the surviving spouse. Unless otherwise stated in the Beneficiary designation, if there is more than one Beneficiary they are presumed to share equally. 4.02 CHANGE The Owner may change any Beneficiary unless otherwise provided in the previous designation. A change of Beneficiary will revoke any previous designation. A change may be made by filing a written request, in a form acceptable to LNL, at its Home Office. The change will become effective upon receipt of the written request by LNL at its Home Office. LNL reserves the right to request the Contract for endorsement of the change. 4.03 DEATH OF BENEFICIARY Unless otherwise provided in the Beneficiary designation, if any Beneficiary dies before the Owner, that Beneficiary's interest will go to any other Beneficiaries named, according to their respective interests. If there are no Beneficiaries, the Beneficiary's interest will pass to a Contingent Beneficiary(s), if any. Prior to the Annuity Commencement Date, if no Beneficiary or Contingent Beneficiary survives the Owner, the Death Benefits will be paid to the Owner's estate. Once a Beneficiary is entitled to Death Benefits or other payments, the Beneficiary may name his or her own Beneficiary(s) to receive any remaining benefits due under the Contract, should the original Beneficiary die prior to receipt of all benefits. If no Benefici- Page 11 ary is named or the named Beneficiary predeceases the original Beneficiary, any remaining benefits will continue to the original Beneficiary's estate. This designation must be made to the LNL Home Office. ARTICLE 5 GENERAL PROVISIONS 5.01 THE CONTRACT The Contract and any riders attached constitute the entire Contract. Only the President, a Vice President, the Secretary or an Assistant Secretary of LNL has the power, on behalf of LNL, to change, modify, or waive any provisions of this Contract. LNL reserves the right to unilaterally change the Contract for the purpose of keeping the Contract in compliance with federal or state law. Any changes, modifications, or waivers must be in writing. No representative or person other than the above named officers has authority to change or modify this Contract or waive any of its provisions. All terms used in this Contract will have their usual and customary meaning except when specifically defined. 5.02 OWNERSHIP The Owner is the person who has the ability to exercise the rights within this Contract. The Owner may only name his or her spouse as a Joint Owner. Joint Owner(s) shall 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. Prior to the Annuity Commencement Date, the Owner has the right to change the Annuitant at any time by notifying LNL in writing of the change. The Annuitant may not be changed in a Contract owned by a nonnatural person. The Owner may also name a Contingent Annuitant by notifying LNL in writing. The Contingent Annuitant designation is no longer applicable after the Annuity Commencement Date. 5.03 ASSIGNMENTS If this Contract is used with a Qualified Plan, the Contract will not be transferable. It may not be sold, assigned, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose. 5.04 INCONTESTABILITY This Contract will not be contested by LNL 5.05 MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex of the Annuitant has been misstated, the benefits available under this Contract will be those which the Purchase Payments would have purchased using the correct age and/or sex. Any underpayment already made by LNL shall be made up immediately and any overpayments already made by LNL shall be charged against the annuity payments failing due after the correction is made. 5.06 NONPARTICIPATING The Contract is nonparticipating and will not share in the surplus earnings of LNL. 5.07 VOTING RIGHTS The Owner shall have a right to vote at the meetings of the Series. Ownership of this Contract shall not entitle any person to vote at any meeting of shareholders of LNL. Votes attributable to the Contract shall be cast in conformity with applicable law. 5.08 OWNERSHIP OF THE ASSETS LNL shall have exclusive and absolute ownership and control of its assets, including all assets in the Variable Account. 5.09 REPORTS Prior to the Annuity Commencement Date, at least once each Contract Year LNL shall mail a report to the Owner. The report shall be mailed to the last address known to LNL. The report shall include a statement of the number of Accumulation Units credited to the Variable Account under this Contract and the dollar value of such units as well as a statement of the value of the Fixed Account of this Contract. The information in the report shall be as of a date not more than two months prior to the date of mailing the report. LNL shall also mail to the Owner at least once in each Contract Year a report of the investments held in the Sub- accounts under this Contract. 5.10 PREMIUM TAX State and local government premium tax, if applicable, will be deducted from Purchase Payments or Contract Value. This will be deducted when incurred by LNL or at another time of LNL's choosing. 5.11 MAXIMUM ISSUE AGE This Contract will not be issued to Owners over the age of 85. This also applies to Joint Owners, if any. Page 12 ARTICLE 6 ANNUITY PURCHASE RATES UNDER A VARIABLE PAYMENT OPTION - -------------------------------------------------------------------------------- DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED - -------------------------------------------------------------------------------- SINGLE LIFE ANNUITIES - -------------------------------------------------------------------------------- No 120 240 Period Months Months Cash Age Certain Certain Certain Refund - -------------------------------------------------------------------------------- 60 $4.78 $4.73 $4.56 $4.56 61 4.87 4.81 4.63 4.63 62 4.97 4.90 4.69 4.71 63 5.07 5.00 4.75 4.78 64 5.19 5.10 4.82 4.87 65 5.30 5.21 4.88 4.95 66 5.43 5.32 4.95 5.04 67 5.57 5.44 5.01 5.14 68 5.72 5.56 5.08 5.24 69 5.88 5.70 5.14 5.34 70 6.05 5.84 5.20 5.46 71 6.23 5.99 5.26 5.57 72 6.44 6.14 5.31 5.69 73 6.66 6.30 5.36 5.82 74 6.89 6.47 5.40 5.96 75 7.15 6.65 5.44 6.10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- JOINT AND SURVIVOR ANNUITIES - -------------------------------------------------------------------------------- Joint and Full to Survivor Joint and Two-Thirds Survivor - -------------------------------------------------------------------------------- Certain Period Certain Period - -------------------------------------------------------------------------------- Joint None 120 240 Age None 120 240 - -------------------------------------------------------------------------------- $4.37 $4.37 $4.34 60 $4.78 $4.74 $4.57 4.44 4.44 4.40 61 4.88 4.82 4.63 4.52 4.51 4.46 62 4.97 4.91 4.69 4.60 4.59 4.53 63 5.08 5.00 4.76 4.68 4.68 4.60 64 5.19 5.10 4.82 4.77 4.77 4.67 65 5.31 5.21 4.88 4.87 4.86 4.74 66 5.44 5.32 4.95 4.98 4.96 4.82 67 5.57 5.44 5.01 5.09 5.07 4.89 68 5.72 5.56 5.08 5.21 5.19 4.96 69 5.87 5.69 5.14 5.34 5.31 5.04 70 6.04 5.83 5.20 5.47 5.44 5.11 71 6.22 5.97 5.25 5.62 5.58 5.18 72 6.42 6.12 5.31 5.78 5.73 5.24 73 6.62 6.28 5.36 5.96 5.88 5.30 74 6.85 6.44 5.40 6.14 6.05 5.36 75 7.09 6.61 5.44 Age Adjustment Table Year of Birth Adjustment to Age Year of Birth Adjustment to Age ------------- ----------------- ------------- ----------------- Before 1920 + 2 1960-1969 - 3 1920-1929 + 1 1970-1979 - 4 1930-1939 0 1980-1989 - 5 1940-1949 1 1990-1999 - 6 1950-1959 2 ETC. ETC. Page 13 ARTICLE 7 ANNUITY PURCHASE RATES UNDER A FIXED PAYMENT OPTION - ---------------------------------------------------------------------- DOLLAR AMOUNT OF FIRST MONTHLY PAYMENT WHICH IS PURCHASED WITH EACH $1,000 APPLIED - ---------------------------------------------------------------------- SINGLE LIFE ANNUITIES - ---------------------------------------------------------------------- No 120 240 Period Months Months Cash Age Certain Certain Certain Refund - ---------------------------------------------------------------------- 60 $4.42 $4.38 $4.22 $4.18 61 4.52 4.47 4.29 4.26 62 4.62 4.56 4.36 4.34 63 4.73 4.66 4.43 4.42 64 4.85 4.77 4.50 4.51 65 4.97 4.89 4.57 4.60 66 5.11 5.01 4.64 4.69 67 5.25 5.13 4.71 4.79 68 5.41 5.27 4.78 4.90 69 5.57 5.41 4.85 5.01 70 5.75 5.56 4.91 5.13 71 5.95 5.71 4.98 5.25 72 6.16 5.88 5.04 5.38 73 6.38 6.05 5.09 5.52 74 6.63 6.23 5.14 5.66 75 6.90 6.42 5.19 5.81 - ---------------------------------------------------------------------- - -------------------------------------------------------------------------------- JOINT AND SURVIVOR ANNUITIES - -------------------------------------------------------------------------------- Joint and Full to Survivor Joint and Two-Thirds Survivor - -------------------------------------------------------------------------------- Certain Period Certain Period - -------------------------------------------------------------------------------- Joint None 120 240 Age None 120 240 - -------------------------------------------------------------------------------- $4.01 $4.01 $3.98 60 $4.43 $4.38 $4.22 4.09 4.08 4.05 61 4.52 4.47 4.29 4.17 4.16 4.12 62 4.63 4.57 4.36 4.25 4.25 4.19 63 4.74 4.67 4.43 4.34 4.34 4.26 64 4.85 4.78 4.50 4.44 4.43 4.34 65 4.98 4.89 4.57 4.54 4.54 4.42 66 5.11 5.01 4.64 4.66 4.64 4.50 67 5.26 5.13 4.71 4.77 4.76 4.58 68 5.41 5.27 4.78 4.90 4.88 4.66 69 5.57 5.41 4.85 5.04 5.01 4.74 70 5.75 5.55 4.91 5.18 5.15 4.82 71 5.94 5.70 4.98 5.34 5.30 4.89 72 6.14 5.86 5.03 5.51 5.45 4.96 73 6.35 6.03 5.09 5.69 5.62 5.03 74 6.59 6.20 5.14 5.89 5.79 5.09 75 6.84 6.38 5.18 - -------------------------------------------------------------------------------- Age Adjustment Table Year of Birth Adjustment to Age Year of Birth Adjustment to Age ------------- ----------------- ------------- ----------------- Before 1920 + 2 1960-1969 - 3 1920-1929 + 1 1970-1979 - 4 1930-1939 0 1980-1989 - 5 1940-1949 1 1990-1999 - 6 1950-1959 2 ETC. ETC. Page 14 ARTICLE 8 GUARANTEED ACCUMULATED VALUES AND SURRENDER VALUES FOR FIXED ALLOCATIONS* - --------------------------------------- --------------------------------- $1,000 Annual Contribution $100 Monthly Contribution --------------------------------------- --------------------------------- Guaranteed Guaranteed Guaranteed Guaranteed End of Accumulated Surrender End of Accumulated Surrender Year Value Value Year Value Value - --------------------------------------- --------------------------------- 1 $ 1,030.00 $ 970.00 1 $ 1,219.41 $ 1,147.41 2 2,090.90 1,970.90 2 2,475.41 2,331.41 3 3,183.63 3,013.63 3 3,769.08 3,565.08 4 4,309.14 4,099.14 4 5,101.56 4,849.56 5 5,468.41 5,228.41 5 6,474.02 6,186.02 6 6,662.46 6,402.46 6 7,887.66 7,575.66 7 7,892.34 7,622.34 7 9,343.70 9,019.70 8 9,159.11 8,889.11 8 10,843.42 10,519.42 9 10,463.88 10,193.88 9 12,388.14 12,064.14 10 11,807.80 11,537.80 10 13,979.19 13,655.19 11 13,192.03 12,922.03 11 15,617.98 15,293.98 12 14,617.79 14,347.79 12 17,305.93 16,981.93 13 16,086.32 15,816.32 13 19,044.52 18,720.52 14 17,598.91 17,328.91 14 20,835.27 20,511.27 15 19,156.88 18,886.88 15 22,679.74 22,355.74 16 20,761.59 20,491.59 16 24,579.54 24,255.54 17 22,414.44 22,144.44 17 26,536.34 26,212.34 18 24,116.87 23,846.87 18 28,551.84 28,227.84 19 25,870.37 25,600.37 19 30,627.81 30,303.81 20 27,676.49 27,406.49 20 32,766.06 32,442.06 21 29,536.78 29,266.78 21 34,968.45 34,644.45 22 31,452.88 31,182.88 22 37,236.91 36,912.91 23 33,426.47 33,156.47 23 39,573.43 39,249.43 24 35,459.26 35,189.26 24 41,980.05 41,656.05 25 37,553.04 37,283.04 25 44,458.86 44,134.86 26 39,709.63 39,439.63 26 47,012.04 46,688.04 27 41,930.92 41,660.92 27 49,641.81 49,317.81 28 44,218.85 43,948.85 28 52,350.48 52,026.48 29 46,575.42 46,305.42 29 55,140.41 54,816.41 30 49,002.68 48,732.68 30 58,014.03 57,690.03 31 51,502.76 51,232.76 31 60,973.86 60,649.86 32 54,077.84 53,807.84 32 64,022.49 63,698.49 33 56,730.18 56,460.18 33 67,162.58 66,838.58 34 59,462.08 59,192.08 34 70,396.87 70,072.87 35 62,275.94 62,005.94 35 73,728.18 73,404.18 36 65,174.22 64,904.22 36 77,159.44 76,835.44 37 68,159.45 67,889.45 37 80,693.64 80,369.64 38 71,234.23 70,964.23 38 84,333.86 84,009.86 39 74,401.26 74,131.26 39 88,083.29 87,759.29 40 77,663.30 77,393.30 40 91,945.20 91,621.20 41 81,023.20 80,753.20 41 95,922.96 95,598.96 42 84,483.89 84,213.89 42 100,020.07 99,696.07 43 88,048.41 87,778.41 43 104,240.08 103,916.08 44 91,719.86 91,449.86 44 108,586.69 108,262.69 45 95,501.46 95,231.46 45 113,063.71 112,739.71 - --------------------------------------- --------------------------------- * Guaranteed Accumulated Values and Guaranteed Surrender Values may be more or less than shown in the table because of the variatil of the day of receipt of the Purchase Payment at the Home Office from period to period and the crediting of interest to the Annuitant' account on a daily basis. Values shown are based upon contributions equally spaced with interest occurring at the beginning of the year These values do not provide for premium tax, if any. Page 15 ANNUITY CONTRACT Deferred Variable Annuity or Variable and Fixed Annuity Benefit Payment Options Nonparticipating If you have any questions concerning this Contract, please contact your Lincoln National Life representative or the Home Office of LNL. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY 1300 South Clinton Street P.O. Box 2348 Fort Wayne, Indiana 46801 800-942-5500 EX-99.4.E 5 VARIABLE ANNUITY CONTRACT - A VERSION #1 VARIABLE ANNUITY AMENDMENT Made a part of the CONTRACT TO WHICH IT IS ATTACHED ("this Contract") The following shall replace the definition of DEATH BENEFIT, section 1.13, in its entirety: DEATH BENEFIT - The amount payable upon death of the Owner or Annuitant. The following shall replace Section 2.01 WHERE PAYABLE, in its entirety: All Purchase Payments must be made to LNL or to its designated agent(s). The following shall replace the first sentence in the first paragraph of Section 2.08 TRANSFERS: Prior to the earlier of: the Maturity Date, surrender of the Contract, termination of Contract upon payment of any Death Benefit, or the Annuity Commencement Date, the Owner may direct a transfer of assets from one Sub- account to another Sub-account or to the Fixed Account of the Contract. The following shall replace the second paragraph of Section 2.11 CONTINGENT DEFERRED SALES CHARGE, in its entirety: A CDSC will be waived under certain circumstances (see section 2.13 for details). The following shall replace Section 2.12 DEATH BENEFITS, in its entirety: 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 the terms of Article 4. If the designated Beneficiary of the Death Benefit is the surviving spouse of the deceased Owner, the spouse may elect to continue the contract as the new Owner. If there are no designated Beneficiaries, LNL will pay a Death Benefit to the Owner's estate. 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) named by the spouse as the new Owner in accordance with 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 Article 4. If the Annuitant is also the Owner or a Joint Owner, then the Death Benefit paid on the death of the Annuitant will be subject to the Contract provisions regarding death of Owner. If the surviving spouse of the Owner/Annuitant assumes the contract, 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 on 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 an 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 Article 4. This Contract will terminate 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. 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: (1) proof, satisfactory to LNL, of the death; (2) written authorization for payment; and (3) 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 provision 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 date on which the death claim is approved by LNL for payment; or b. the highest Contract Value at the time of Fund valuation on any policy anniversary date (including the inception date) prior to the 81st birthday of the deceased and prior to the death of the deceased. The highest Contract Value is increased by Purchase Payments subsequent to such anniversary date on which the highest Contract Value is obtained. The highest Contract Value is decreased by partial withdrawals, partial annuitizations, and premium tax made, effected or incurred subsequent to such anniversary date on which the highest Contract Value is obtained. Upon the death of an Owner or Joint Owner 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 an the first death). This EGMDB will be credited into the Contract and will only apply one time for each Contract. This Contract option is not available upon the death of the Annuitant. The Guarantee of Principal is equal to the greater of. a. the current Contract Value as of the date on which the death claim is approved by LNL for payment; or b. the sum of all Purchase Payments decreased by partial withdrawals, partial annuitizations, and premium tax made, effected or incurred subsequent to the inception date. Upon the death of an Owner or Joint Owner of this Contract, if the surviving spouse continues the Contract and if the EGMDB is not in effect, the Guarantee of Principal 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 on the first death). This Guarantee of Principal is credited into the Contract and will only apply one time for each Contract. This Contract option is not available upon the death of the Annuitant. 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 is equal to the Guarantee of Principal. The EGMDB will only be in effect, unless terminated by the Owner, for Non- Qualified Contracts and Contracts sold as Individual Retirement Annuities (IRA) under Code Section 408(b) and 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 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 the termination of the EGMDB by the Owner, 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, 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 on the death of the Annuitant will be distributed to the Owner and Joint Owner if applicable in either the form of a lump sum or an Annuity Payment Option. An Annuity Payment Option must be selected within 60 days after LNL approves the death claim as discussed previously. 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 benefits payable 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, then 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 above, 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 2.13 DEATH OF ANNUITANT shall be omitted. The following shall replace (5) in the first paragraph of section 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES: (5) a surrender of the Contract as a result of the payment of a Death Benefit on the death of the Owner or a Joint Owner or the Annuitant; The following shall replace the third paragraph of Section 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES: If a non-natural person is the Owner of the Contract, the Annuitant will be considered the Owner of the Contract for purposes of this Section 2.13. Section 2.14 WAIVER OF CONTINGENT DEFERRED SALES CHARGES shall become Section 2.13 WAIVER OF CONTINGENT DEFERRED SALES CHARGES: The following shall be added after the first sentence of the first paragraph of section 3.02 CHOICE OF ANNUITY PAYMENT OPTION - By Owner: In addition, the Owner may select an Annuity Payment Option as a method of paying the Death Benefit to a Beneficiary. The following shall replace the third paragraph of section 4.01 DESIGNATION: If the surviving Joint Owner is the spouse of the deceased Joint Owner and continues the Contract as the sole Owner, then the designated Beneficiary(s) move up, in the order of their original designation, to replace the spouse as original Beneficiary, unless the Beneficiary designation is subsequently changed by the surviving spouse as the new Owner. The following shall be added after the third 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 following shall replace the first sentence of the second paragraph of section 5.02 OWNERSHIP: The Owner may name a Joint Owner. The following shall replace the first paragraph of section 5.11 MAXIMUM ISSUE AGE: The Owner, Joint Owner, and Annuitant must be under the age of 90 when this Contract is issued. The Lincoln National Life Insurance Company /s/ Kathleen Peterson Kathleen Peterson, Second Vice President [Effective Date: July 1, 1999) EX-99.4.F 6 VARIABLE ANNUITY CONTRACT - A VERSION #2 VARIABLE ANNUITY AMENDMENT This Amendment is made a part of the Contract to which it is attached (this Contract). . For purposes of this Amendment, Earnings shall be defined as the excess of the Contract Value over Purchase Payments which have not yet been withdrawn from this Contract. . The following shall replace the first paragraph of the section entitled WITHDRAWAL OPTION: The Owner may withdraw a part of the surrender value of this Contract, subject to the Contingent Deferred Sales Charge (CDSC) outlined under Surrender Option (see Section 2.10). However, the Owner may withdraw up to the Free Amount during a Contract Year, in up to four withdrawals, without incurring a CDSC. The Free Amount is equal to the greater of a. 10% of the Contract Value, where the percentages are based upon the Contract Value at the time of the current withdrawal, to the extent that the sum of the percentages of the Contract Value withdrawn does not exceed the 10% maximum; or b. 10% of the total Purchase Payments, where the percentages are based upon the total Purchase Payments to this Contract at the time of the current withdrawal, to the extent that the sum of the percentages of the Purchase Payments withdrawn does not exceed the 10% maximum. This 10% withdrawal exemption from the CDSC does not apply to a surrender of this Contract. For purposes of calculating the CDSC on withdrawals, LNL assumes that: a. The Free Amount will be withdrawn from Purchase Payments on a "first in-first out (FIFO)" basis. b. Prior to the seventh anniversary of the Contract Date, any amount withdrawn above the Free Amount during a Contract Year will be withdrawn in the following order: 1. from Purchase Payments (on a FIFO basis) until exhausted; then 2. from Earnings. c. On or after the seventh anniversary of the Contract Date, any amount withdrawn above the Free Amount during a Contract Year will be withdrawn in the following order: 1. from Purchase Payments (on a FIFO basis) to which a CDSC no longer applies until exhausted; then 2. from Earnings until exhausted; then 3. from Purchase Payments (on a FIFO basis) to which a CDSC still applies. A withdrawal will be effective on the Valuation Date on which LNL receives a written request for withdrawal at its Home Office. . The last paragraph of the section entitled CONTINGENT DEFERRED SALES CHARGES shall be deleted. . The following shall replace the language through part (1) of the first paragraph of the section entitled WAIVER OF CONTINGENT DEFERRED SALES CHARGES: A surrender of this Contract or withdrawal of Contract Value prior to the Annuity Commencement Date may be subject to a Contingent Deferred Sales Charge as described in Sections 2.09 and 2.10, except that such charges do not apply to: (1) the Free Amount (as defined in Section 2.09); The Lincoln National Life Insurance Company /s/ Kathleen Peterson Kathleen Peterson, Second Vice President [Effective Date: March 1, 2000] EX-99.4.G 7 VARIABLE ANNUITY CONTRACT - A VERSION #3 VARIABLE ANNUITY AMENDMENT Made a part of the Contract to which it is attached ("this Contract"). For purposes of this Amendment, Earnings shall be defined as the excess of the Contract Value over Purchase Payments which have not yet been withdrawn from this Contract. The following shall replace the first paragraph of Section 2.09, WITHDRAWAL OPTION: The Owner may withdraw a part of the surrender value of this Contract, subject to the Contingent Deferred Sales Charge (CDSC) outlined under Surrender Option (see Section 2.10). However, the Owner may withdraw up to the Free Amount during a Contract Year, in up to twelve withdrawals, without incurring a CDSC. The Free Amount is equal to the greater of: a. 10% of the Contract Value, where the percentages are based upon the Contract Value at the time of the current withdrawal, to the extent that the sum of the percentages of the Contract Value withdrawn does not exceed the 10% maximum; or b. 10% of the total Purchase Payments, where the percentages are based upon the total Purchase Payments to the Contract at the time of the current withdrawal, to the extent that the sum of the percentages of the Purchase Payments withdrawn does not exceed the 10% maximum. This 10% withdrawal exemption from the CDSC does not apply to a surrender of this Contract. For purposes of calculating the CDSC on withdrawals, LNL assumes that: a. The Free Amount will be withdrawn from Purchase Payments on a "first in-first out (FIFO)" basis. b. Any amount withdrawn above the Free Amount during a Contract Year will be withdrawn in the following order: 1. from Purchase Payments (on a FIFO basis) to which a CDSC no longer applies until exhausted; then 2. from Earnings until exhausted; then 3. from Purchase Payments (on a FIFO basis) to which a CDSC still applies. A withdrawal will be effective on the Valuation Date on which LNL receives a written request for withdrawal at its Home Office. The last paragraph of Section 2.11, CONTINGENT DEFERRED SALES CHARGES, shall be deleted. The following shall replace the fifth paragraph of Section 2.12, DEATH BENEFITS, Before the Annuity Commencement Date, Entitlement, as amended by Form 29870-A 0699: If the Owner is a corporation or other non-individual (non natural person), the Death Benefit is payable only with respect to the death of the Annuitant or Joint Annuitant. In such cases, if there is a single Annuitant, then upon the death of the Annuitant, LNL will pay a Death Benefit to the designated Beneficiary. If there are Joint Annuitants, upon the death of the first Joint Annuitant to die, LNL will pay a Death Benefit to the Owner. If the Contract is continued in force until the death of the second Joint Annuitant to die, then upon that second death LNL will pay a Death Benefit to the designated Beneficiary. The following shall be added after the third paragraph of Section 2.12, DEATH BENEFITS, Before the Annuity Commencement Date, Determination of Amounts, as amended by Form 29870-A 0699: If the Owner is a corporation or other non-individual (non-natural person) and there are Joint Annuitants, upon the death of the first Joint Annuitant to die, if the Owner continues the Contract, the Death Benefit payable on the death of that Joint Annuitant is equal to the excess of "b." over "a.". If "a." is greater than "b." then no EGMDB is payable upon the death of that Joint Annuitant. This EGMDB will be credited into the Contract and will only apply one time for each Contract. The following shall be added after the fifth paragraph of Section 2.12, DEATH BENEFITS, Before the Annuity Commencement Date, Determination of Amounts, as amended by Form 29870-A 0699: If the Owner is a corporation or other non-individual (non-natural person) and there are Joint Annuitants, upon the death of the first Joint Annuitant to die, if the Owner continues the Contract, the Guarantee of Principal payable on the death of that Joint Annuitant is equal to the excess of "b." over "a.". If "a." is greater than "b." then no Death Benefit is payable upon the death of that Joint Annuitant. This Guarantee of Principal will be credited into the Contract and will only apply one time for each Contract. The following shall replace the last paragraph of section 2.13, WAIVER OF CONTINGENT DEFERRED SALES CHARGES, as amended by Form 29870-A 0699: If the Owner is a corporation or other non-individual (non-natural person), the Annuitant or Joint Annuitant will be considered the Owner or Joint Owner of the Contract for purposes of this section 2.13. The following shall replace the language through part (1) of the first paragraph of Section 2.13, WAIVER OF CONTINGENT DEFERRED SALES CHARGES, as amended by Form 29870-A 0699: A surrender of this Contract or withdrawal of Contract Value prior to the Annuity Commencement Date may be subject to a Contingent Deferred Sales Charge as described in Sections 2.09 and 2.10, except that such charges do not apply to: (1) the Free Amount (as defined in Section 2.09); The following shall be added after the fourth paragraph of Section 4.01, DESIGNATION, as amended by Form 29870-A 0699: If the Owner is a corporation or other non-individual (non-natural person), if the Annuitant dies and a Death Benefit is paid, the Owner 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. Unless otherwise stated in the Beneficiary designation, if there is more than one Beneficiary they are presumed to share equally. The following shall replace the third paragraph of Section 5.02, OWNERSHIP: If the Owner is a corporation or other non-individual (non-natural person), the Owner may name an Annuitant or Joint Annuitants. The Annuitant or Joint Annuitants will be considered the Owner or Joint Owners for purposes of waiver of CDSC (see section 2.13, as amended by Form 29870-A 0699). For such Contracts, the Annuitant or Joint Annuitants may not be changed. The Owner may also name a Contingent Annuitant by notifying LNL in writing. The Contingent Annuitant designation is no longer applicable after the Annuity Commencement Date. The following shall replace Section 5.11, MAXIMUM ISSUE AGE in its entirely. The Annuitant or Joint Annuitants must be under the age of 90 when this Contract is issued. The Lincoln National Life Insurance Company /s/ Kathleen Peterson Kathleen Peterson, Second Vice President EX-99.5 8 APPLICATION [AMERICAN LEGACY III LOGO] ========================= Variable Annuity Application The Lincoln National Life Insurance Company =========================
==================================================================================================================================== Instructions: Please type or print. ANY ALTERATIONS TO THIS APPLICATION MUST BE INITIALED BY THE CONTRACT OWNER. ==================================================================================================================================== 1a Contract Owner /s/ John L. Doe Social Security number/TIN [x][x][x]-[x][x]-[x][x][x][x] ------------------------------- Full legal name or trust name* [x] Male [_] Female 1515 Main Street Date of birth [0][9] [1][4] [3][7] ------------------------------- Month Day Year Street address Anycity Anystate xxxxx Home telephone number [9][9][9] [5][5][5]-[2][2][2][2] ------------------------------- City State ZIP Date of trust* [_][_] [_][_] [_][_] Is trust revocable?* ------------------------------- Month Day Year [_] Yes [_] No Trustee name* Note: Maximum age of Contract Owner is 90. *This information is required for trusts. - ------------------------------------------------------------------------------------------------------------------------------------ 1b Joint Contract Owner Social Security number [_][_][_]-[_][_]-[_][_][_][_] ------------------------------- Full legal name Date of birth [_][_] [_][_] [_][_] [_] Male [_] Female Month Day Year Note: Maximum age of Joint Contract Owner is 90. [_] Spouse [_] Non-Spouse ==================================================================================================================================== 2a Annuitant (if no Annuitant is specified, the Contract Owner, or Joint Owner if younger, will be the Annuitant.) Social Security number [_][_][_]-[_][_]-[_][_][_][_] ------------------------------- Full legal name Date of birth [_][_] [_][_] [_][_] [_] Male [_] Female ------------------------------- Month Day Year Street Address Home telephone number [_][_][_] [_][_][_]-[_][_][_][_] ------------------------------- City State ZIP Note: Maximum age of Annuitant is 90. - ------------------------------------------------------------------------------------------------------------------------------------ 2b Contingent Annuitant Social Security number [_][_][_]-[_][_]-[_][_][_][_] ------------------------------- Full legal name Note: Maximum age of Contingent Annuitant is 90. ==================================================================================================================================== 3 Beneficiary(ies) of Contract Owner (List additional beneficiaries on a separate sheet. If listing children, use full legal names.) /s/Jane A. Doe Wife xxx-xx-xxxx 100% ----------------------------------------- ------------------------------ ----------- ---- 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 appropriate form (available from your financial adviser). ==================================================================================================================================== 4 Type of American Legacy Contract Nonqualified: [x] 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 [_] Other* _____________________ (specify) [_] 457(f) Executive Benefit* [_] 457(b) Governmental/Non-Profit* [_] SEP [_] 403(b)* (transfers only) *Indicate plan year-end: [_][_] [_][_] Month Day
Page 1 ================================================================================ 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 50% [Global Growth Fund] -------------- % [Global Small Capitalization Fund] -------------- % [Growth Fund] -------------- % [International Fund] -------------- % [New World Fund] -------------- % [Growth-Income Fund] -------------- 50% [Asset Allocation Fund] -------------- % [High-Yield Bond Fund] -------------- % [Bond Fund] -------------- % [U.S. Govt./AAA-Rated Securities Fund] -------------- % [Cash Management Fund] -------------- % [Fixed Account] -------------- % 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 and the DCA fund elected % [Global Growth Fund] cannot be the same. -------------- % [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*] -------------- % [Fixed Account] -------------- % Total (must = 100%) ============== - -------------------------------------------------------------------------------- Future contributions will not automatically start a new DCA program. Instructions must accompany each contribution. - -------------------------------------------------------------------------------- 5c Cross-Reinvestment or Portfolio Rebalancing To elect either of these options, please complete the appropriate form (available from your financial adviser). - ------------------------------------------------------------------------------- 6 Automatic Withdrawals $10,000 minimum account balance required. Note: Withdrawals exceeding 10% of total contract value per year may be subject to contingent deferred sales charges. - ------------------------------------------------------------------------------- [_] Please provide me with automatic withdrawals based on 10% of total contract value [_] Monthly [_] Quarterly [_] Semiannually [_] Annually Begin withdrawals in [_][_] [_][_] Month Year OR - ------------------------------------------------------------------------------- [_] 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 ================================================================================ 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 Automatic bank draft start $ date: [_][_] [_][_] [_][_] ----------------------- -------------- Month Day(1-28) Year Checking account number Monthly amount 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 of investment loss to me/us. ================================================================================ 8 Telephone Transfer (Check box if this option is desired.) [X] 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: [X] 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. Anycity Anystate ------------------------------------------------ Signed at (city) State Date: [0][6] [0][8] [9][9] Month Day Year --------------------------- -------------------- Signature of Contract Owner Joint Contract Owner ------------------------------------------------ Signed at (city) State Date: [_][_] [_][_] [_][_] Month Day Year ------------------------------------------------ Signature of Annuitant (Annuitant must sign if Contract Owner is a trust or custodian) ================================================================================ FINANCIAL ADVISER MUST COMPLETE REVERSE SIDE (PAGE 4) ================================================================================ Page 3 ================================================================================ THE FOLLOWING SECTIONS MUST BE COMPLETED BY THE FINANCIAL ADVISER OR SECURITIES DEALER. Please type or print. ================================================================================ 11 Insurance in Force Will the proposed contract replace any existing annuity or life insurance contract? ELECT ONE: [X] No [_] Yes If yes, please list the insurance in force on the life of the proposed Contract Owner(s) and Annuitant(s): (Attach a 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 [_] 1 [_] 2 [_] 3 for this application to be processed. If more than one representative, please indicate names and percentages in Section 12. /s/ Michael Dealer ---------------------------------------------[X][X][X] [X][X][X]-[X][X][X][X] Registered representative's name Registered representative's (print as it appears on NASD licensing) telephone number ---------------------------------------------[X][X][X]-[X][X]-[X][X][X][X] Client account number at dealer Registered representative's SSN (if applicable) Financial Investors ----------------------------------------------------------------------------- Dealer's name Anystreet Anycity Anystate XXXXX ----------------------------------------------------------------------------- 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 Life - to your investment [American Legacy dealer's home office or to: III Logo] Lincoln Life By Express Mail: Lincoln Life P.O. Box 2348 Attention: American Legacy Operations Fort Wayne, IN 46801-2348 1300 South Clinton Street Fort Wayne, IN 46802 If you have any questions regarding this application, call Lincoln Life at 800 942-5500. Page 4
EX-99.10 9 CONSENT OF INDEPENDENT AUDITORS 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. 4 to the Registration Statement (Form N-4 No. 333-18419) 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 EX-99.1 10 ORGCHART_2000 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 | | | | 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 | | | | 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 | | | | 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 | | | | 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 | | 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 | | 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 | | 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 | | 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 | | | | 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 | | | | 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. 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) 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 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. 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 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. EX-99.15.B 11 BOOKS & RECORDS 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.
LN-Record Location Person to Contact Retention - --------- -------- ----------------- --------- 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
(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.
Purchases and Sales Journals - ---------------------------- 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
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 - ----------------------------------------- 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. 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. 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 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 EX-99.16.A 12 POWERS OF ATTORNEY 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 (American Legacy III), 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. 333-18419 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 --------- EX-99.16.B 13 POWERS OF ATTORNEY 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 (American Legacy III), 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. 333-18419 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 3rd day of February, 1999. /s/ Janet L. Lindenberg -------------------------------------- Notary public Commission Expires: 7-10-2001 ---------- EX-99.16.C 14 POWERS OF ATTORNEY 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 (American Legacy III), 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. 333-18419 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 ---------- EX-99.16.D 15 POWERS OF ATTORNEY 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 (American Legacy III), 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. 333-18419 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 ---------- EX-99.16.E 16 POWERS OF ATTORNEY 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 (American Legacy III), 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. 333-18419 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 ---------- EX-99.16.F 17 POWERS OF ATTORNEY 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 (American Legacy III), 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. 333-18419 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 -----END PRIVACY-ENHANCED MESSAGE-----