[GRAPHIC OMITTED]
LAW DEPARTMENT
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ONE GRANITE PLACE
CONCORD, NH 03301
RONALD R. BESSETTE
SENIOR COUNSEL
Phone: 603-229-6140
Ronald.Bessette@LFG.com
VIA email
July 2, 2008
Ellen Sazzman, Esq.
Office of Insurance Products
Division of Investment Management
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-4644
Re: Lincoln Life & Annuity Company of New York
Lincoln Life & Annuity Variable Annuity Account H
File No. 333-148207
Lincoln New York Account N for Variable Annuities
File No. 333-148208
Dear Ms. Sazzman:
This letter and the attached black lined prospectus sections are in response to
the comments discussed in your telephone conversation with Mary Jo Ardington on
June 9, 2008. The black lining shows changes made in response to your comments
as well as an enhancement to the Guaranteed Income Benefit (GIB). The page
numbers referenced in this letter are from File No. 333-148208.
The enhancements to the GIB consist of annual step-ups of the GIB to 75% of the
current regular income payment if that result is greater than the immediately
prior Guaranteed Income Benefit. The annual step-ups will occur on the periodic
income commencement date anniversary. If there is a step-up of the GIB the
charge for the GIB will change to the then current charge subject to the maximum
guaranteed charge of 1.50%. The step-up is administered automatically and the
contractowner has 30 days to notify Lincoln New York that he or she wishes to
not accept the step-up. The current GIB steps-up every three years for fifteen
years and the charge may change if the contractowner elects a new 15 year
step-up period.
The black lined prospectus pages denoting these changes are as follows:
1. Page 5, footnotes have been added to the Expense Tables indicating that
the percentage charge for the GIB will change to the current charge in
effect at the time of each annual step-up up to the maximum guaranteed
charge of 1.50%
2. Page 19, the same footnotes as recited above have been added to the
Charges and Deductions section.
3. Page 19, second paragraph of the Guaranteed Income Benefit section has
been changed to reflect that the percentage charge for the GIB will
change annually to the then current charge.
4. Page 25, first full paragraph has been revised to reflect the annual
step-up of the GIB, the change in the guarantee period for the charge
and the 30 day time period for a contractowner to decline the step-up.
Responses to your telephone comments are as follows:
Asset Allocation Models (pp. 30-31)
o Page 12, a new paragraph entitled "What are Asset Allocation Models?" has
been added to the Summary of Common Questions section.
o Grammatical change was made to the introductory sentence prior to the listing
of the models on the bottom of page 30. o Moved sentence to page 31 at the end
of the listing of the models, disclosing that the registered representative will
have more information on the specific investments of each model.
o Third sentence was added to the Franklin Templeton Founding Investment
Strategy section on page 31 stating that 100% of contract value must be
allocated to the strategy if elected.
o On page 31 added "of contract value" after percentage amounts allocated to
the funds in the Franklin Templeton Founding Investment Strategy.
Investment Requirements (pp. 31-32)
In response to your question as to what would occur if a contractowner does not
comply with the Investment Requirements, we have determined that our
administration system will not allow a contractowner to reallocate contract
values in a manner outside the allowed parameters of the Investment
Requirements. If a contractowner wants to allocate in a manner inconsistent with
the Investment Requirements they must terminate the rider.
o Page 31, first sentence of the Investment Requirements section: disclosure
added that purchase of the GIB will require compliance with the Investment
Requirements.
o Page 31, first paragraph, third line of Investment Requirements section:
replaced rider with Guaranteed Income Benefit. o Page 31, first paragraph, sixth
line of Investment Requirements section: deleted statement that some investment
options are not available if the GIB is purchased.
o Page 31, bottom of page: added "contract value" to percentage requirements
for Groups 1 and 2.
o Page 32, first paragraph, fourth line: revised to state that if less than
100% of contract value is allocated to specifically named funds, then these
funds will be deemed to be in Group 2.
o Page 32, last sentence of second full paragraph: added disclosure that only
one asset allocation model at a time may be chosen and that a contractowner
may drop an asset allocation model and choose another model or subaccount
allocations that comply with the investment requirements.
Please call me at 603-229-6140 with further comments or questions.
Sincerely,
/s/ Ronald R. Bessette
Ronald R. Bessette
Senior Counsel
Lincoln ChoicePlus AssuranceSM (A Share) i4LIFE (Reg. TM) Advantage (New York)
Lincoln New York Account N
for Variable Annuities
Individual Variable Annuity Contracts
Home Office:
Lincoln Life & Annuity Company of New York
100 Madison Street, Suite 1860
Syracuse, NY 13202
www.LFG.com
Servicing Office:
Lincoln Life & Annuity Company of New York
PO Box 7866
Fort Wayne, IN 46802-7866
1-888-868-2583
This prospectus describes the individual single premium immediate variable
annuity contract that is issued by Lincoln Life & Annuity Company of New York.
It is for use with nonqualified plans and for qualified retirement plans under
Sections 408 (IRAs) and 408A (Roth IRAs) of the tax code. Generally, you do not
pay federal income tax on the contract's growth until it is paid out. The
contract is designed to provide retirement income on a variable basis for the
life of the annuitant and a secondary life. The contract also provides a death
benefit and the ability to make withdrawals during a defined period of time
(access period). A minimum payout floor, the Guaranteed Income Benefit, is
available for an additional charge.
The minimum gross purchase payment for the contract is $50,000. Gross purchase
payments may not exceed $2 million without our approval.
Currently, there is no fixed account in this product.
All purchase payments for benefits on a variable basis will be placed in
Lincoln New York Account N for Variable Annuities (variable annuity account
[VAA]). The VAA is a segregated investment account of Lincoln New York. You
take all the investment risk on the account value and the retirement income for
amounts placed into one or more of the contract's variable options. If the
subaccounts you select make money, your account 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. Government nor any federal
agency insures or guarantees your investment in the contract. The contracts are
not bank deposits and are not endorsed by any bank or government agency.
The available funds are listed below:
AllianceBernstein Variable Products Series Fund (Class B):
AllianceBernstein VPS Global Technology Portfolio
AllianceBernstein VPS Growth and Income Portfolio
AllianceBernstein VPS International Value Portfolio
AllianceBernstein VPS Small/Mid Cap Value Portfolio
American Century Investments Variable Products (Class II):
American Century Investments VP Inflation Protection Fund
American Funds Insurance SeriesSM (Class 2):
American Funds Global Growth Fund
American Funds Global Small Capitalization Fund
American Funds Growth Fund
American Funds Growth-Income Fund
American Funds International Fund
1
Delaware VIP Trust (Service Class):
Delaware VIP Capital Reserves Series
Delaware VIP Diversified Income Series
Delaware VIP Emerging Markets Series
Delaware VIP High Yield Series
Delaware VIP Small Cap Value Series
Delaware VIP Trend Series
Delaware VIP U.S. Growth Series
Delaware VIP Value Series
Fidelity (Reg. TM) Variable Insurance Products (Service Class 2):
Fidelity (Reg. TM) VIP Contrafund Portfolio
Fidelity (Reg. TM) VIP Growth Portfolio
Fidelity (Reg. TM) VIP Mid Cap Portfolio
Fidelity (Reg. TM) VIP Overseas Portfolio
Franklin Templeton Variable Insurance Products Trust (Class 2):
FTVIPT Franklin Income Securities Fund
FTVIPT Franklin Small-Mid Cap Growth Securities Fund
FTVIPT Mutual Shares Securities Fund
FTVIPT Templeton Global Income Securities Fund
Lincoln Variable Insurance Products Trust (Service Class):
LVIP Baron Growth Opportunities Fund
LVIP Capital Growth Fund
LVIP Cohen & Steers Global Real Estate Fund
LVIP Columbia Value Opportunities Fund
LVIP Delaware Bond Fund
LVIP Delaware Growth and Income Fund
LVIP Delaware Social Awareness Fund
LVIP Delaware Special Opportunities Fund
LVIP FI Equity-Income Fund
LVIP Janus Capital Appreciation Fund
LVIP Marsico International Growth Fund
LVIP MFS Value Fund
LVIP Mid-Cap Value Fund
LVIP Mondrian International Value Fund
LVIP Money Market Fund
LVIP SSgA Bond Index Fund
LVIP SSgA Developed International 150 Fund
LVIP SSgA Emerging Markets 100 Fund
LVIP SSgA International Index Fund
LVIP SSgA Large Cap 100 Fund
LVIP SSgA Small/Mid Cap 200 Fund
LVIP SSgA S&P 500 Index Fund*
LVIP SSgA Small-Cap Index Fund
LVIP T. Rowe Price Growth Stock Fund
LVIP T. Rowe Price Structured Mid-Cap Growth Fund
LVIP Templeton Growth Fund
LVIP Turner Mid-Cap Growth Fund
LVIP UBS Global Asset Allocation Fund
LVIP Wilshire 2010 Profile Fund
LVIP Wilshire 2020 Profile Fund
LVIP Wilshire 2030 Profile Fund
LVIP Wilshire 2040 Profile Fund
LVIP Wilshire Aggressive Profile Fund
LVIP Wilshire Conservative Profile Fund
LVIP Wilshire Moderate Profile Fund
LVIP Wilshire Moderately Aggressive Profile Fund
MFS (Reg. TM) Variable Insurance TrustSM (Service Class):
MFS (Reg. TM) VIT Growth Series
MFS (Reg. TM) VIT Total Return Series
MFS (Reg. TM) VIT Utilities Series
"S&P 500" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use by Lincoln Variable Insurance Products Trust and its
affiliates. The product is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of purchasing the product. (Please see the Statement of Additional
Information which sets forth additional disclaimers and limitations of
liability on behalf of S&P.)
This prospectus gives you information about the contracts that you should know
before you decide to buy a contract and make gross purchase payments. You
should also review the prospectuses for the funds that accompany this
prospectus, and keep all prospectuses for future reference.
Neither the SEC nor any state securities commission has approved this contract
or determined that this prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
More information about the contracts is in the current Statement of Additional
Information (SAI), dated the same date as this prospectus. The SAI is
incorporated by reference into this prospectus and is legally part of this
prospectus. For a free copy of the SAI, write: Lincoln Life & Annuity Company
of New York, PO Box 7866, Fort Wayne, IN 46802-7866, or call 1-888-868-2583.
The SAI and other information about Lincoln New York and the VAA are also
available on the SEC's website (http://www.sec.gov). There is a table of
contents for the SAI on the last page of this prospectus.
_________, 2008
2
Table of Contents
Item Page
Special Terms 4
Expense Tables 5
Summary of Common Questions 12
Lincoln Life & Annuity Company of New York 13
Variable Annuity Account (VAA) 14
Investments of the Variable Annuity Account 14
Charges And Other Deductions 18
The Contracts 20
Purchase Payments 21
Regular Income Payments During The Access Period 22
Regular Income Payments During The Lifetime Income Period 23
Access Period 23
Account Value 24
Guaranteed Income Benefit 24
Death Benefits 26
Transfers During The Access Period 28
Transfers During The Lifetime Income Period 28
Investment Requirements 31
Surrenders and Withdrawals 32
Distribution of the Contracts 33
Federal Tax Matters 34
Additional Information 38
Voting Rights 38
Return Privilege 39
Other Information 39
Legal Proceedings 39
Contents of the Statement of Additional Information (SAI)
for Lincoln New York Account N for Variable Annuities 40
3
Special Terms
In this prospectus, the following terms have the indicated meanings:
Access period - A defined period of time during which we pay variable, periodic
regular income payments and provide a death benefit, and during which you may
surrender the contract and make withdrawals from your account value.
Account or variable annuity account (VAA) - The segregated investment account,
Account N, into which we set aside and invest the assets for the variable side
of the contract offered in this prospectus.
Account value - During the access period, on any valuation date the sum of the
values of the variable subaccounts attributable to the contract.
Accumulation unit - A measure used to calculate the account value for the
variable side of the contract during the access period.
Annuitant - The person upon whose life the regular income payments will be
contingent, and upon whose life a death benefit may be paid.
Annuity unit - A measure used to calculate the amount of regular income
payments during the lifetime income period.
Contractowner (you, your, owner) - The person who can exercise the rights
within the contract (decides on investment allocations, transfers, payout
option, designates the beneficiary, etc.).
Contract year - Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Death benefit - During the access period, the amount payable if the
contractowner, joint owner or annuitant dies. See The Contracts - Death
Benefit.
Gross purchase payments - Amounts paid into the contract before deduction of
the sales charge.
Lifetime income period - The period that begins after the access period during
which we pay variable, periodic regular income payments, provided the
annuitant, or in the case of a joint life payout the annuitant or the secondary
life, is still living and the contract has not been surrendered.
Lincoln New York (we, us, our) - Lincoln Life & Annuity Company of New York.
Net purchase payments - The gross purchase payment amount less the sales
charge. The net purchase payment is the amount placed in the fixed account
and/or the variable account.
Periodic income commencement date - The valuation date on which the initial
regular income payment under this contract is calculated, as shown in your
contract.
Regular income payments - Variable, periodic regular income payments during the
access period and the lifetime income period for as long as an annuitant or
secondary life is living.
Secondary life - A person in addition to the annuitant, selected by the
contractowner, upon whose life the regular income payments will also be
contingent.
Subaccount - The portion of the VAA that reflects investments in accumulation
and annuity units of a class of a particular fund available under the
contracts. There is a separate subaccount which corresponds to each class of a
fund.
Valuation date - Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation period - The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (valuation
date) and ending at the close of such trading on the next valuation date.
4
Expense Tables
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the contract.
The first table describes the fees and expenses that you will pay at the time
that you buy the contract, surrender the contract, or transfer account value
between investment options. State premium taxes may also be deducted.
Contractowner Transaction Expenses:
o Sales charge (as a percentage of gross purchase payments): 5.75%*
* The sales charge percentage decreases as the value accumulated under
certain of the owner's investments increases. See Charges and Other
Deductions -
Sales Charge.
The next table describes the fees and expenses that you will pay periodically
during the time that you own the contract, not including fund fees and
expenses.
Separate Account Annual Expenses (as a percentage of average daily net assets
in the subaccounts):
During the Access Period:
Guarantee of Enhanced Guaranteed
Account Value Principal Death Minimum Death
Death Benefit Benefit Benefit (EGMDB)
--------------- ----------------- --------------------
o Mortality and expense risk charge 0.95% 1.05% 1.20%
o Administrative charge 0.10% 0.10% 0.10%
--
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05% 1.15% 1.30%
o Guaranteed Income Benefit
Maximum charge (optional)* 1.50% 1.50% 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55% 2.65% 2.80%
* The current Guaranteed Income Benefit charge is .50% The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
During the Lifetime Income Period:
o Mortality and expense risk charge 0.95%
o Administrative charge 0.10%
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05%
o Guaranteed Income Benefit
Maximum charge(optional)* 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55%
* The current Guaranteed Income Benefit charge is .50%. The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
The next item shows the minimum and maximum total annual operating expenses
charged by the funds that you may pay periodically during the time that you own
the contract. The expenses are for the year ended December 31, 2007. More
detail concerning each fund's fees and expenses is contained in the prospectus
for each fund.
5
Maximum Minimum
--------- --------
Total Annual Fund Operating Expenses
(expenses that are deducted from fund assets,
including management fees, distribution and/or
service (12b-1) fees, and other expenses): 6.31% 0.52%
Net Total Annual Fund Operating Expenses
(after contractual waivers/reimbursements*): 1.73% 0.52%
* Thirty-five (35) of the funds have entered into contractual waiver or
reimbursement arrangements that may reduce fund management and other fees
and/or expenses during the period of the arrangement. These arrangements
vary in length, but no arrangement will terminate before April 30, 2009.
6
The following table shows the expenses charged by each fund for the year ended
December 31, 2007:
(as a percentage of each fund's average net assets):
Management Other
Fees 12b-1 Fees Expenses
(before (before (before
any any any
waivers/ waivers/ waivers/
reimburse- reimburse- reimburse-
ments) + ments) + ments) +
AllianceBernstein VPS Global Technology Portfolio (Class B) 0.75 % 0.25 % 0.17 %
AllianceBernstein VPS Growth and Income Portfolio (Class B) 0.55 0.25 0.04
AllianceBernstein VPS International Value Portfolio (Class B) 0.75 0.25 0.06
AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B) 0.75 0.25 0.08
American Century VP II Inflation Protection Fund (Class II)(1)(2) 0.49 0.25 0.01
American Funds Global Growth Fund (Class 2)* 0.53 0.25 0.02
American Funds Global Small Capitalization Fund (Class 2)* 0.70 0.25 0.03
American Funds Growth Fund (Class 2)* 0.32 0.25 0.01
American Funds Growth-Income Fund (Class 2)* 0.26 0.25 0.01
American Funds International Fund (Class 2)* 0.49 0.25 0.03
Delaware VIP Capital Reserves Series (Service Class)(3) 0.50 0.30 0.18
Delaware VIP Diversified Income Series (Service Class) (4) 0.64 0.30 0.09
Delaware VIP Emerging Markets Series (Service Class)(5) 1.25 0.30 0.23
Delaware VIP High Yield Series (Service Class)(6) 0.65 0.30 0.10
Delaware VIP Small Cap Value Series (Service Class)(7) 0.71 0.30 0.10
Delaware VIP Trend Series (Service Class)(8) 0.75 0.30 0.11
Delaware VIP U.S. Growth Series (Service Class)(9) 0.65 0.30 0.09
Delaware VIP Value Series (Service Class)(10) 0.64 0.30 0.09
Fidelity (Reg. TM) VIP Contrafund Portfolio (Service Class 2)(11) 0.56 0.25 0.09
Fidelity (Reg. TM) VIP Growth Portfolio (Service Class 2)(12) 0.56 0.25 0.09
Fidelity (Reg. TM) Mid Cap Portfolio (Service Class 2)(12) 0.56 0.25 0.10
Fidelity (Reg. TM) VIP Overseas Portfolio (Service Class 2)(13) 0.71 0.25 0.14
FTVIPT Franklin Income Sercurities Fund (Class 2) 0.45 0.25 0.02
FTVIPT Franklin Small-Mid Cap Growth Securities Fund (Class
2)(14) 0.47 0.25 0.28
FTVIPT Mutual Shares Securities Fund (Class 2) 0.59 0.25 0.13
FTVIPT Templeton Global Income Sercurities Fund (Class 2) 0.50 0.25 0.14
LVIP Baron Growth Opportunities Fund (Service Class)(15) 1.00 0.25 0.08
LVIP Capital Growth Fund (Service Class)(16) 0.73 0.25 0.07
LVIP Cohen & Steers Global Real Estate Fund (Service
Class)(17)(18) 0.95 0.25 0.15
LVIP Columbia Value Opportunities Fund (Service Class)(19) 1.05 0.25 0.15
LVIP Delaware Bond Fund (Service Class)(45) 0.34 0.35 0.06
LVIP Delaware Growth and Income Fund (Service Class)(45) 0.33 0.35 0.07
LVIP Delaware Social Awareness Fund (Service Class)(45) 0.35 0.35 0.06
LVIP Delaware Special Opportunities Fund (Service Class)(45) 0.37 0.35 0.07
LVIP FI Equity-Income Fund (Service Class)(20) 0.73 0.25 0.08
LVIP Janus Capital Appreciation Fund (Service Class)(21) 0.74 0.25 0.08
LVIP Marsico International Growth Fund (Service Class)(22) 0.93 0.25 0.11
LVIP MFS Value Fund (Service Class)(23) 0.70 0.25 0.08
LVIP Mid-Cap Value Fund (Service Class)(24) 0.93 0.25 0.09
LVIP Mondrian International Value Fund (Service Class) 0.68 0.25 0.12
Total
Expenses
Total (after
Expenses Total Contractu
(before Contractual ua
Acquired any waivers/ waivers/
Fund waivers/ reimburse- reimburse
Fees and reimburse- ments e-
Expenses = ments) (if any) ments)
AllianceBernstein VPS Global Technology Portfolio (Class B) 0.00 % 1.17 %
AllianceBernstein VPS Growth and Income Portfolio (Class B) 0.00 0.84
AllianceBernstein VPS International Value Portfolio (Class B) 0.00 1.06
AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B) 0.00 1.08
American Century VP II Inflation Protection Fund (Class II)(1)(2) 0.00 0.75
American Funds Global Growth Fund (Class 2)* 0.00 0.80
American Funds Global Small Capitalization Fund (Class 2)* 0.00 0.98
American Funds Growth Fund (Class 2)* 0.00 0.58
American Funds Growth-Income Fund (Class 2)* 0.00 0.52
American Funds International Fund (Class 2)* 0.00 0.77
Delaware VIP Capital Reserves Series (Service Class)(3) 0.00 0.98 -0.11 % 0.87 %
Delaware VIP Diversified Income Series (Service Class) (4) 0.00 1.03 -0.05 0.98
Delaware VIP Emerging Markets Series (Service Class)(5) 0.00 1.78 -0.05 1.73
Delaware VIP High Yield Series (Service Class)(6) 0.00 1.05 -0.06 0.99
Delaware VIP Small Cap Value Series (Service Class)(7) 0.00 1.11 -0.05 1.06
Delaware VIP Trend Series (Service Class)(8) 0.00 1.16 -0.05 1.11
Delaware VIP U.S. Growth Series (Service Class)(9) 0.00 1.04 -0.05 0.99
Delaware VIP Value Series (Service Class)(10) 0.00 1.03 -0.05 0.98
Fidelity (Reg. TM) VIP Contrafund Portfolio (Service Class 2)(11) 0.00 0.90
Fidelity (Reg. TM) VIP Growth Portfolio (Service Class 2)(12) 0.00 0.90
Fidelity (Reg. TM) Mid Cap Portfolio (Service Class 2)(12) 0.00 0.91
Fidelity (Reg. TM) VIP Overseas Portfolio (Service Class 2)(13) 0.00 1.10
FTVIPT Franklin Income Sercurities Fund (Class 2) 0.00 0.72
FTVIPT Franklin Small-Mid Cap Growth Securities Fund (Class
2)(14) 0.01 1.01 -0.01 1.00
FTVIPT Mutual Shares Securities Fund (Class 2) 0.00 0.97
FTVIPT Templeton Global Income Sercurities Fund (Class 2) 0.00 0.89
LVIP Baron Growth Opportunities Fund (Service Class)(15) 0.00 1.33 -0.04 1.29
LVIP Capital Growth Fund (Service Class)(16) 0.00 1.05 -0.02 1.03
LVIP Cohen & Steers Global Real Estate Fund (Service
Class)(17)(18) 0.00 1.35 -0.25 1.10
LVIP Columbia Value Opportunities Fund (Service Class)(19) 0.00 1.45
LVIP Delaware Bond Fund (Service Class)(45) 0.00 0.75
LVIP Delaware Growth and Income Fund (Service Class)(45) 0.00 0.75
LVIP Delaware Social Awareness Fund (Service Class)(45) 0.00 0.76
LVIP Delaware Special Opportunities Fund (Service Class)(45) 0.00 0.79
LVIP FI Equity-Income Fund (Service Class)(20) 0.00 1.06 -0.07 0.99
LVIP Janus Capital Appreciation Fund (Service Class)(21) 0.00 1.07 -0.13 0.94
LVIP Marsico International Growth Fund (Service Class)(22) 0.00 1.29 -0.01 1.28
LVIP MFS Value Fund (Service Class)(23) 0.00 1.03
LVIP Mid-Cap Value Fund (Service Class)(24) 0.00 1.27
LVIP Mondrian International Value Fund (Service Class) 0.00 1.05
7
Management Other
Fees 12b-1 Fees Expenses
(before (before (before
any any any
waivers/ waivers/ waivers/
reimburse- reimburse- reimburse-
ments) + ments) + ments) +
LVIP Money Market Fund (Service Class) 0.37 % 0.25 % 0.07 %
LVIP SSgA Bond Index Fund (Service Class)(25) 0.40 0.25 0.13
LVIP SSgA Developed International 150 Fund (Service
Class)(26) 0.75 0.25 0.17
LVIP SSgA Emerging Markets 100 Fund (Service Class)(27) 1.09 0.25 0.36
LVIP SSgA International Index Fund (Service Class)(28) 0.40 0.25 0.24
LVIP SSgA Large Cap 100 Fund (Service Class)(29) 0.52 0.25 0.12
LVIP SSgA Small/Mid Cap 200 Fund (Service Class)(30) 0.69 0.25 0.12
LVIP SSgA S&P 500 Index Fund (Service Class)(31) 0.24 0.25 0.08
LVIP SSgA Small-Cap Index Fund (Service Class)(32) 0.32 0.25 0.17
LVIP T. Rowe Price Growth Stock Fund (Service Class)(33) 0.74 0.25 0.08
LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Service
Class) 0.73 0.25 0.09
LVIP Templeton Growth Fund (Service Class)(34)(35) 0.74 0.25 0.12
LVIP Turner Mid-Cap Growth Fund (Service Class)(36)(37) 0.89 0.25 0.19
LVIP UBS Global Asset Allocation Fund (Service Class)(38) 0.73 0.25 0.14
LVIP Wilshire 2010 Profile Fund (Service Class)(39)(40) 0.25 0.25 3.18
LVIP Wilshire 2020 Profile Fund (Service Class)(39)(40) 0.25 0.25 1.45
LVIP Wilshire 2030 Profile Fund (Service Class)(39)(40) 0.25 0.25 2.61
LVIP Wilshire 2040 Profile Fund (Service Class)(39)(40) 0.25 0.25 4.89
LVIP Wilshire Aggressive Profile Fund (Service Class)(39)(40) 0.25 0.25 0.09
LVIP Wilshire Conservative Profile Fund (Service Class)(39)(40) 0.25 0.25 0.08
LVIP Wilshire Moderate Profile Fund (Service Class)(39)(40) 0.25 0.25 0.04
LVIP Wilshire Moderately Aggressive Profile Fund (Service
Class)(39)(40) 0.25 0.25 0.04
MFS (Reg. TM) VIT Growth Fund (Service Class)(41)(42) 0.75 0.25 0.12
MFS (Reg. TM) VIT Total Return Series (Service Class)(41)(42)(43) 0.75 0.25 0.08
MFS (Reg. TM) VIT Utilities Series (Service Class)(41)(42)(44) 0.75 0.25 0.10
Total
Expenses
Total (after
Expenses Total Contractu
(before Contractual ua
Acquired any waivers/ waivers/
Fund waivers/ reimburse- reimburse
Fees and reimburse- ments e-
Expenses = ments) (if any) ments)
LVIP Money Market Fund (Service Class) 0.00 % 0.69 %
LVIP SSgA Bond Index Fund (Service Class)(25) 0.00 0.78 -0.08 % 0.70 %
LVIP SSgA Developed International 150 Fund (Service
Class)(26) 0.00 1.17 -0.41 0.76
LVIP SSgA Emerging Markets 100 Fund (Service Class)(27) 0.00 1.70 -0.75 0.95
LVIP SSgA International Index Fund (Service Class)(28) 0.00 0.89 -0.19 0.70
LVIP SSgA Large Cap 100 Fund (Service Class)(29) 0.00 0.89 -0.18 0.71
LVIP SSgA Small/Mid Cap 200 Fund (Service Class)(30) 0.00 1.06 -0.35 0.71
LVIP SSgA S&P 500 Index Fund (Service Class)(31) 0.00 0.57 -0.04 0.53
LVIP SSgA Small-Cap Index Fund (Service Class)(32) 0.00 0.74 -0.03 0.71
LVIP T. Rowe Price Growth Stock Fund (Service Class)(33) 0.00 1.07
LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Service
Class) 0.00 1.07
LVIP Templeton Growth Fund (Service Class)(34)(35) 0.00 1.11 -0.09 1.02
LVIP Turner Mid-Cap Growth Fund (Service Class)(36)(37) 0.00 1.33 -0.06 1.27
LVIP UBS Global Asset Allocation Fund (Service Class)(38) 0.05 1.17
LVIP Wilshire 2010 Profile Fund (Service Class)(39)(40) 0.76 4.44 -3.18 1.26
LVIP Wilshire 2020 Profile Fund (Service Class)(39)(40) 0.79 2.74 -1.45 1.29
LVIP Wilshire 2030 Profile Fund (Service Class)(39)(40) 0.88 3.99 -2.61 1.38
LVIP Wilshire 2040 Profile Fund (Service Class)(39)(40) 0.92 6.31 -4.89 1.42
LVIP Wilshire Aggressive Profile Fund (Service Class)(39)(40) 1.02 1.61 -0.09 1.52
LVIP Wilshire Conservative Profile Fund (Service Class)(39)(40) 0.77 1.35 -0.08 1.27
LVIP Wilshire Moderate Profile Fund (Service Class)(39)(40) 0.89 1.43 -0.04 1.39
LVIP Wilshire Moderately Aggressive Profile Fund (Service
Class)(39)(40) 0.92 1.46 -0.04 1.42
MFS (Reg. TM) VIT Growth Fund (Service Class)(41)(42) 0.00 1.12
MFS (Reg. TM) VIT Total Return Series (Service Class)(41)(42)(43) 0.00 1.08 -0.03 1.05
MFS (Reg. TM) VIT Utilities Series (Service Class)(41)(42)(44) 0.00 1.10 -0.03 1.07
(*) The investment adviser is voluntarily waiving up to 10% of its management
fee. The waiver may be disconintued at any time in consultation with the
Series' board, but it is expected to continue at its current level until
further review. Total annual fund operating expenses do not reflect this
waiver. Information regarding the effect of any waiver on total annual
fund operating expenses can be found in the Financial Highlights table in
the Series' prospectus and in the audited financial statements in the
Series' annual report.
(1) The fund pays the advisor a single, unified management fee for arranging
all services necessary for the fund to operate. The fee shown is based on
assets during the fund's most recent fiscal year. The fund has a stepped
fee schedule. As a result, the fund's unified management fee rate
generally decreases as assets increase and increases as assets decrease.
(2) Other expenses include the fees and expenses of the fund's independent
directors and their legal counsel, as well as interest.
(3) The investment advisor for the Delaware VIP Capital Reserves Series is
Delaware Management Company ("DMC"). For the period May 1, 2008 through
April 30, 2009, the advisor has contracted to waive all or a portion of
its investment advisory fees and/or reimburse expenses in order to prevent
total annual series operating expenses (excluding any 12b-1 plan expenses,
taxes, interest, inverse floater program expenses, brokerage fees, certain
insurance costs, and non-routine expenses or costs, including, but not
limited to, those relating to reorganizations, litigation, certain Trustee
retirement plan expenses, conducting shareholder meetings, and
liquidations (collectively, "non-routine expenses")) from exceeding, in an
aggregate amount, 0.62% of average daily net assets. Under its Management
Agreement, the Series pays an annual management fee based on average daily
net assets as follows: 0.50% on the first $500 million, 0.475% on the next
$500 million, 0.45% on the next $1.5 billion, and 0.425% on assets in
excess of $2.5 billion. The Service Class shares are subject to an annual
12b-1 fee of not more than 0.30%. Effective May 1, 2007 through April 30,
2009, Delaware Distributors, L.P. has contracted to limit the Service
Class shares 12b-1 fee to no more than 0.25% of average daily net assets.
(4) The investment advisor for the Delaware VIP Diversified Income Series is
Delaware Management Company ("DMC"). Under its Management Agreement, the
Series pays an annual management fee based on average daily net assets as
follows: 0.65% on the first $500 million, 0.60% on the next $500 million,
0.55% on the next $1.5 billion, and 0.50% on assets in excess of $2.5
billion. The Service Class shares are subject to an annual
8
12b-1 fee of not more than 0.30%. Effective May 1, 2007 through April 30,
2009, Delaware Distributors, L.P. has contracted to limit the Service Class
shares 12b-1 fee to no more than 0.25% of average daily net assets.
(5) The investment advisor for the Delaware VIP Emerging Markets Series is
Delaware Management Company ("DMC"). For the period May 1, 2007 through
April 30, 2008, the advisor contracted to waive all or a portion of its
investment advisory fees and/or reimburse expenses in order to prevent
total annual series operating expenses (excluding any 12b-1 plan expenses,
taxes, interest, inverse floater program expenses, brokerage fees, certain
insurance costs, and non-routine expenses or costs, including, but not
limited to, those relating to reorganizations, litigation, certain Trustee
retirement plan expenses, conducting shareholder meetings, and
liquidations (collectively, "non-routine expenses")) from exceeding, in an
aggregate amount, 1.50% of average daily net assets. Under its Management
Agreement, the Series pays an annual management fee based on average daily
net assets as follows: 1.25% on the first $500 million, 1.20% on the next
$500 million, 1.15% on the next $1.5 billion, and 1.10% on assets in
excess of $2.5 billion. The Service Class shares are subject to an annual
12b-1 fee of not more than 0.30%. Effective May 1, 2007 through April 30,
2009, Delaware Distributors, L.P. has contracted to limit the Service
Class shares 12b-1 fee to no more than 0.25% of average daily net assets.
(6) The investment advisor for the Delaware VIP High Yield Series is Delaware
Management Company ("DMC"). For the period May 1, 2007 through April 30,
2009, the advisor has contracted to waive all or a portion of its
investment advisory fees and/or reimburse expenses in order to prevent
total annual series operating expenses (excluding any 12b-1 plan expenses,
taxes, interest, inverse floater program expenses, brokerage fees, certain
insurance costs, and non-routine expenses or costs, including, but not
limited to, those relating to reorganizations, litigation, certain Trustee
retirement plan expenses, conducting shareholder meetings, and
liquidations (collectively, "non-routine expenses"))from exceeding, in an
aggregate amount, 0.74% of average daily net assets. Under its Management
Agreement, the Series pays an annual management fee based on average daily
net assets as follows: 0.65% on the first $500 million, 0.60% on the next
$500 million, 0.55% on the next $1.5 billion, and 0.50% on assets in
excess of $2.5 billion. The Service Class shares are subject to an annual
12b-1 fee of not more than 0.30%. Effective May 1, 2007 through April 30,
2009, Delaware Distributors, L.P. has contracted to limit the Service
Class shares 12b-1 fee to no more than 0.25% of average daily net assets.
(7) The investment advisor for the Delaware VIP Small Cap Value Series is
Delaware Management Company ("DMC"). Under its Management Agreement, the
Series pays an annual management fee based on average daily net assets as
follows: 0.75% on the first $500 million, 0.70% on the next $500 million,
0.65% on the next $1.5 billion, and 0.60% on assets in excess of $2.5
billion. The Service Class shares are subject to an annual 12b-1 fee of
not more than 0.30%. Effective May 1, 2007 through April 30, 2009,
Delaware Distributors, L.P. has contracted to limit the Service Class
shares 12b-1 fee to no more than 0.25% of average daily net assets.
(8) The investment advisor for the Delaware VIP Trend Series is Delaware
Management Company ("DMC"). Under its Management Agreement, the Series
pays an annual management fee based on average daily net assets as
follows: 0.75% on the first $500 million, 0.70% on the next $500 million,
0.65% on the next $1.5 billion, and 0.60% on assets in excess of $2.5
billion. The Service Class shares are subject to an annual 12b-1 fee of
not more than 0.30%. Effective May 1, 2007 through April 30, 2009,
Delaware Distributors, L.P. has contracted to limit the Service Class
shares 12b-1 fee to no more than 0.25% of average daily net assets.
(9) The investment advisor for the Delaware VIP US Growth Series is Delaware
Management Company ("DMC"). Under its Management Agreement, the Series
pays an annual management fee based on average daily net assets as
follows: 0.65% on the first $500 million, 0.60% on the next $500 million,
0.55% on the next $1.5 billion, and 0.50% on assets in excess of $2.5
billion. The Service Class shares are subject to an annual 12b-1 fee of
not more than 0.30%. Effective May 1, 2007 through April 30, 2009,
Delaware Distributors, L.P. has contracted to limit the Service Class
shares 12b-1 fee to no more than 0.25% of average daily net assets.
(10) The investment advisor for the Delaware VIP Value Series is Delaware
Management Company ("DMC"). For the period May 1, 2007 until such time as
the waiver is discontinued, the advisor has agreed to voluntarily waive
all or a portion of its investment advisory fees and/or reimburse expenses
in order to prevent total annual series operating expenses (excluding any
12b-1 plan expenses, taxes, interest, inverse floater program expenses,
brokerage fees, certain insurance costs, and non-routine expenses or
costs, including, but not limited to, those relating to reorganizations,
litigation, certain Trustee retirement plan expenses, conducting
shareholder meetings, and liquidations (collectively, "non-routine
expenses")) from exceeding, in an aggregate amount, 0.60% of average daily
net assets. Under its Management Agreement, the Series pays an annual
management fee based on average daily net assets as follows: 0.65% on the
first $500 million, 0.60% on the next $500 million, 0.55% on the next $1.5
billion, and 0.50% on assets in excess of $2.5 billion. The Service Class
shares are subject to an annual 12b-1 fee of not more than 0.30%.
Effective May 1, 2007 through April 30, 2009, Delaware Distributors, L.P.
has contracted to limit the Service Class shares 12b-1 fee to no more than
0.25% of average daily net assets.
(11) Contrafund - A portion of the brokerage commissions that the fund pays
may be reimbursed and used to reduce the fund's expenses. In addition,
through arrangements with the fund's custodian, credits realized as a
result of uninvested cash balances are used to reduce the fund's custodian
expenses. Including these reductions, the total class operating expenses
would have been 0.89% for Service Class 2. These offsets may be
discontinued at any time.
(12) Growth. A portion of the brokerage commissions that the fund pays may be
reimbursed and used to reduce the fund's expenses. In addition, through
arrangements with the fund's custodian, credits realized as a result of
uninvested cash balances are used to reduce the fund's custodian expenses.
Including these reductions, the total class operating expenses would have
been 0.89% for Service Class 2. These offsets may be discontinued at any
time.
(13) Mid Cap. A portion of the brokerage commissions that the fund pays may be
reimbursed and used to reduce the fund's expenses. In addition, through
arrangements with the fund's custodian, credits realized as a result of
uninvested cash balances are used to reduce the fund's custodian expenses.
Including these reductions, the total class operating expenses would have
been 0.90% for Service Class 2. These offsets may be discontinued at any
time.
(14) The Fund's manager has agreed in advance to reduce its fees from assets
invested by the Fund in a Franklin Templeton money market fund (the Sweep
Money Fund which is "the acquired fund" in this case) to the extent of the
Fund's fees and expenses of the acquired fund. This reduction is required
by the Trust's board of trustees and an exemptive order by the Securities
and Exchange Commission (SEC); this arrangement will continue as long as
the exemptive order is relied upon. This reduction is not reflected in Net
Annual Fund operating expenses, which would be lower if it were.
(15) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.29% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund. Other
expenses shown in the table have been restated to reflect the changes in
the expense structure of the fund as a result of the reorganization of the
fund which was effective June 5, 2007.
(16) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.03% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(17) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.10% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(18) The adviser has contractually agreed to waive the following portion of its
advisory fee for the fund: 0.22% on the first $250,000,000 of average
daily net assets of the fund and 0.32% on the excess over $250,000,000 of
average daily net assets of the fund. The fee waiver will continue at
least
9
through April 30, 2009, and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(19) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.59% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund. The
management fee has been restated to reflect a new management agreement
effective April 30, 2007. The management fee charged pursuant to the new
agreement is lower than the management fee previously charged to the fund.
(20) The adviser has contractually agreed to waive a portion of its advisory
fee through April 30, 2009. The waiver amount is: 0.03% on the first
$250,000,000 of average daily net assets of the fund; 0.08% on the next
$500,000,000 of average daily net assets of the fund; and 0.13% of average
daily net assets of the fund in excess of $750,000,000. The waiver will
renew automatically for one-year terms unless the adviser provides written
notice of termination to the fund.
(21) The adviser has contractually agreed to waive a portion of its advisory
fee through April 30, 2009. The waiver amount is: 0.15% on the first
$100,000,000 of average daily net assets of the fund; 0.10% of the next
$150,000,000 of average daily net assets of the fund; 0.15% on the next
$250,000,000 of average daily net assets of the fund; 0.10% on the next
$250,000,000 of average daily net assets of the fund; 0.15% on the next
$750,000,000 of average daily net assets of the fund; and 0.20% on the
excess of $1.5 billion of average daily net assets of the fund. The waiver
will renew automatically for one-year terms unless the adviser provides
written notice of termination to the fund.
(22) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.29% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the advisor provides written notice of termination to the fund.
(23) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.05% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(24) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.29% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(25) Other expenses are based on estimated amounts for the current fiscal year.
LIA has contractually agreed to reimburse the fund's Service Class to the
extent that the Fund's total Annual Fund Operating Expenses exceed 0.70%
of average daily net assets. The Agreement will continue at least through
April 30, 2009 and renew automatically for one-year terms unless the
adviser provides written notice of termination to the Fund. LIA has
contractually agreed to waive the following portion of its advisory fee
for the fund: 0.07% of the first $500,000,000 of average daily net assets
of the fund and 0.12% of the excess over $500,000,000 of average daily net
assets of the fund. The fee waiver will continue at least through April
30, 2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(26) Other expenses are based on estimated amounts for the current fiscal year.
LIA has contractually agreed to reimburse the fund's Service Class to the
extent that the Fund's total Annual Fund Operating Expenses exceed 0.76%
of average daily net assets. The Agreement will continue at least through
April 30, 2009 and renew automatically for one-year terms unless the
adviser provides written notice of termination tot he Fund. LIA has
contractually agreed to waive the following portion of its advisory fee
for the fund: 0.35% of the first $100,000,000 of average daily net assets
of the fund and 0.43% of the excess over $100,000,000 of average daily net
assets of the fund. The fee waiver will continue at least through April
30, 2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(27) Other expenses are based on estimated amounts for the current fiscal year.
LIA has contractually agreed to reimburse the fund's Service Class to the
extent that the Fund's total Annual Fund Operating Expenses exceed 0.95%
of average daily net assets. The Agreement will continue at least through
April 30, 2009 and renew automatically for one-year terms unless the
adviser provides written notice of termination to the Fund. LIA has
contractually agreed to waive the following portion of its advisory fee
for the fund: 0.69% of the first $100,000,000 of average daily net assets
of the fund and 0.76% of the excess over $100,000,000 of average daily net
assets of the fund. The fee waiver will continue at least through April
30, 2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(28) Other expenses are based on estimated amounts for the current fiscal year.
LIA has contractually agreed to reimburse the fund's Service Class to the
extent that the Fund's total Annual Fund Operating Expenses exceed 0.70%
of average daily net assets. The Agreement will continue at least through
April 30, 2009 and renew automatically for one-year terms unless the
adviser provides written notice of termination to the Fund. LIA has
contractually agreed to waive the following portion of its advisory fee
for the fund: 0.06% of the first $500,000,000 of average daily net assets
of the fund and 0.09% of the excess over $500,000,000 of average daily net
assets of the fund. The fee waiver will continue at least through April
30, 2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(29) Other expenses are based on estimated amounts for the current fiscal year.
LIA has contractually agreed to reimburse the fund's Service Class to the
extent that the Fund's total Annual Fund Operating Expenses exceed 0.71%
of average daily net assets. The Agreement will continue at least through
April 30, 2009 and renew automatically for one-year terms unless the
adviser provides written notice of termination to the Fund. LIA has
contractually agreed to waive the following portion of its advisory fee
for the fund: 0.12% of the first $100,000,000 of average daily net assets
of the fund and 0.22% of the excess over $100,000,000 of average daily net
assets of the fund. The fee waiver will continue at least through April
30, 2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(30) Other expenses are based on estimated amounts for the current fiscal year.
LIA has contractually agreed to reimburse the fund's Service Class to the
extent that the Fund's total Annual Fund Operating Expenses exceed 0.71%
of average daily net assets. The Agreement will continue at least through
April 30, 2009 and renew automatically for one-year terms unless the
adviser provides written notice of termination to the Fund. LIA has
contractually agreed to waive the following portion of its advisory fee
for the fund: 0.29% of the first $100,000,000 of average daily net assets
of the fund and 0.39% of the excess over $100,000,000 of average daily net
assets of the fund. The fee waiver will continue at least through April
30, 2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(31) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
0.53% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(32) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
0.71% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund. The
management fee has been restated to reflect a new management agreement
effective April 30, 2007. The management fee charged pursuant to the new
agreement is lower than the management fee previously charged to the fund.
(33) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.11% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
10
(34) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.06% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the adviser provides written notice of termination to the fund.
(35) Lincoln Financial Distributors, Inc. (LFD) has contractually agreed to
waive 0.04% of the 0.25% 12b-1 fee payable to LFD under the Distribution
Services Agreement between the fund and LFD, in connection with the
Service Class shares of the fund. The Agreement will continue through
April 30, 2009 and will terminate on that date unless the parties agree
otherwise.
(36) The adviser has contractually agreed to waive a portion of its advisory
fee through April 30, 2009. The waiver amount is: 0.10% on the first $25
million and 0.05% on the next $50 million. The waiver will renew
automatically for one-year terms unless the adviser provides written
notice of termination to the fund.
(37) The adviser has contractually agreed to reimburse the fund's Service Class
to the extent that the fund's Total Annual Fund Operating Expenses exceed
1.27% of average daily net assets. The Agreement will continue at least
through April 30, 2009 and renew automatically for one-year terms unless
the advisor provides written notice of termination to the fund.
(38) Acquired Fund Fees and Expenses (AFFE) in the chart are based on the 2007
fees and expenses of the UBS Relationship Funds owned by the fund during
2007 and are provided to show you an estimate of the underlying fee and
expenses attributable to the fund.
(39) The ""Acquired Fund Fees and Expenses (AFFE)"" in the chart are based on
the 2007 fees and expenses of the underlying funds that were owned by each
Profile fund during 2007 and are provided to show you an estimate of the
underlying fees and expenses attributable to each fund. Each funds'
expense ratio will vary based on the actual allocations to the underlying
funds that occurred through the year.
(40) The adviser has contractually agreed to reimburse each fund's Service
Class to the extent that the fund's Total Annual Fund Operating Expenses
(excluding underlying fund fees and expenses) exceed 0.50% of average
daily net assets. The agreement will continue at least through April 30,
2009 and renew automatically for one-year terms unless the adviser
provides written notice of termination to the fund.
(41) The fund has entered into an expense offset arrangement that reduces the
fund's custodian fee based upon the amount of cash maintained by the fund
with its custodian and dividend disbursing agent. Such fee reduction is
not reflected in the table. Had this fee reduction been taken into
account, "Net Expenses" would be lower.
(42) The funds' Rule 12b-1 plan permits it to pay distribution and/or service
fees to support the sale and distribution of the funds' Service Class
shares and the services provided by financial intermediaries. The maximum
rates that may be charged under the plan, together with details of any fee
reduction arrangements, are set forth under "12b-1 fee."
(43) MFS has agreed in writing to reduce its management fee to 0.65% annualy on
average daily net assets in excess of $3 billion. This written agreement
will remain in effect until modified by the funds' Board of Trustees.
(44) MFS has agreed in writing to reduce its management fee to 0.70% annualy on
average daily net assets in excess of $1 billion. This written agreement
will remain in effect until modified by the funds' Board of Trustees.
(45) The 12b-1 fee information in the table above has been restated to reflect
the increase in the 12b-1 fee effective January 1, 2008.
Certain underlying funds have reserved the right to impose fees when fund
shares are redeemed within a specified period of time of purchase ("redemption
fees") not reflected in the table above. As of the date of this prospectus,
none have done so. See The Contracts - Market Timing for a discussion of
redemption fees.
For information concerning compensation paid for the sale of the contracts, see
Distribution of the Contracts.
11
EXAMPLES
This Example is intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include contractowner transaction expenses, contract fees, separate
account annual expenses, and fund fees and expenses.
The Example assumes that you invest $10,000 in the contract for the time
periods indicated. The Example also assumes that your investment has a 5%
return each year, the maximum fees and expenses of any of the funds and that
the EGMDB and the Guaranteed Income Benefit are in effect. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1) If you surrender your contract at the end of the applicable time period:
1 year 3 years 5 years 10 years
----------- --------- --------- ---------
$1,419 $3,005 $4,461 $7,605
2) If you do not surrender your contract at the end of the applicable time
period:
1 year 3 years 5 years 10 years
----------- --------- --------- ---------
$1,419 $3,005 $4,461 $7,605
For more information, see Charges and Other Deductions in this prospectus, and
the prospectuses for the funds. Premium taxes may also apply, although they do
not appear in the examples. These examples should not be considered a
representation of past or future expenses. Actual expenses may be more or less
than those shown.
Summary of Common Questions
What kind of contract am I buying? It is an immediate individual variable
annuity contract between you and Lincoln New York. This prospectus primarily
describes the variable side of the contract. The contract combines variable
regular income payments for life with the ability to make withdrawals during
the access period. See The Contracts.
What is the variable annuity account (VAA)? It is a separate account we
established under New York insurance law, and registered with the SEC as a unit
investment trust. VAA assets are allocated to one or more subaccounts,
according to your investment choices. VAA assets are not chargeable with
liabilities arising out of any other business which we may conduct. See
Variable Annuity Account.
What are Asset Allocation Models? Asset allocation models are designed to
assist you in deciding how to allocate your purchase payments among the various
subaccounts. Each model provides a diversified investment portfolio by
combining different asset classes to help it reach its stated investment goal.
See The Contracts - Asset Allocation Models.
What are Investment Requirements? If you elect the Guaranteed Income Benefit,
you will be subject to certain requirements for your subaccount investments.
You will be limited in how much you can invest in certain subaccounts. See The
Contracts - Investment Requirements.
What are my investment choices? Based upon your instruction for purchase
payments, the VAA applies your purchase payments to buy shares in one or more
of the investment options. In turn, each fund holds a portfolio of securities
consistent with its investment policy. See Investments of the Variable Annuity
Account - Description of the Funds.
Who invests my money? Several different investment advisers manage the
investment options. See Investments of the Variable Annuity Account -
Description of the Funds.
How does the contract work? If we approve your application, we will send you a
contract. When you purchase the contract you buy accumulation units. Your
contract provides periodic variable lifetime income payments, a death benefit,
and the ability to make withdrawals during a defined period of time (access
period). For an additional charge, you may purchase a minimum payout floor, the
Guaranteed Income Benefit. At the end of the access period your accumulation
units are converted to annuity units. Your regular income payments will be
based on the number of accumulation units or annuity units you have and the
value of each unit on payout days. See The Contracts. 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 charges do I pay under the contract? A front-end load is determined based
on the gross purchase payment. The amount of the sales charge may be reduced
based on the size of the gross purchase payment. The maximum front-end load is
5.75% of the gross purchase payment.
There is no charge for a transfer.
12
We will deduct any applicable premium tax from gross purchase payments or
contract value at the time the tax is incurred or at another time we choose.
See Expense Tables and Charges and Other Deductions for additional fees and
expenses in these contracts.
The funds' investment management fees, 12b-1 fees, expenses and expense
limitations, if applicable, are more fully described in the prospectuses for
the funds.
For information about the compensation we pay for sales of contracts, see The
Contracts - Distribution of the Contracts.
What purchase payments do I make? The minimum gross purchase payment for the
contract is $50,000. After the periodic income commencement date, additional
gross purchase payments cannot be accepted.
What is the Guaranteed Income Benefit? It is an additional option which
guarantees that your regular income payments will never be less than the
guaranteed income payment shown in your contract adjusted for withdrawals,
regardless of the actual investment performance of your contract.
What happens if the annuitant dies before the end of the access period? You may
elect to receive death benefit proceeds or continue receiving regular income
payments if there is a secondary life. See The Contracts - Death Benefit.
May I transfer account value between variable options of the contract? Yes,
subject to currently effective restrictions. For example,
transfers made during the access period are generally restricted to no more
than twelve (12) per contract year. See The Contracts - Transfers.
May I surrender the contract or make a withdrawal? Yes, during the access
period, subject to contract requirements and to the restrictions of any
qualified retirement plan through which the contract was purchased. A portion
of surrender or withdrawal proceeds may be taxable. See Federal Tax Matters.
Do I get a free look at this contract? Yes. You can cancel the contract within
ten days of the date you first receive the contract. You need to return the
contract, postage prepaid, to our Servicing office. You assume the risk of any
market drop on purchase payments you allocate to the variable side of the
contract. See Return Privilege.
Where may I find more information about accumulation unit values? Because the
subaccounts which are available under the contracts did not begin operation
before the date of this prospectus, financial information for the subaccounts
is not included in this Prospectus or in the SAI.
Investment Results
At times, the VAA may compare its investment results to various unmanaged
indices or other variable annuities in reports to shareholders, sales
literature and advertisements. The results will be calculated on a total return
basis for various periods. Total returns include the reinvestment of all
distributions, which are reflected in changes in unit value. The money market
subaccount's yield is based upon investment performance over a 7-day period,
which is then annualized.
During extended periods of low interest rates, the yields of any subaccount
investing in a money market fund may also become extremely low and possibly
negative.
The money market yield figure and annual performance of the subaccounts are
based on past performance and do not indicate or represent future performance.
Lincoln Life & Annuity Company of New York
Lincoln New York (the Company) is a stock life insurance company chartered in
New Jersey in 1897 and redomesticated to New York on April 2, 2007. Lincoln New
York is a subsidiary of The Lincoln National Life Insurance Company (Lincoln
Life). Lincoln Life is an Indiana-domiciled insurance corporation, engaged
primarily in the direct issuance of life insurance contracts and annuities.
Lincoln Life is wholly owned by Lincoln National Corporation (LNC), a publicly
held insurance and financial services holding company incorporated in Indiana.
Lincoln New York is obligated to pay all amounts promised to policy owners
under the policies. Guarantees provided within death benefit options and living
benefit riders are backed by the claims-paying ability of Lincoln New York.
Lincoln Financial Group is the marketing name for Lincoln National Corporation
(NYSE:LNC) and its affiliates. Lincoln Financial Group sells a wide variety of
financial products and solutions through financial advisors: mutual funds,
managed accounts, retirement solutions, life insurance, 401(k) and 403(b)
plans, savings plans, institutional investments and comprehensive financial
planning and advisory services
13
Variable Annuity Account (VAA)
On March 11, 1999, the VAA was established as an insurance company separate
account under New York 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 VAA is a segregated investment account, meaning that its assets may not be
charged with liabilities resulting from any other business that we may conduct.
Income, gains and losses, whether realized or not, from assets allocated to the
VAA are, in accordance with the applicable annuity contracts, credited to or
charged against the VAA. They are credited or charged without regard to any
other income, gains or losses of Lincoln New York. We are the issuer of the
contracts and the obligations set forth in the contract, other than those of
the contractowner, are ours. The VAA satisfies the definition of a separate
account under the federal securities laws. We do not guarantee the investment
performance of the VAA. Any investment gain or loss depends on the investment
performance of the funds. You assume the full investment risk for all amounts
placed in the VAA.
The VAA is used to support other annuity contracts offered by us in addition to
the contracts described in this prospectus. The other annuity contracts
supported by the VAA generally invest in the same funds as the contracts
described in this prospectus. These other annuity contracts may have different
charges that could affect the performance of their subaccounts, and they offer
different benefits.
Financial Statements
The financial statements of the VAA and the financial statements of Lincoln New
York are located in the SAI. If you would like a free copy of the SAI, complete
and mail the request on the last page of this prospectus, or call
1-888-868-2583.
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. You may
change your allocation without penalty or charges. Shares of the funds will be
sold at net asset value with no initial sales charge to the VAA in order to
fund the contracts. The funds are required to redeem fund shares at net asset
value upon our request.
Investment Advisers
As compensation for its services to the fund, the investment adviser receives a
fee from the fund which is accrued daily and paid monthly. This fee is based on
the net assets of each fund, as defined in the prospectus for the fund.
Certain Payments We Receive with Regard to the Funds
With respect to a fund, including affiliated funds, the adviser and/or
distributor, or an affiliate thereof, may make payments to us (or an
affiliate). It is anticipated that such payments will be based on a percentage
of assets of the particular fund attributable to the Contracts along with
certain other variable contracts issued or administered by us (or an
affiliate). These percentages are negotiated and vary with each fund. Some
funds may pay us significantly more than other funds and the amount we receive
may be substantial. These percentages currently range up to 0.46%, and as of
the date of this prospectus, we were receiving payments from each fund family.
We (or our affiliates) may profit from these payments or use these payments for
a variety of purposes, including payment of expenses that we (and our
affiliates) incur in promoting, marketing, and administering the Contracts and,
in our role as intermediary, the funds. These payments may be derived, in whole
or in part, from the investment advisory fee deducted from fund assets.
Contractowners, through their indirect investment in the funds, bear the costs
of these investment advisory fees (see the funds' prospectuses for more
information). Additionally, a fund's adviser and/or distributor or its
affiliates may provide us with certain services that assist us in the
distribution of the contracts and may pay us and/or certain affiliates amounts
for marketing programs and sales support, as well as amounts to participate in
training and sales meetings.
The AllianceBernstein, American Century, American Funds, Delaware, Fidelity,
Franklin Templeton, Lincoln and MFS Funds offered as part of this contract make
payments to us under their distribution plans (12b-1 plans). The payment rates
range up to 0.35% based on the amount of assets invested in those Funds.
Payments made out of the assets of the fund will reduce the amount of assets
that otherwise would be available for investment, and will reduce the fund's
investment return. The dollar amount of future asset-based fees is not
predictable because these fees are a percentage of the fund's average net
assets, which can fluctuate over time. If, however, the value of the fund goes
up, then so would the payment to us (or our affiliates). Conversely, if the
value of the funds goes down, payments to us or our affiliates would decrease.
Description of the Funds
Each of the subaccounts of the VAA is invested solely in shares of one of the
funds available under the contract. Each fund may be subject to certain
investment policies and restrictions which may not be changed without a
majority vote of shareholders of that fund.
14
We select the funds offered through the contract based on several factors,
including, without limitation, asset class coverage, the strength of the
manager's reputation and tenure, brand recognition, performance, and the
capability and qualification of each sponsoring investment firm. Another factor
we consider during the initial selection process is whether the fund or an
affiliate of the fund will make payments to us or our affiliates. We review
each fund periodically after it is selected. Upon review, we may remove a fund
or restrict allocation of additional purchase payments to a fund if we
determine the fund no longer meets one or more of the factors and/or if the
fund has not attracted significant contractowner assets. Finally, when we
develop a variable annuity product in cooperation with a fund family or
distributor (e.g., a "private label" product), we generally will include funds
based on recommendations made by the fund family or distributor, whose
selection criteria may differ from our selection criteria.
Certain funds offered as part of this contract have similar investment
objectives and policies to other portfolios managed by the adviser. The
investment results of the funds, however, may be higher or lower than the other
portfolios that are managed by the adviser or sub-adviser. There can be no
assurance, and no representation is made, that the investment results of any of
the funds will be comparable to the investment results of any other portfolio
managed by the adviser or sub-adviser, if applicable.
Following are brief summaries of the fund descriptions. More detailed
information may be obtained from the current prospectus for the fund. You
should read each fund prospectus carefully before investing. Please be advised
that there is no assurance that any of the funds will achieve their stated
objectives.
AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein,
L.P.
o AllianceBernstein VPS Global Technology Portfolio (Class B): Maximum
capital appreciation.
o AllianceBernstein VPS Growth and Income Portfolio (Class B): Growth and
income.
o AllianceBernstein VPS International Value Portfolio (Class B): Long-term
growth.
o AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B): Long-term
growth.
American Century Investments Variable Products, advised by American Century
o Inflation Protection Fund (Class II): Long-term total return.
American Funds Insurance SeriesSM, advised by Capital Research and Management
Company
o Global Growth Fund (Class 2): Long-term growth.
o Global Small Capitalization Fund (Class 2): Long-term growth.
o Growth Fund (Class 2): Long-term growth.
o Growth-Income Fund (Class 2): Growth and income.
o International Fund (Class 2): Long-term growth.
Delaware VIP Trust, advised by Delaware Management Company
o Capital Reserves Series (Service Class): Current income.
o Diversified Income Series (Service Class): Total return.
o Emerging Markets Series (Service Class): Capital appreciation.
o High Yield Series (Service Class): Total return.
o Small Cap Value Series (Service Class): Capital appreciation.
o Trend Series (Service Class): Capital appreciation.
o U.S. Growth Series (Service Class): Capital appreciation.
o Value Series (Service Class): Capital appreciation.
Fidelity (Reg. TM) Variable Insurance Products, advised by Fidelity Management
and Research Company
o Contrafund (Reg. TM) Portfolio (Service Class 2): Long-term capital
appreciation.
o Growth Portfolio (Service Class 2): Capital appreciation.
o Mid Cap Portfolio (Service Class 2): Long-term growth.
o VIP Overseas Portfolio (Service Class 2): Long-term growth.
15
Franklin Templeton Variable Insurance Products Trust, advised by Franklin
Advisers, Inc. for the Franklin Income Securities Fund and the Franklin
Small-Mid Cap Growth Securities Fund, by Templeton Global Advisors Limited for
the Templeton Global Income Securities Fund, and by Franklin Mutual Advisors,
LLC for the Mutual Shares Securities Fund.
o Franklin Income Securities Fund (Class 2): Current income.
o Franklin Small-Mid Cap Growth Securities Fund (Class 2): Long-term capital
growth.
o Mutual Shares Securities Fund (Class 2): Capital appreciation.
o Templeton Global Income Securities Fund (Class 2): High current income.
Lincoln Variable Insurance Products Trust, advised by Lincoln Investment
Advisors Corporation.
o LVIP Baron Growth Opportunities Fund (Service Class): Long-term growth.
(Subadvised by BAMCO, Inc.)
o LVIP Capital Growth Fund (Service Class): Capital appreciation.
(Subadvised by Wellington Management)
o LVIP Cohen & Steers Global Real Estate Fund (Service Class): Total return.
(Subadvised by Cohen & Steers Capital Management)
o LVIP Columbia Value Opportunities Fund (Service Class): Long-term capital
appreciation.
(Subadvised by Columbia Management Advisors, LLC)
o LVIP Delaware Bond Fund (Service Class): Current income.
(Subadvised by Delaware Management Company)
o LVIP Delaware Growth and Income Fund (Service Class): Capital appreciation.
(Subadvised by Delaware Management Company)
o LVIP Delaware Social Awareness Fund (Service Class): Capital appreciation.
(Subadvised by Delaware Management Company)
o LVIP Delaware Special Opportunities Fund (Service Class): Capital
appreciation.
(Subadvised by Delaware Management Company)
o LVIP FI Equity-Income Fund (Service Class): Income.
(Subadvised by Pyramis Global Advisors LLC)
o LVIP Janus Capital Appreciation Fund (Service Class): Long-term growth.
(Subadvised by Janus Capital Management LLC)
o LVIP Marsico International Growth Fund (Service Class): Long-term capital
appreciation.
(Subadvised by Marsico Capital Management, LLC)
o LVIP MFS (Reg. TM) Value Fund (Service Class): Capital appreciation.
(Subadvised by Massachusetts Financial Services Company)
o LVIP Mid-Cap Value Fund (Service Class): Long-term capital appreciation.
(Subadvised by Wellington Management)
o LVIP Mondrian International Value Fund (Service Class): Long-term capital
appreciation.
(Subadvised by Mondrian Investment Partners Limited)
o LVIP Money Market Fund (Service Class): Current income/Preservation of
capital.
(Subadvised by Delaware Management Company)
o LVIP SSgA Bond Index Fund (Service Class): Current income.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP SSgA Developed International 150 Fund (Service Class): Long-term
capital appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP SSgA Emerging Markets 100 Fund (Service Class): Long-term capital
appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP SSgA International Index Fund (Service Class): Long-term capital
appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP SSgA Large Cap 100 Fund (Service Class): Long-term capital
appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP SSgA Small/Mid Cap 200 Fund (Service Class): Long-term capital
appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
16
o LVIP SSgA S&P 500 Index Fund (Service Class): Capital appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP SSgA Small-Cap Index Fund (Service Class): Capital appreciation.
(Sub-advised by SSgA Funds Management, Inc.)
o LVIP T. Rowe Price Growth Stock Fund (Service Class): Long-term growth of
capital.
(Subadvised by T. Rowe Price Associates, Inc.)
o LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Service Class): Maximum
capital appreciation.
(Subadvised by T. Rowe Price Associates, Inc.)
o LVIP Templeton Growth Fund (Service Class): Long-term growth of capital.
(Subadvised by Templeton Investment Counsel, LLC)
o LVIP Turner Mid-Cap Growth Fund (Service Class): Capital appreciation.
(Subadvised by Turner Investment Partners)
o LVIP UBS Global Asset Allocation Fund (Service Class): Total return.
(Subadvised by UBS Global Asset Management (Americas) Inc. (UBS Global AM)
o LVIP Wilshire 2010 Profile Fund (Service Class): Total return; a fund of
funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire 2020 Profile Fund (Service Class): Total return; a fund of
funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire 2030 Profile Fund (Service Class): Total return; a fund of
funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire 2040 Profile Fund (Service Class): Total return; a fund of
funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire Aggressive Profile Fund (Service Class): Capital
appreciation; a fund of funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire Conservative Profile Fund (Service Class): Current income; a
fund of funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire Moderate Profile Fund (Service Class): Total return; a fund
of funds.*
(Subadvised by Wilshire Associates Incorporated)
o LVIP Wilshire Moderately Aggressive Profile Fund (Service Class): Growth
and income; a fund of funds.*
(Subadvised by Wilshire Associates Incorporated)
*Funds offered in a fund of funds structure may have higher expenses than funds
that invest directly in debt or equity securities.
MFS (Reg. TM) Variable Insurance TrustSM, advised by Massachusetts Financial
Services Company
o Growth Series (Service Class): Capital appreciation.
o Total Return Series (Service Class): Total return.
o Utilities Series (Service Class): Total return.
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. Redeemed
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 us, 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 a fund sells any of its shares both to variable annuity and to variable
life insurance separate accounts, it is said to engage in mixed funding. When a
fund sells any of its shares to separate accounts of unaffiliated life
insurance companies, it is said to engage in shared funding.
The funds currently engage in mixed and shared funding. Therefore, due to
differences in redemption rates or tax treatment, or other considerations, the
interest of various contractowners participating in a fund could conflict. Each
of the fund's Board of Directors will monitor for the existence of any material
conflicts, and determine what action, if any, should be taken. The funds do not
foresee any disadvantage to contractowners arising out of mixed or shared
funding. If such a conflict were to occur, one of the separate accounts
17
might withdraw its investment in a fund. This might force a fund to sell
portfolio securities at disadvantageous prices. See the prospectuses for the
funds.
Reinvestment of Dividends and Capital Gain Distributions
All dividends and capital gain distributions of the funds are automatically
reinvested in shares of the distributing funds at their net asset value on the
date of distribution. Dividends are not paid out to contractowners as
additional units, but are reflected as changes in unit values.
Addition, Deletion Or Substitution of Investments
We reserve the right, within the law, to make certain changes to the structure
and operation of the VAA at our discretion and without your consent. We may
add, delete, or substitute funds for all contract owners or only for certain
classes of contractowners. New or substitute funds may have different fees and
expenses, and may only be offered to certain classes of contractowners.
Substitutions may be made with respect to existing investments. We may close
subaccounts to allocations of account value at any time in our sole discretion.
The funds, which sell their shares to the subaccounts pursuant to participation
agreements, also may terminate these agreements and discontinue offering their
shares to the subaccounts.
Substitutions might also occur if shares of a fund should no longer be
available, or if investment in any fund's shares should become inappropriate,
in the judgment of our management, for the purposes of the contract, or for any
other reason in our sole discretion and after approval from the SEC.
We also may:
o remove, combine, or add subaccounts and make the new subaccounts available
to you at our discretion;
o transfer assets supporting the contracts from one subaccount to another or
from the VAA to another separate account;
o combine the VAA with other separate accounts and/or create new separate
accounts;
o deregister the VAA under the 1940 Act; and
o operate the VAA as a management investment company under the 1940 Act or as
any other form permitted by law.
We may modify the provisions of the contracts to reflect changes to the
subaccounts and the VAA and to comply with applicable law. We will not make any
changes without any necessary approval by the SEC. We will also provide you
written notice.
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.
Our administrative services include:
o processing applications for and issuing the contracts;
o processing purchases and redemptions of fund shares as required (including
dollar cost averaging, cross-reinvestment and portfolio rebalancing - See
Additional Services and the SAI for more information on these programs);
o maintaining records;
o administering regular income payments;
o furnishing accounting and valuation services (including the calculation and
monitoring of daily subaccount values);
o reconciling and depositing cash receipts;
o providing contract confirmations;
o providing toll-free inquiry services; and
o furnishing telephone and electronic fund transfer services.
The mortality and expense risks we assume include:
o the risk that annuitants receiving regular income payments under contracts
live longer than we assumed;
o the risk that death benefits paid will exceed the actual account value;
o the risk that our costs in providing the services will exceed our revenues
from contract charges (which we cannot change); and
o the risk that, if the Guaranteed Income Benefit is in effect, the required
regular income payments will exceed the account value.
The amount of a charge may not necessarily correspond to the costs associated
with providing the services or benefits indicated by the description of the
charge. For example, the sales charge collected may not fully cover all of the
sales and distribution expenses actually incurred by us. Any remaining expenses
will be paid from our general account which may consist, among other things, of
18
proceeds derived from mortality and expense risk charges deducted from the
account. We may profit from one or more of the fees and charges deducted under
the contract. We may use these profits for any corporate purpose, including
financing the distribution of the contracts.
Deductions from the VAA
We apply to the average daily net asset value of the subaccounts a charge which
is equal to an annual rate of:
During the Access Period:
Guarantee of Enhanced Guaranteed
Account Value Principal Death Minimum Death
Death Benefit Benefit Benefit (EGMDB)
--------------- ----------------- --------------------
o Mortality and expense risk charge 0.95% 1.05% 1.20%
o Administrative charge 0.10% 0.10% 0.10%
--
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05% 1.15% 1.30%
o Guaranteed Income Benefit
Maximum charge (optional)* 1.50% 1.50% 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55% 2.65% 2.80%
* The current Guaranteed Income Benefit charge is .50% The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
During the Lifetime Income Period:
o Mortality and expense risk charge 0.95%
o Administrative charge 0.10%
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05%
o Guaranteed Income Benefit
Maximum charge(optional)* 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55%
* The current Guaranteed Income Benefit charge is .50%. The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
Guaranteed Income Benefit
The Guaranteed Income Benefit is subject to a current annual charge of 0.50%,
which is added to the i4LIFE (Reg. TM) Advantage charge for a total of 1.55% of
the net asset value of the Account Value in the VAA for the i4LIFE (Reg. TM)
Advantage Account Value death benefit and 1.65% for the i4LIFE (Reg. TM)
Advantage Guarantee of Principal death benefit. The annual charge is 1.80% if
the i4LIFE (Reg. TM) Advantage EGMDB is elected.
The Guaranteed Income Benefit percentage charge may increase annually subject
to the guaranteed maximum charge of 1.50% each time the Guaranteed Income
Benefit increases as a result of the annual automatic step-up (described
later). Therefore, your percentage charge for the Guaranteed Income Benefit
could increase on every periodic income commencement date anniversary. If your
percentage charge is increased, you may ask us to reverse the step-up by giving
us notice within 30 days after the periodic income commencement anniversary. If
we receive this notice, we will decrease your Guaranteed Income Benefit and
percentage charge to the amounts they were before the step-up occurred.
Increased fees collected during the 30 day period will be refunded into your
contract. This reversal will only apply for this particular automatic annual
step-up. You will need to notify us each time the percentage charge increases
if you do not want the automatic annual step-up.
19
Sales Charge
A front-end load, or sales charge, will be applied to the initial gross
purchase payment that you may make. The charge is a percentage of the gross
purchase payment and is made according to the following scale:
Initial Gross Purchase Payment Sales Charge
-------------------------------- -------------
Under $25,000................. 5.75%
$25,000-$49,999............... 5.00%
$50,000-$99,999............... 4.50%
$100,000-$249,999............. 3.50%
$250,000-$499,999............. 2.50%
$500,000-$749,999............. 2.00%
$750,000-$999,999............. 1.50%
$1,000,000 or greater......... 1.00%
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 account
value when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation or by judicial action. These premium taxes
generally depend upon the law of your state of residence. The tax ranges from
zero to 3.5%. Currently, there is no premium tax levied for New York residents.
Other Charges and Deductions
There are additional deductions from and expenses paid out of the assets of the
underlying funds that are more fully described in the prospectuses for the
funds. Among these deductions and expenses are 12b-1 fees which reimburse us or
an affiliate for certain expenses incurred in connection with certain
administrative and distribution support services provided to the funds.
Additional Information
The charges described previously may be reduced or eliminated for any
particular contract. However, these reductions may be available only to the
extent that we anticipate lower distribution and/or administrative expenses, or
that we perform fewer sales or administrative services than those originally
contemplated in establishing the level of those charges, or when required by
law. Lower distribution and administrative expenses may be the result of
economies associated with:
o the use of mass enrollment procedures,
o the performance of administrative or sales functions by the employer,
o the use by an employer of automated techniques in submitting deposits or
information related to deposits on behalf of its employees, or
o any other circumstances which reduce distribution or administrative
expenses.
The exact amount of charges and fees applicable to a particular contract will
be stated in that contract.
The Contracts
Purchase of Contracts
If you wish to purchase a contract, you must apply for it through a sales
representative authorized by us. Certain broker-dealers may not offer all of
the features discussed in this prospectus. The completed application is sent to
us and we decide whether to accept or reject it. If the application is
accepted, a contract is prepared and executed by our legally authorized
officers. The contract is then sent to you through your sales representative.
See Distribution of the Contracts.
When a completed application and all other information necessary for processing
a purchase order is received at our Servicing office, an initial gross purchase
payment will be priced no later than two business days after we receive the
order. If you submit your application and/or initial gross purchase payment to
your agent, we will not begin processing your purchase order until we receive
the application and initial gross purchase payment from your agent's
broker-dealer. While attempting to finish an incomplete application, we may
hold the initial gross purchase payment for no more than five business days
unless we receive your consent to our retaining the payment until the
application is completed. If the incomplete application cannot be completed
within those five days and we have not received your consent, you will be
informed of the reasons, and the gross purchase payment will be returned
immediately. Once the application is complete, we will allocate your initial
gross purchase payment within two business days.
20
Who Can Invest
To apply for a contract, you must be of legal age in a state where the
contracts may be lawfully sold and also be eligible to participate in any of
the qualified and nonqualified plans for which the contracts are designed. At
the time of issue, the contractowner, joint owner and annuitant must be under
age 81 for qualified contracts and under age 86 for non-qualified contracts.
Certain death benefit options may not be available at all ages. To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person who opens an account. When you open an
account, we will ask for your name, address, date of birth, and other
information that will allow us to identify you. We may also ask to see your
driver's license, photo i.d. or other identifying documents.
In accordance with money laundering laws and federal economic sanction policy,
the Company may be required in a given instance to reject a purchase payment
and/or freeze a contractowner's account. This means we could refuse to honor
requests for transfers, withdrawals, surrenders or death benefits. Once frozen,
monies would be moved from the VAA to a segregated interest-bearing account
maintained for the contractowner, and held in that account until instructions
are received from the appropriate regulator.
If you are purchasing the contract through a tax-favored arrangement, including
traditional IRAs and Roth IRAs, you should consider carefully the costs and
benefits of the contract (including annuity income benefits) before purchasing
the contract, since the tax-favored arrangement itself provides tax-deferred
growth.
Replacement of Existing Insurance
Careful consideration should be given prior to surrendering or withdrawing
money from an existing insurance contract to purchase the contract described in
this prospectus. Surrender charges may be imposed on your existing contract. An
investment representative or tax adviser should be consulted prior to making an
exchange. Cash surrenders from an existing contract may be subject to tax and
tax penalties.
Purchase Payments
The minimum gross purchase payment for the contract is $50,000. Additional
gross purchase payments are not permitted.
Valuation Date
Accumulation and annuity units will be valued once daily at the close of
trading (normally, 4:00 p.m., New York time) on each day the New York Stock
Exchange is open (valuation date). On any date other than a valuation date, the
accumulation unit value and the annuity unit value will not change.
Allocation of Purchase Payments
Net purchase payments allocated to the variable account are placed into the
VAA's subaccounts, according to your instructions.
The minimum amount of any purchase payment which can be put into any one
subaccount is $20.
If we receive your gross purchase payment from you or your broker-dealer in
good order at our Servicing office prior to 4:00 p.m., New York time, we will
use the accumulation unit value computed on that valuation date when processing
your gross purchase payment. If we receive your gross purchase payment at or
after 4:00 p.m., New York time, we will use the accumulation unit value
computed on the next valuation date. If you submit your gross purchase payment
to your representative, we will generally not begin processing the gross
purchase payment until we receive it from your representative's broker-dealer.
If your broker-dealer submits your gross purchase payment to us through the
Depository Trust and Clearing Corporation (DTCC) or, pursuant to terms
agreeable to us, uses a proprietary order placement system to submit your gross
purchase payment to us, and your gross purchase payment was placed with your
broker-dealer prior to 4:00 p.m., New York time, then we will use the
accumulation unit value computed on that valuation date when processing your
gross purchase payment. If your gross purchase payment was placed with your
broker-dealer at or after 4:00 p.m. New York time, then we will use the
accumulation unit value computed on the next valuation date.
The number of accumulation units determined in this way is not impacted by any
subsequent change in the value of an accumulation unit. However, the dollar
value of an accumulation unit will vary depending not only upon how well the
underlying fund's investments perform, but also upon the expenses of the VAA
and the underlying funds.
Valuation of Accumulation Units
Net purchase payments allocated to the VAA are converted into accumulation
units. This is done by dividing the amount allocated by the value of an
accumulation unit for the valuation period during which the purchase payments
are allocated to the VAA. The accumulation unit value for each subaccount was
or will be established at the inception of the subaccount. It may increase or
decrease from valuation period to valuation period. Accumulation unit values
are affected by investment performance of the funds, fund expenses, and the
contract charges. The accumulation unit value for a subaccount for a later
valuation period is determined as follows:
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1. The total value of the fund shares held in the subaccount is calculated by
multiplying the number of fund shares owned by the subaccount at the
beginning of the valuation period by the net asset value per share of the
fund at the end of the valuation period, and adding any dividend or other
distribution of the fund if an ex-dividend date occurs during the valuation
period; minus
2. The liabilities of the subaccount at the end of the valuation period; these
liabilities include daily charges imposed on the subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine result from the operations of the VAA; and
3. The result 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. Contracts
with different features have different daily charges, and therefore, will have
different corresponding accumulation unit values on any given day.
In certain circumstances, and when permitted by law, it may be prudent for us
to use a different standard industry method for this calculation, called the
Net Investment Factor method. We will achieve substantially the same result
using either method.
Valuation of Annuity Units
The annuity unit value for any valuation period for any variable subaccount is
determined by multiplying the annuity unit value for the immediately preceding
valuation period by 'A' divided by 'B', where:
'A' is a variable subaccount's accumulation unit value as of the end of the
current valuation period divided by the accumulation unit value of the same
variable subaccount as of the end of the immediately preceding valuation
period; and
'B' is the daily factor raised to a power equal to the number of days in the
current valuation period, where the daily factor is equal to (1+ assumed
interest rate) raised to the power of 1/365.
Regular Income Payments During The Access Period
This contract provides for variable, periodic regular income payments for the
life of the annuitant (and a secondary life if desired) and access to your
account value during the access period. When you purchase your contract, you
choose the annuitant, secondary life if applicable, the date you will receive
the initial regular income payment (which must be within one year of the
contract effective date), the frequency of the payments (monthly, quarterly,
semi-annually or annually), how often the payment is recalculated, the length
of the access period and the assumed investment return. For qualified
contracts, the secondary life must be your spouse, and both the annuitant and
secondary life must be older than 591/2. These choices will influence the
amount of your regular income payments.
Regular income payments must begin within one year of the contract effective
date. If you do not choose a payment frequency, the default is a monthly
frequency. You may also elect to have regular income payments from
non-qualified contracts recalculated only once each year rather than
recalculated at the time of each payment. This results in level regular income
payments between recalculation dates. Qualified contracts are only recalculated
once per year, at the beginning of each calendar year. You also choose the
assumed investment return. Return rates of 3%, 4% or 5% may be available. The
higher the assumed investment return you choose, the higher your initial
regular income payment will be and the higher the return must be to increase
subsequent regular income payments. You also choose the length of the access
period. Generally, shorter access periods will produce higher regular income
payments than longer access periods. At this time, changes can only be made on
periodic income commencement date anniversaries.
For information regarding income tax consequences of regular income payments,
please refer to Federal Tax Matters - Taxation of Regular Income Payments.
The amount of the initial regular income payment is determined on the periodic
income commencement date by dividing the account value (or, if within 90 days
of the effective date of the contract, the gross purchase payment if greater),
less applicable premium taxes by 1000 and multiplying the result by an annuity
factor. The annuity factor is based upon:
o the age and sex of the annuitant and secondary life, if applicable;
o the length of the access period selected;
o the frequency of the regular income payments;
o the assumed investment return you selected; and
o the Individual Annuity Mortality table specified in your contract.
The annuity factor used to determine the regular income payments reflects the
fact that, during the access period, you have the ability to withdraw the
entire account value and that a death benefit of the entire account value will
be paid to your beneficiary upon your death. These benefits during the access
period result in a slightly lower regular income payment, during both the
access period and the lifetime income period, than would be payable if this
access was not permitted and no lump-sum death benefit of the full account
value was payable. The annuity factor also reflects the requirement that there
be sufficient account value at the end of the access period to continue your
regular income payments for the remainder of your life (and/or the secondary
life if applicable), during the Lifetime Income Period, with no further access
or death benefit.
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The account value will vary with the actual net investment return of the
subaccounts selected, which then determines the subsequent regular income
payments during the access period. Each subsequent regular income payment
(unless the levelized option is selected) is determined by dividing the account
value on the applicable valuation date by 1000 and multiplying this result by
an annuity factor revised to reflect the declining length of the access period.
As a result of this calculation, the actual net returns in the account value
are measured against the assumed investment return to determine subsequent
regular income payments. If the actual net investment return (annualized) for
the contract exceeds the assumed investment return, the regular income payment
will increase at a rate approximately equal to the amount of such excess.
Conversely, if the actual net investment return for the contract is less than
the assumed investment return, the regular income payment will decrease. For
example, if net investment return is 3% higher (annualized) than the assumed
investment return, the regular income payment for the next year will increase
by approximately 3%. Conversely, if actual net investment return is 3% lower
than the assumed investment return, the regular income payment will decrease by
approximately 3%. If a higher assumed investment return is selected, regular
income payments will start at a higher level but will decrease more rapidly or
increase more slowly. See Examples of Regular Income Payment Calculations in
the SAI.
Withdrawals made during the access period will also reduce the account value
that is available for regular income payments, and subsequent regular income
payments will be reduced in the same proportion that withdrawals reduce the
account value.
For a joint life option, if either the annuitant or secondary life dies during
the access period, regular income payments will be recalculated using a revised
annuity factor based on the single surviving life, if doing so provides a
higher regular income payment. For nonqualified contracts, if both the
annuitant and secondary life,if applicable, die during the access period, the
annuity factor will be revised for a non-life contingent regular income payment
and regular income payments will continue until the account value is fully paid
out and the access period ends. As an alternative, a death benefit may be paid.
For qualified contracts, if the annuitant and secondary life, if applicable.
both die during the access period, the contract (and the Guaranteed Income
Benefit, if applicable) will terminate and a death benefit will be paid. See
The Contracts - Death Benefit.
Regular Income Payments During The Lifetime Income Period
The lifetime income period begins at the end of the access period if either the
annuitant or secondary life is living. Your earlier elections regarding the
frequency of regular income payments, assumed investment return and the
frequency of the recalculation do not change. The initial regular income
payment during the lifetime income period is determined by dividing the account
value on the last valuation date of the access period by 1000 and multiplying
the result by an annuity factor revised to reflect that the access period has
ended. The annuity factor is based upon:
o the age and sex of the annuitant and secondary life (if living);
o the frequency of the regular income payments;
o the assumed investment return you selected; and
o the Individual Annuity Mortality table specified in your contract.
The impact of the length of the access period and any withdrawals made during
the access period will continue to be reflected in the regular income payments
during the lifetime income period. See Examples of Regular Income Payment
Calculations in the SAI. To determine subsequent regular income payments, the
contract is credited with a fixed number of annuity units equal to the initial
regular income payment (during the lifetime income period) divided by the
annuity unit value (by subaccount). Subsequent regular income payments are
determined by multiplying the number of annuity units per subaccount by the
annuity unit value. Your regular income payments will vary based on the value
of your annuity units. If your regular income payments are adjusted on an
annual basis, the total of the annual payment is transferred to Lincoln New
York's general account to be paid out based on the payment mode you selected.
Your payment(s) will not be affected by market performance that year. Your
regular income payment(s) for the following year will be recalculated at the
beginning of the following year based on the current value of the annuity
units.
Regular income payments will continue for as long as the annuitant or secondary
life, if applicable, is living, and will continue to be adjusted for investment
performance of the subaccounts your annuity units are invested in. Regular
income payments vary with investment performance.
During the lifetime income period, there is no longer an account value;
therefore, no withdrawals are available and no death benefit is payable.
Access Period
You select the access period, which begins on the periodic income commencement
date. The access period is a defined period of time during which we pay
variable, periodic regular income payments and provide a death benefit, and
during which you may surrender the contract and make withdrawals from your
account value (defined below). At the end of the access period, the remaining
account value is used to make regular income payments for the rest of your life
(or the secondary life if applicable) and you will no longer be able to make
withdrawals or surrenders or receive a death benefit.
We will establish the minimum (currently 5 years) and maximum (currently to age
115 for non-qualified contracts; to age 100 for qualified contracts) access
periods. Generally, shorter access periods will produce a higher initial
regular income payment than longer access periods. At any time during the
access period, and subject to the rules in effect at that time, you may extend
or shorten the
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access period by sending us notice. Currently, if you extend the access period,
it must be extended at least 5 years. If you change the access period,
subsequent regular income payments will be adjusted accordingly, and the
account value remaining at the end of the new access period will be applied to
continue regular income payments for your life. Additional limitations on issue
ages and features may be necessary to comply with the IRC provisions for
required minimum distributions. We may reduce or terminate the access period in
order to keep the regular income payments in compliance with IRC provisions for
required minimum distributions. The minimum access period requirements for
Guaranteed Income Benefits are longer than the requirements for contracts
without a Guaranteed Income Benefit. Shortening the access period will
terminate the Guaranteed Income Benefit.
Account Value
The account value is the amount available to you during the access period for
withdrawals, surrender or as a death benefit. The initial account value is the
contract value on the valuation date, less any applicable premium taxes. During
the access period, the account value will be increased/decreased by any
investment gains/losses and will be reduced by regular income payments made and
any withdrawals taken.
After the access period ends, the remaining account value will be applied to
continue regular income payments for your life and the account value will be
reduced to zero.
Guaranteed Income Benefit
The Guaranteed Income Benefit may be elected at the time the contract is
purchased or at anytime during the access period (if the minimum access period
requirements can be met). Check with your investment representative regarding
the availability of this benefit. Election of this rider will limit how much
you can invest in certain subaccounts. See The Contracts - Investment
Requirements.
There is no guarantee that this Guaranteed Income Benefit option will be
available to elect in the future, as we reserve the right to discontinue this
option for new elections at any time. We also reserve the right to change the
assumed investment return for future purchasers only, at any time.
If the Guaranteed Income Benefit is in effect, your regular income payments
will never be less than a guaranteed minimum amount, regardless of the actual
investment performance of your contract. The Guaranteed Income Benefit is equal
to 75% of the initial regular income payment if elected at contract issue. If
the Guaranteed Income Benefit is elected after issue, it will equal 75% of the
regular income payment based on the account value on the effective date of the
election.
The Guaranteed Income Benefit is reduced by withdrawals (other than regular
income payments) in the same proportion that the withdrawals reduce the account
value. Additional withdrawals from account value will also reduce your death
benefit. You may want to discuss the impact of additional withdrawals with your
financial adviser.
The following example demonstrates the impact of a withdrawal on the regular
income payments and the Guaranteed Income Benefit payments:
o i4LIFE (Reg. TM) Regular Income Payment before Withdrawal $ 1,200
o Guaranteed Income Benefit before Withdrawal $ 750
o Account Value at time of Additional Withdrawal $150,000
o Additional Withdrawal $ 15,000 (a 10% withdrawal)
Reduction in i4LIFE (Reg. TM) Regular Income payment for Withdrawal = $1,200 X
10 % = $120
i4LIFE (Reg. TM) Regular Income payment after Withdrawal = $1,200 - $120 =
$1,080
Reduction in Guaranteed Income Benefit for Withdrawal = $750 X 10% = $75
Guaranteed Income Benefit after Withdrawal = $750 - $75 = $675
If the amount of your i4LIFE (Reg. TM) Advantage regular income payment (which
is based on your account value) has fallen below the Guaranteed Income Benefit,
because of poor investment results, a payment equal to the Guaranteed Income
Benefit is the minimum payment you will receive. If the Guaranteed Income
Benefit is paid, it will be paid with the same frequency as your regular income
payment. If your regular income payment is less than the Guaranteed Income
Benefit, we will reduce the account value by the regular income payment plus an
additional amount equal to the difference between your regular income payment
and the Guaranteed Income Benefit. This withdrawal will be made from the
variable subaccounts on a pro-rata basis according to your investment
allocations.
If your account value reaches zero as a result of withdrawals to provide the
Guaranteed Income Benefit, we will continue to pay you an amount equal to the
Guaranteed Income Benefit. If your account value reaches zero, your access
period will end and your Lifetime Income Period will begin. If your account
value equals zero, no death benefit will be paid. Additional amounts withdrawn
from the account value to provide the Guaranteed Income Benefit may terminate
your access period earlier than originally scheduled, and will reduce your
death benefit. See Death Benefits. After the access period ends, we will
continue to pay the Guaranteed Income Benefit
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for as long as the annuitant (or the secondary life, if applicable) is living.
If the market performance in your contract is sufficient to provide regular
income payments at a level that exceeds the Guaranteed Income Benefit, the
Guaranteed Income Benefit will never come into effect.
The following example illustrates how poor investment performance, which
results in a Guaranteed Income Benefit payment affects the account value:
o i4LIFE (Reg. TM) Account Value before payment $ 80,000
o Regular Income Payment -$ 5,280
o Additional Withdrawal for Guaranteed Income Benefit -$ 412
o i4LIFE (Reg. TM) Account Value after payouts $ 74,308
The Guaranteed Income Benefit will automatically Step-Up every year on the
periodic income commencement date anniversary to 75% of the current regular
income payment, if that result is greater than the immediately prior Guaranteed
Income Benefit. The i4LIFE (Reg. TM) Guaranteed Income Benefit percentage
charge may increase subject to the guaranteed maximum charge of 1.50% each time
the Guaranteed Income Benefit increases as a result of the annual automatic
step-up (i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed
Income Benefit charges). Therefore, your percentage charge for the Guaranteed
Income Benefit could increase on every periodic income commencement date
anniversary. If your percentage charge is increased, you may ask us to reverse
the step-up by giving us notice within 30 days after the periodic income
commencement anniversary. If we receive this notice, we will decrease your
Guaranteed Income Benefit and percentage charge to the amounts they were before
the step-up occurred. Increased fees collected during the 30 day period will be
refunded into your contract. This reversal will only apply for this particular
automatic annual step-up. You will need to notify us each time the percentage
charge increases if you do not want the automatic annual step-up.
Impacts to Regular Income Payments
When you select this Guaranteed Income Benefit, certain restrictions apply to
your contract:
o A 4% assumed investment return (AIR) will be used to calculate the regular
income payments.
o The minimum access period required for this benefit is the longer of 15
years or the difference between the age of the annuitant (or, the younger
of annuitant and secondary life) (nearest birthday) and age 85.
o The maximum access period available for this benefit is to age 115 of the
annuitant (or younger of annuitant and secondary life) for non-qualified
contracts; to age 100 of the annuitant for qualified contracts.
If you choose to lengthen your access period, (which must be increased by a
minimum of 5 years) thereby reducing your regular income payment, your i4LIFE
(Reg. TM) Advantage Guaranteed Income Benefit will also be reduced. The i4LIFE
(Reg. TM) Advantage Guaranteed Income Benefit will be reduced in proportion to
the reduction in the regular income payment. If you choose to shorten your
access period, the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will
terminate.
The following is an example of what happens when you extend the access period:
Assume:
i4LIFE (Reg. TM) Advantage remaining Access Period = 10 years
Current i4LIFE (Reg. TM) Advantage regular income payment = $6375
Current Guaranteed Income Benefit = $5692
Extend Access Period 5 years:
i4LIFE (Reg. TM) Advantage regular income payment after extension = $5355
Percentage change in i4LIFE (Reg. TM) Advantage regular income payment =
$5355 \d $6375 = 84%
New Guaranteed Income Benefit = $5692 x 84% = $4781
The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will terminate due to
any of the following events:
o the death of the annuitant (or the later of the death of the annuitant or
secondary life if a joint payout was elected); or
o a contractowner requested decrease in the access period or a change to the
regular income payment frequency; or
o upon written notice to us; or
o assignment of the contract.
A termination due to a decrease in the access period, a change in the regular
income payment frequency, or upon written notice from the contractowner will be
effective as of the valuation date on the next periodic income commencement
date anniversary. Termination will be only for the i4LIFE (Reg. TM) Advantage
Guaranteed Income Benefit and not the i4LIFE (Reg. TM) Advantage election,
unless otherwise specified.
If you terminate the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit you
may be able to re-elect it, if available, after one year. The election will be
treated as a new purchase, subject to the terms and charges in effect at the
time of election and the i4LIFE (Reg. TM) Advantage regular income payments
will be recalculated. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit
will be based on the account value at the time of the election.
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Death Benefits
i4LIFE (Reg. TM) Advantage Account Value Death Benefit. The i4LIFE (Reg. TM)
Advantage account value death benefit is available during the access period.
This death benefit is equal to the account value as of the valuation date on
which we approve the payment of the death claim. You may not change this death
benefit once it is elected.
i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit. The i4LIFE
(Reg. TM) Advantage Guarantee of Principal death benefit is available during
the access period and will be equal to the greater of:
o the account value as of the valuation date we approve the payment of the
claim; or
o the sum of all purchase payments, less the sum of regular income payments
and other withdrawals where:
o regular income payments, including withdrawals to provide the Guaranteed
Income Benefits, reduce the death benefit by the dollar amount of the
payment; and
o all other withdrawals, if any, reduce the death benefit in the same
proportion that withdrawals reduce the account value.
In a declining market, withdrawals which are deducted in the same proportion
that withdrawals reduce the account value, may have a magnified effect on the
reduction of the death benefit payable. All references to withdrawals include
deductions for applicable charges and premium taxes, if any.
The following example demonstrates the impact of a proportionate withdrawal on
your death benefit:
o i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit $200,000
o Total i4LIFE (Reg. TM) Regular Income payments $ 25,000
o Additional Withdrawal $15,000 ($15,000/$150,000=10% withdrawal)
o Account value at the time of Additional Withdrawal $150,000
i4LIFE (Reg. TM)Death Benefit Value after regular income payment = $200,000 -
$25,000 = $175,000
Death Benefit Value after additional withdrawal = $175,000 - $17,500 = $157,500
Reduction in Death Benefit Value for Withdrawal = $175,000 X 10% = $17,500
The regular income payments reduce the death benefit by $25,000 and the
additional withdrawal causes a 10% reduction in the death benefit, the same
percentage that the withdrawal reduced the account value.
During the access period, contracts with the i4LIFE (Reg. TM) Advantage
Guarantee of Principal death benefit may elect to change to the i4LIFE (Reg.
TM) Advantage account value death benefit. We will effect the change in death
benefit on the valuation date we receive a completed election form at our
Servicing office, and we will begin deducting the lower i4LIFE (Reg. TM)
Advantage charge at that time. Once the change is effective, you may not elect
to return to the i4LIFE (Reg. TM) Advantage Guarantee of Principal death
benefit.
i4LIFE (Reg. TM) Advantage EGMDB. The i4LIFE (Reg. TM) Advantage EGMDB is only
available during the access period. This benefit is the greatest of:
o the account value as of the valuation date on which we approve the payment
of the claim; or
o the sum of all purchase payments, less the sum of regular income payments
and other withdrawals where:
o regular income payments, including withdrawals to provide the Guaranteed
Income Benefit, reduce the death benefit by the dollar amount of the
payment; and
o all other withdrawals, if any, reduce the death benefit in the same
proportion that withdrawals reduce the account value.
o the highest account value on any contract anniversary date (including the
inception date of the contract) after the EGMDB is effective prior to the
81st birthday of the deceased and prior to the date of death. The highest
account value or contract value is increased by purchase payments and is
decreased by regular income payments, including withdrawals to provide the
Guaranteed Income Benefits and all other withdrawals subsequent to the
anniversary date on which the highest account value is obtained. Regular
income payments and withdrawals are deducted in the same proportion that
regular income payments and withdrawals reduce the account value.
In a declining market, withdrawals which are deducted in the same proportion
that withdrawals reduce the account value, may have a magnified effect on the
reduction of the death benefit payable. All references to withdrawals include
deductions for applicable charges and premium taxes, if any.
Contracts with the i4LIFE (Reg. TM) Advantage EGMDB may elect to change to the
i4LIFE (Reg. TM) Advantage Guarantee of Principal or i4LIFE (Reg. TM) Advantage
account value death benefit. We will effect the change in death benefit on the
valuation date we receive a completed election form at our Servicing office,
and we will begin deducting the lower i4LIFE (Reg. TM) Advantage charge at that
time. Once the change is effective, you may not elect to return to the i4LIFE
(Reg. TM) Advantage EGMDB.
Death during the access period - If the contractowner (or a joint owner) or
annuitant dies during the access period, a death benefit may be payable. You
can choose the death benefit. Only one death benefit may be in effect at any
one time and this election terminates when the access period ends.
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You may designate a beneficiary during your lifetime and change the beneficiary
by filing a written request with our Servicing office. Each change of
beneficiary revokes any previous designation. We reserve the right to request
that you send us the contract for endorsement of a change of beneficiary.
Upon the death of the contractowner, a death benefit will be paid to the
beneficiary. Upon the death of a joint owner, the death benefit will be paid to
the surviving joint owner. If the contractowner is a corporation or other
non-individual (non-natural person), the death of the annuitant will be treated
as death of the contractowner.
If an annuitant who is not the contractowner or joint owner dies, a death
benefit may be paid to the contractowner (and joint owner, if applicable, in
equal shares).
For non-qualified contracts, upon the death of the contractowner, joint owner
or annuitant, the contractowner (or beneficiary) may elect to continue the
contract and receive regular income payments if the annuitant or secondary life
is still living. Any portion of the death benefit that would have been payable
(if the contract had not been continued) that exceeds the current contract
value on the date the surviving joint owner or beneficiary elects to continue
the contract will be added to the contract value. If the contract is continued
in this way, the death benefit in effect at the time the beneficiary elected to
continue the contract will remain as the death benefit option. Upon the death
of the secondary life, who is not also an owner, only the account value is
paid.
If you are the owner of an IRA annuity contract, and there is no secondary
life, and you die during the access period, the i4LIFE (Reg. TM) Advantage will
terminate. A spouse beneficiary may start a new i4LIFE (Reg. TM) Advantage
program.
Death during the lifetime income period - Upon the death of the annuitant, or
secondary life (if designated), regular income payments will continue after the
first death until the death of the other party. When both the annuitant and
secondary life are no longer surviving, regular income payments will cease and
the contract will terminate.
General Death Benefit Provisions. For all death benefit options, following the
access period, there is no death benefit. The death benefits also terminate
when the account value equals zero, because the access period terminates.
If there is a change in the contractowner or joint owner during the life of the
contract, for any reason other than death, the only death benefit payable for
the new person will be the i4LIFE (Reg. TM) Advantage account value death
benefit.
If a death occurs during the access period, the value of the death benefit will
be determined as of the valuation date we approve the payment of the claim.
Approval of payment will occur upon our receipt of all the following:
1. proof (e.g. an original certified death certificate), or any other proof of
death satisfactory to us; and
2. written authorization for payment; and
3. all required claim forms, fully completed (including selection of a
settlement option).
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.
Death benefits may be taxable. See Federal tax matters.
Upon notification to us of the death, regular income payments may be suspended
until the death claim is approved. Upon approval, a lump sum payment for the
value of any suspended payments will be made as of the date the death claim is
approved, and regular income payments will continue, if applicable. The excess,
if any, of the death benefit over the account value will be credited into the
contract at that time.
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.
In the case of a death of one of the parties to the annuity contract, if the
recipient of the death benefit has elected a lump sum settlement and the
contract value is over $10,000, the proceeds will be placed into the
interest-bearing account in the recipient's name as the owner of the account.
The SecureLine (Reg. TM) account allows the recipient additional time to decide
how to manage death benefit proceeds with the balance earning interest from the
day the account is opened. SecureLine (Reg. TM) is not a method of deferring
taxation.
The SecureLine (Reg. TM) account is a special service that we offer in which
the death benefit proceeds are placed into an interest-bearing account. Instead
of mailing you (or the recipient of the death proceeds) a check, we will send a
checkbook so that you (or the death proceeds recipient) will have access to the
account simply by writing a check for all or any part of the proceeds. The
SecureLine (Reg. TM) account is part of our general account. It is not a bank
account and it is not insured by the FDIC or any other government agency. As
part of our general account, it is subject to the claims of our creditors. We
receive a benefit from all amounts left in the SecureLine (Reg. TM) account.
The recipient of death benefit proceeds may request that a check be issued
directly to him or her instead of deposited into the SecureLine (Reg. TM)
account.
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Transfers During The Access Period
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 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.
Transfers among the variable subaccounts are limited to twelve (12) per
contract year unless otherwise authorized by us. This limit does not apply to
transfers made under the automatic transfer programs of dollar cost averaging,
cross re-investment or portfolio rebalancing elected on forms available from
us. See Additional Services and the SAI for more information on 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 request may be made to our Servicing office using written,
telephone, fax, or electronic instructions, if the appropriate authorization is
on file with us. Our address, telephone number, and Internet address are on the
first page of this prospectus. In order to prevent unauthorized or fraudulent
transfers, we may require certain identifying information before we will act
upon instructions. We may also assign the contractowner a Personal
Identification Number (PIN) to serve as identification. We will not be liable
for following instructions we reasonably believe are genuine. Telephone
requests will be recorded and written confirmation of all transfer requests
will be mailed to the contractowner on the next valuation date.
Please note that the telephone and/or electronic devices may not always be
available. Any telephone or electronic device, whether it is yours, your
service provider's, or your agent's, can experience outages or slowdowns for a
variety of reasons. These outages or slowdowns may delay or prevent our
processing of your request. Although we have taken precautions to limit these
problems, we cannot promise complete reliability under all circumstances. If
you are experiencing problems, you should make your transfer request by writing
to our Servicing office.
Requests for transfers will be processed on the valuation date that they are
received when they are received at our Servicing office before the end of the
valuation date (normally 4:00 p.m. New York time). If we receive a transfer
request at or after 4:00 p.m. New York time, we will process the request using
the accumulation unit value computed on the next valuation date.
Transfers may be delayed as permitted by the 1940 Act. See Delay of Payments.
Transfers During The Lifetime Income Period
Transfers between the variable subaccounts will be limited to three times per
contract year.
Market Timing
Frequent, large, or short-term transfers among subaccounts and the fixed
account, such as those associated with "market timing" transactions, can affect
the funds and their investment returns. Such transfers may dilute the value of
the fund shares, interfere with the efficient management of the fund's
portfolio, and increase brokerage and administrative costs of the funds. As an
effort to protect our contractowners and the funds from potentially harmful
trading activity, we utilize certain market timing policies and procedures (the
"Market Timing Procedures"). Our Market Timing Procedures are designed to
detect and prevent such transfer activity among the subaccounts and the fixed
account that may affect other contractowners or fund shareholders.
In addition, the funds may have adopted their own policies and procedures with
respect to frequent purchases and redemptions of their respective shares. The
prospectuses for the funds describe any such policies and procedures, which may
be more or less restrictive than the frequent trading policies and procedures
of other funds and the Market Timing Procedures we have adopted to discourage
frequent transfers among subaccounts. While we reserve the right to enforce
these policies and procedures, contractowners and other persons with interests
under the contracts should be aware that we may not have the contractual
authority or the operational capacity to apply the frequent trading policies
and procedures of the funds. However, under SEC rules, we are required to: (1)
enter into a written agreement with each fund or its principal underwriter that
obligates us to provide to the fund promptly upon request certain information
about the trading activity of individual contractowners, and (2) execute
instructions from the fund to restrict or prohibit further purchases or
transfers by specific contractowners who violate the excessive trading policies
established by the fund.
You should be aware that the purchase and redemption orders received by the
funds generally are "omnibus" orders from intermediaries such as retirement
plans or separate accounts funding variable insurance contracts. The omnibus
orders reflect the aggregation and netting of multiple orders from individual
retirement plan participants and/or individual owners of variable insurance
contracts. The omnibus nature of these orders may limit the funds' ability to
apply their respective disruptive trading policies and procedures. We cannot
guarantee that the funds (and thus our contractowners) will not be harmed by
transfer activity relating to the retirement plans and/or other insurance
companies that may invest in the funds. In addition, if a fund believes that an
omnibus order we submit may reflect one or more transfer requests from policy
owners engaged in disruptive trading activity, the fund may reject the entire
omnibus order.
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Our Market Timing Procedures detect potential "market timers" by examining the
number of transfers made by contractowners within given periods of time. In
addition, managers of the funds might contact us if they believe or suspect
that there is market timing. If requested by a fund company, we may vary our
Market Timing Procedures from subaccount to subaccount to comply with specific
fund policies and procedures.
We may increase our monitoring of contractowners who we have previously
identified as market timers. When applying the parameters used to detect market
timers, we will consider multiple contracts owned by the same contractowner if
that contractowner has been identified as a market timer. For each
contractowner, we will investigate the transfer patterns that meet the
parameters being used to detect potential market timers. We will also
investigate any patterns of trading behavior identified by the funds that may
not have been captured by our Market Timing Procedures.
Once a contractowner has been identified as a "market timer" under our Market
Timing Procedures, we will notify the contractowner in writing that future
transfers (among the subaccounts and/or the fixed account) will be temporarily
permitted to be made only by original signature sent to us by U.S. mail,
standard delivery for the remainder of the contract year. Overnight delivery or
electronic instructions (which may include telephone, facsimile, or Internet
instructions) submitted during this period will not be accepted. If overnight
delivery or electronic instructions are inadvertently accepted from a
contractowner that has been identified as a market timer, upon discovery, we
will reverse the transaction within 1 or 2 business days. We will impose this
"original signature" restriction on that contractowner even if we cannot
identify, in the particular circumstances, any harmful effect from that
contractowner's particular transfers.
Contractowners seeking to engage in frequent, large, or short-term transfer
activity may deploy a variety of strategies to avoid detection. Our ability to
detect such transfer activity may be limited by operational systems and
technological limitations. The identification of contractowners determined to
be engaged in such transfer activity that may adversely affect other
contractowners or fund shareholders involves judgments that are inherently
subjective. We cannot guarantee that our Market Timing Procedures will detect
every potential market timer. If we are unable to detect market timers, you may
experience dilution in the value of your fund shares and increased brokerage
and administrative costs in the funds. This may result in lower long-term
returns for your investments.
Our Market Timing Procedures are applied consistently to all contractowners. An
exception for any contractowner will be made only in the event we are required
to do so by a court of law. In addition, certain funds available as investment
options in your contract may also be available as investment options for owners
of other, older life insurance policies issued by us. Some of these older life
insurance policies do not provide a contractual basis for us to restrict or
refuse transfers which are suspected to be market timing activity. In addition,
because other insurance companies and/or retirement plans may invest in the
funds, we cannot guarantee that the funds will not suffer harm from frequent,
large, or short-term transfer activity among subaccounts and the fixed accounts
of variable contracts issued by other insurance companies or among investment
options available to retirement plan participants.
In our sole discretion, we may revise our Market Timing Procedures at any time
without prior notice as necessary to better detect and deter frequent, large,
or short-term transfer activity to comply with state or federal regulatory
requirements, and/or to impose additional or alternate restrictions on market
timers (such as dollar or percentage limits on transfers). If we modify our
Market Timing Procedures, they will be applied uniformly to all contractowners
or as applicable to all contractowners investing in underlying funds. We also
reserve the right to implement and administer redemption fees imposed by one or
more of the funds in the future.
Some of the funds have reserved the right to temporarily or permanently refuse
payments or transfer requests from us if, in the judgment of the fund's
investment adviser, the fund would be unable to invest effectively in
accordance with its investment objective or policies, or would otherwise
potentially be adversely affected. To the extent permitted by applicable law,
we reserve the right to defer or reject a transfer request at any time that we
are unable to purchase or redeem shares of any of the funds available through
the VAA, including any refusal or restriction on purchases or redemptions of
the fund shares as a result of the funds' own policies and procedures on market
timing activities. If a fund refuses to accept a transfer request we have
already processed, we will reverse the transaction within 1 or 2 business days.
We will notify you in writing if we have reversed, restricted or refused any of
your transfer requests. Some funds also may impose redemption fees on
short-term trading (i.e., redemptions of mutual fund shares within a certain
number of business days after purchase). We reserve the right to administer and
collect any such redemption fees on behalf of the funds. You should read the
prospectuses of the funds for more details on their redemption fees and their
ability to refuse or restrict purchases or redemptions of their shares.
Additional Services
These are the additional services available to you under your contract:
dollar-cost averaging (DCA), cross-reinvestment service and portfolio
rebalancing. Currently, there is no charge for these services. However, we
reserve the right to impose one. In order to take advantage of one of these
services, you will need to complete the appropriate election form that is
available from our Servicing office. For further detailed information on these
services, please see Additional Services in the SAI.
Dollar-cost averaging allows you to transfer amounts from the DCA fixed
account, if available, or certain variable subaccounts into the variable
subaccounts on a monthly basis. We reserve the right to discontinue this
program at any time. DCA does not assure a profit or protect against loss.
29
The cross-reinvestment service allows you to automatically transfer the account
value in a designated variable subaccount that exceeds a baseline amount to
another specific variable subaccount at specific intervals.
Portfolio rebalancing is an option that restores to a pre-determined level the
percentage of account value allocated to each variable account subaccount. The
rebalancing may take place monthly, quarterly, semi-annually or annually.
Only one of the three additional services (DCA, cross reinvestment and
portfolio rebalancing) may be used at one time. For example, you cannot have
DCA and cross reinvestment running simultaneously.
Asset Allocation Models
Your registered representative may discuss asset allocation models with you to
assist you in deciding how to allocate your purchase payments among the various
subaccounts. The models listed below were designed and prepared by the Company,
in consultation with SSgA Funds Management, Inc., for use by Lincoln Financial
Distributors, Inc., (LFD) the principal underwriter of the contracts. LFD
provides models to broker dealers who may offer the models to their own
clients. The models do not constitute investment advice and you should consult
with your broker dealer representative to determine whether you should utilize
a model or which model is suitable for you based upon your goals, risk
tolerance and time horizon.
Each model invests different percentages of contract value in some or all of
the LVIP subaccounts currently available within your annuity contract. If you
select an asset allocation model, 100% of your contract value (and any
additional purchase payments you make) will be allocated among certain
subaccounts in accordance with the model's asset allocation strategy. You may
not make transfers among the subaccounts. We will deduct any withdrawals you
make from the subaccounts in the asset allocation model on a pro rata basis.
You may only choose one asset allocation model at a time, though you may change
to a different asset allocation model available in the contract at any time.
Each of the asset allocation models seeks to meet its investment objective
while avoiding excessive risk. The models also strive to achieve
diversification among asset classes in order to help reduce volatility and
boost returns over the long-term. There can be no assurance, however, that any
of the asset allocation models will achieve its investment objective. If you
are seeking a more aggressive strategy, these models are probably not
appropriate for you.
The asset allocation models are intended to provide a diversified investment
portfolio by combining different asset classes to help it reach its stated
investment goal. While diversification may help reduce overall risk, it does
not eliminate the risk of losses and it does not protect against losses in a
declining market.
In order to maintain the model's specified subaccount allocation percentages,
you agree to be automatically enrolled in and you thereby authorize us to
automatically rebalance your contract value on a quarterly basis based upon
your allocation instructions in effect at the time of the rebalancing.
Confirmation of the rebalancing will appear on your quarterly statement and you
will not receive an individual confirmation after each allocation. We reserve
the right to change the rebalancing frequency at any time, in our sole
discretion, but will not make changes more than once per calendar year. You
will be notified at least 30 days prior to the date of any change in frequency.
The models are static asset allocation models. This means that that they have
fixed allocations made up of underlying funds that are offered within your
contract and the percentage allocations will not change over time. Once you
have selected an asset allocation model, we will not make any changes to the
fund allocations within the model except for the rebalancing described above.
If you desire to change your contract value or purchase payment allocation or
percentages to reflect a revised or different model, you must submit new
allocation instructions to us. You may terminate a model at any time. There is
no charge from Lincoln for participating in a model.
The election of certain living benefit riders may require that you allocate
purchase payments in accordance with Investment Requirements that may be
satisfied by choosing one of the asset allocation models. Different
requirements and/or restrictions may apply under the individual rider. See The
Contracts - Investment Requirements.
At this time, the available models are as follows:
o The Lincoln SSgA Conservative Index Model is composed of specified
underlying subaccounts representing a target allocation of approximately
40% in three equity subaccounts and 60% in one fixed income subaccount.
This model seeks a high level of current income with some consideration
given to growth of capital. The model utilizes index funds exclusively.
o The Lincoln SSgA Moderate Index Model is composed of specified underlying
subaccounts representing a target allocation of approximately 60% in three
equity subaccounts and 40% in one fixed income subaccount. This model seeks
a balance between a high level of current income and growth of capital,
with an emphasis on growth of capital. The model utilizes index funds
exclusively.
o The Lincoln SSgA Moderately Aggressive Index Model is composed of specified
underlying subaccounts representing a target allocation of approximately
80% in three equity subaccounts and 20% in one fixed income subaccount.
This model seeks a balance between a high level of current income and
growth of capital, with a greater emphasis on growth of capital. The model
utilizes index funds exclusively.
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o The Lincoln SSgA Aggressive Index Model is composed of specified underlying
subaccounts representing a target allocation of approximately 90% in three
equity subaccounts and 10% in one fixed income subaccount. This model seeks
long term growth of capital. The model utilizes index funds exclusively.
o The Lincoln SSgA Structured Conservative Model is composed of specified
underlying subaccounts representing a target allocation of approximately
40% in seven equity subaccounts and 60% in one fixed income subaccount.
This model seeks a high level of current income with some consideration
given to growth of capital. The model utilizes a combination of index funds
and rules-based strategies with an emphasis placed on value oriented
stocks.
o The Lincoln SSgA Structured Moderate Model is composed of specified
underlying subaccounts representing a target allocation of approximately
60% in seven equity subaccounts and 40% in one fixed income subaccount.
This model seeks a balance between a high level of current income and
growth of capital, with an emphasis on growth of capital. The model
utilizes a combination of index funds and rules-based strategies with an
emphasis placed on value oriented stocks.
o The Lincoln SSgA Structured Moderately Aggressive Model is composed of
specified underlying subaccounts representing a target allocation of
approximately 80% in seven equity subaccounts and 20% in one fixed income
subaccount. This model seeks a balance between a high level of current
income and growth of capital, with a greater emphasis on growth of capital.
The model utilizes a combination of index funds and rules-based strategies
with an emphasis placed on value oriented stocks.
o The Lincoln SSgA Structured Aggressive Model is composed of specified
underlying subaccounts representing a target allocation of approximately
90% in seven equity subaccounts and 10% in one fixed income subaccount.
This model seeks long term growth of capital. The model utilizes a
combination of index funds and rules-based strategies with an emphasis
placed on value oriented stocks.
Your registered representative will have more information on the specific
investments of each model.
Franklin Templeton Founding Investment Strategy: Through the Franklin Templeton
Founding Investment Strategy you may allocate purchase payments and/or contract
values to three underlying funds as listed below. This is not an asset
allocation model. If you choose to follow this strategy you will invest 100% of
your contract value to the strategy. You may invest in any of the three funds
without adopting the strategy. Upon selection of this program you agree to be
automatically enrolled in portfolio rebalancing and authorize us to
automatically rebalance your contract value on a quarterly basis based upon
your allocation instructions in effect at the time of the rebalancing.
Confirmation of the rebalancing will appear on your quarterly statement and you
will not receive an individual confirmation after each allocation. We reserve
the right to change the rebalancing frequency at any time, in our sole
discretion, but will not make changes more than once per calendar year. You
will be notified at least 30 days prior to the date of any change in frequency.
o FTVIPT Franklin Income Securities 34% of contract value
o FTVIPT Mutual Shares Securities 33% of contract value
o LVIP Templeton Growth Fund 33% of contract value
Investment Requirements
If you purchase the Guaranteed Income Benefit you will be required to comply
with the Investment Requirements described in this section. We have divided the
subaccounts of your contract into two groups. We will specify the minimum or
maximum percentages of your contract value that must be in each group at the
time you purchase the Guaranteed Income Benefit. In addition, you may allocate
your contract value and purchase payments in accordance with certain asset
allocation models. If you terminate an asset allocation model, you must follow
the Investment Requirements applicable to your rider. The Investment
Requirements may not be consistent with an aggressive investment strategy. You
should consult with your registered representative to determine if the
Investment Requirements are consistent with your investment objectives.
You can select the percentages of contract value to allocate to individual
funds within each group, but the total investment for all funds in a group must
comply with the specified minimum or maximum percentages for that group.
In accordance with these Investment Requirements, you agree to be automatically
enrolled in the portfolio rebalancing option under your contract and thereby
authorize us to automatically rebalance your contract value on a periodic
basis. On each quarterly anniversary of the effective date of the Rider, we
will rebalance your contract value, on a pro-rata basis, based on your
allocation instructions in effect at the time of the rebalancing. Confirmation
of the rebalancing will appear on your quarterly statement and you will not
receive an individual confirmation after each reallocation.
At this time, the subaccount groups are as follows:
Group 1 Group 2
Investments must be at least 25% of contract value Investments cannot exceed 75% of contract value
---------------------------------------------------- --------------------------------------------------------
1. American Century VIP Inflation Protection All other investment options except as discussed below.
31
2. Delaware VIP High Yield Series
3. LVIP Delaware Bond Fund
4. Delaware VIP Capital Reserves Series
5. Delaware VIP Diversified Series
6. FTVIPT Templeton Global Income Securities Fund
7. LVIP SSgA Bond Index Fund
To satisfy the Investment Requirements, you may allocate 100% of your contract
value to or among the MFS VIT Total Return Fund, the FTVIPT Franklin Income
Securities Fund, or the LVIP Wilshire Profile Funds that are available in your
contract except not more than 75% can be allocated to the LVIP Wilshire
Aggressive Profile Fund. If you allocate less than 100% of contract value to or
among the MFS VIT Total Return Fund, the FTVIPT Franklin Income Securities fund
or the LVIP Wilshire Profile Funds, then these funds will be considered as part
of Group 2 above and you will be subject to the Group 2 restrictions. In
addition, you can allocate 100% of your contract value to the Founding
Investment Strategy (FTVIPT Franklin Income Securities Fund 34%, LVIP Templeton
Growth Fund 33% and FTVIPT Mutual Shares Securities Fund 33%).
To satisfy the Investment Requirements, contract value can be allocated in
accordance with certain asset allocation models, made available to you by your
broker dealer. 100% of the contract value can be allocated to one of the
following models: Lincoln SSgA Structured Conservative Model, Lincoln SSgA
Structured Moderate Model, Lincoln SSgA Structured Moderately Aggressive Model,
Lincoln SSgA Conservative Index Model, Lincoln SSgA Moderate Index Model and
Lincoln SSgA Moderately Aggressive Index Model. You may only choose one asset
allocation model at a time, though you may change to a different asset
allocation model available in your contract and that meets the Investment
Requirements or reallocate contract value among Group 1 or Group 2 subaccounts
as described above.
Ownership
The owner on the date of issue will be the person or entity designated in the
contract specifications.
As contractowner, you have all rights under the contract. According to New York
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. Assignments may have an adverse impact on any death benefits or living
benefits in this product. We assume no responsibility for the validity or
effect of any assignment. Consult your tax adviser about the tax consequences
of an assignment.
Annuitant
The annuitant and secondary life may not be changed.
Surrenders and Withdrawals
You may request a withdrawal at any time during the access period (or before
the access period begins). We reduce the account value by the amount of the
withdrawal on a dollar for dollar basis, and all subsequent regular income
payments and Guaranteed Income Benefit payments, if applicable, will be reduced
in the same proportion that withdrawals reduce the account value. See
Guaranteed Income Benefit for an example of the impact of withdrawals on
regular income payments and Guaranteed Income Benefit payments. At any time
prior to or during the access period, you may surrender the contract by
withdrawing the surrender value. If the contract is surrendered, the contract
terminates and no further regular income payments will be made. Any withdrawal
or surrender request must be submitted on an approved Lincoln distribution
request form, available from the Servicing Office.
The amount available upon surrender/withdrawal is the account value, less any
applicable charges, account fees and taxes at the end of the valuation period
during which the written request for surrender/withdrawal is received at the
Servicing office. If we receive a surrender or withdrawal request at or after
4:00 p.m., New York time, we will process the request using the accumulation
unit value computed on the next valuation date. Unless a request for withdrawal
specifies otherwise, withdrawals will be made from all subaccounts within the
VAA in the same proportion that the amount of withdrawal bears to the total
account value. Unless prohibited, surrender/withdrawal payments will be mailed
within seven days after we receive a valid written request at the Servicing
office. The payment may be postponed as permitted by the 1940 Act.
If you request a lump sum surrender and your surrender value is over $10,000,
your money will be placed into a SecureLine (Reg. TM) account in your name. You
are the owner of the account, and are the only one authorized to transfer
proceeds from the account. You may choose to leave the proceeds in this
account, or you may begin writing checks immediately.
The SecureLine (Reg. TM) account is a special service that we offer in which
your surrender proceeds are placed into an interest-bearing account. Instead of
mailing you a check, we will send a checkbook so that you will have access to
the account simply by writing a check for all or any part of the proceeds. The
SecureLine (Reg. TM) account is part of our general account. It is not a bank
account and it is not insured by the FDIC or any other government agency. As
part of our general account, it is subject to the claims of our creditors. We
receive a benefit from all amounts left in the SecureLine (Reg. TM) account.
You may request that surrender proceeds be paid directly to you instead of
deposited in a SecureLine (Reg. TM) account.
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The tax consequences of a surrender/withdrawal are discussed later in this
booklet. See Federal Tax Matters - Taxation of Withdrawals and Surrenders.
Small Contract Surrenders
We may surrender your contract, in accordance with the laws of your state if
your account value drops below certain state specified minimum amounts ($2,000
or less) due to a withdrawal.
Delay of Payments
Contract proceeds from the VAA will be paid within seven days, except:
o when the NYSE is closed (other than weekends and holidays);
o times when market trading is restricted or the SEC declares an emergency,
and we cannot value units or the funds cannot redeem shares; or
o when the SEC so orders to protect contractowners.
Due to federal laws designed to counter terrorism and prevent money laundering
by criminals, we may be required to reject a purchase payment and/or deny
payment of a request for transfers, withdrawals, surrenders, or death benefits,
until instructions are received from the appropriate regulator. We also may be
required to provide additional information about a contractowner's account to
government regulators.
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. Any changes are
subject to prior approval of your state's insurance department (if required).
Distribution of the Contracts
Lincoln Financial Distributors ("LFD") serves as Principal Underwriter of this
contract. LFD is affiliated with Lincoln New York and is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 and is a
member of FINRA. The Principal Underwriter has entered into selling agreements
with Lincoln Financial Advisors ("LFA"), also an affiliate of ours. The
Principal Underwriter has also entered into selling agreements with
broker-dealers that are unaffiliated with us ("Selling Firms"). While the
Principal Underwriter has the legal authority to make payments to
broker-dealers which have entered into selling agreements, we will make such
payments on behalf of the Principal Underwriter in compliance with appropriate
regulations. We also pay on behalf of LFD certain of its operating expenses
related to the distribution of this and other of our contracts. The following
paragraphs describe how payments are made by us and the Principal Underwriter
to various parties.
Compensation Paid to LFA. The maximum commission the Principal Underwriter pays
to LFA is 5.00% of purchase payments. LFA may elect to receive a lower
commission when a purchase payment is made along with an earlier quarterly
payment based on contract value for so long as the contract remains in effect.
Lincoln New York also pays for the operating and other expenses of LFA,
including the following sales expenses: sales representative training
allowances; compensation and bonuses for LFA's management team; advertising
expenses; and all other expenses of distributing the contracts. LFA pays its
sales representatives a portion of the commissions received for their sales of
contracts. LFA sales representatives and their managers are also eligible for
various cash benefits, such as bonuses, insurance benefits and financing
arrangements, and non-cash compensation items that we may provide jointly with
LFA. Non-cash compensation items may include conferences, seminars, trips,
entertainment, merchandise and other similar items. In addition, LFA sales
representatives who meet certain productivity, persistency and length of
service standards and/or their managers may be eligible for additional
compensation. Sales of the contracts may help LFA sales representatives and/or
their managers qualify for such benefits. LFA sales representatives and their
managers may receive other payments from us for services that do not directly
involve the sale of the contracts, including payments made for the recruitment
and training of personnel, production of promotional literature and similar
services.
Compensation Paid to Unaffiliated Selling Firms. The Principal Underwriter pays
commissions to all Selling Firms. The maximum commission the Principal
Underwriter pays to Selling Firms, other than LFA, is 5.00% of purchase
payments. Some Selling Firms may elect to receive a lower commission when a
purchase payment is made along with an earlier quarterly payment based on
contract value for so long as the contract remains in effect. LFD also acts as
wholesaler of the contracts and performs certain marketing and other functions
in support of the distribution and servicing of the contracts.
LFD may pay certain Selling Firms or their affiliates additional amounts for,
among other things: (1) "preferred product" treatment of the contracts in their
marketing programs, which may include marketing services and increased access
to sales representatives; (2) sales promotions relating to the contracts; (3)
costs associated with sales conferences and educational seminars for their
sales representatives; (4) other sales expenses incurred by them; (5) and
inclusion in the financial products the Selling Firm offers.
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Lincoln New York may provide loans to broker-dealers or their affiliates to
help finance marketing and distribution of the contracts, and those loans may
be forgiven if aggregate sales goals are met. In addition, we may provide
staffing or other administrative support and services to broker-dealers who
distribute the contracts. LFD, as wholesaler, may make bonus payments to
certain Selling Firms based on aggregate sales of our variable insurance
contracts (including the contracts) or persistency standards.
These additional types of compensation are not offered to all Selling Firms.
The terms of any particular agreement governing compensation may vary among
Selling Firms and the amounts may be significant. The prospect of receiving, or
the receipt of, additional compensation may provide Selling Firms and/or their
registered representatives with an incentive to favor sales of the contracts
over other variable annuity contracts (or other investments) with respect to
which a Selling Firm does not receive additional compensation, or lower levels
of additional compensation. You may wish to take such payment arrangements into
account when considering and evaluating any recommendation relating to the
contracts. Additional information relating to compensation paid in 2007 is
contained in the Statement of Additional Information (SAI).
Compensation Paid to Other Parties. Depending on the particular selling
arrangements, there may be others whom LFD compensates for the distribution
activities. For example, LFD may compensate certain "wholesalers", who control
access to certain selling offices, for access to those offices or for
referrals, and that compensation may be separate from the compensation paid for
sales of the contracts. LFD may compensate marketing organizations,
associations, brokers or consultants which provide marketing assistance and
other services to broker-dealers who distribute the contracts, and which may be
affiliated with those broker-dealers. A marketing expense allowance is paid to
American Funds Distributors (AFD) in consideration of the marketing assistance
AFD provides to LFD. This allowance, which ranges from 0.10% to 0.16% is based
on the amount of purchase payments initially allocated to the American Funds
Insurance Series underlying the variable annuity. Commissions and other
incentives or payments described above are not charged directly to contract
owners or the Separate Account. All compensation is paid from our resources,
which include fees and charges imposed on your contract.
Contractowner Questions
The obligations to purchasers under the contracts are those of Lincoln New
York. This prospectus provides a general description of the contract. Questions
about your contract should be directed to us at 1-888-868-2583.
Federal Tax Matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax
rules that may affect you and your contract. This discussion also does not
address other Federal tax consequences (including consequences of sales to
foreign individuals or entities), or state or local tax consequences,
associated with the contract. As a result, you should always consult a tax
adviser about the application of tax rules to your individual situation.
Nonqualified Annuities
This part of the discussion describes some of the Federal income tax rules
applicable to nonqualified annuities. A nonqualified annuity is a contract not
issued in connection with a qualified retirement plan, such as an IRA or a
section 403(b) plan, receiving special tax treatment under the tax code. We may
not offer nonqualified annuities for all of our annuity products.
Tax Deferral On Earnings
The Federal income tax law generally does not tax any increase in your contract
value until you receive a contract distribution. However, for this general rule
to apply, certain requirements must be satisfied:
o An individual must own the contract (or the tax law must treat the contract
as owned by an individual).
o The investments of the VAA must be "adequately diversified" in accordance
with IRS regulations.
o Your right to choose particular investments for a contract must be limited.
o The annuity commencement date must not occur near the end of the annuitant's
life expectancy.
Contracts Not Owned By An Individual
If a contract is owned by an entity (rather than an individual) the tax code
generally does not treat it as an annuity contract for Federal income tax
purposes. This means that the entity owning the contract pays tax currently on
the excess of the contract value over the purchase payments for the contract.
Examples of contracts where the owner pays current tax on the contract's
earnings are contracts issued to a corporation or a trust. Some exceptions to
the rule are:
o immediate annuity contracts, purchased with a single premium, when the
annuity starting date is no later than a year from purchase of the annuity
and substantially equal periodic payments are made, not less frequently
than annually, during the annuity payout period;
34
o contracts in which the named owner is a trust or other entity that holds the
contract as an agent for an individual;
o contracts acquired by an estate of a decedent;
o certain qualified contracts;
o contracts purchased by employers upon the termination of certain qualified
plans; and
o certain contracts used in connection with structured settlement agreements.
Investments In The VAA Must Be Diversified
For a contract to be treated as an annuity for Federal income tax purposes, the
investments of the VAA must be "adequately diversified." IRS regulations define
standards for determining whether the investments of the VAA are adequately
diversified. If the VAA fails to comply with these diversification standards,
you could be required to pay tax currently on the excess of the contract value
over the contract gross purchase payments. Although we do not control the
investments of the underlying investment options, we expect that the underlying
investment options will comply with the IRS regulations so that the VAA will be
considered "adequately diversified."
Restrictions
Federal income tax law limits your right to choose particular investments for
the contract. Because the IRS has not issued guidance specifying those limits,
the limits are uncertain and your right to allocate contract values among the
subaccounts may exceed those limits. If so, you would be treated as the owner
of the assets of the VAA and thus subject to current taxation on the income,
bonus credits, persistency credits and gains, if applicable, 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.
Loss Of Interest Deduction
After June 8, 1997, if a contract is issued to a taxpayer that is not an
individual, or if a contract is held for the benefit of an entity, the entity
will lose a portion of its deduction for otherwise deductible interest
expenses.
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
possible that the tax law will not treat the contract as an annuity for Federal
income tax purposes. In that event, you would be currently taxed on the excess
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
purposes and that the tax law will not tax any increase in your contract value
until there is a distribution from your contract.
Taxation Of Withdrawals And Surrenders
You will pay tax on withdrawals to the extent your contract value exceeds your
gross purchase payments in the contract. This income (and all other income from
your contract) is considered ordinary income (and does not receive capital
gains treatment and is not qualified dividend income). A higher rate of tax is
paid on ordinary income than on capital gains. You will pay tax on a surrender
to the extent the amount you receive exceeds your gross purchase payments. In
certain circumstances, your gross purchase payments are reduced by amounts
received from your contract that were not included in income.
Taxation Of Regular Income Payments
The tax code imposes tax on a portion of each regular income payment (at
ordinary income tax rates) and treats a portion as a nontaxable return of your
purchase payments in the contract. If required by law, we will notify you
annually of the taxable amount of your regular income payment. Once you have
recovered the total amount of the gross purchase payment in the contract, you
will pay tax on the full amount of your regular income payments. If regular
income payments end because of the annuitant's death and before the total
amount in the contract has been distributed, the amount not received will
generally 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 periodic income
commencement date.
Death prior to the periodic income commencement date:
o If the beneficiary receives death benefits as regular income payments, they
are taxed in the same manner as annuity payouts.
o If the beneficiary does not receive death benefits as regular income
payments, they are taxed in the same manner as a withdrawal.
35
Death after the periodic income commencement date:
o If death benefits are received in accordance with the existing regular
income payment option, they are excludible from income if they do not
exceed the purchase payments not yet distributed from the contract. All
regular income payments in excess of the purchase payments not previously
received are includible in income.
o If death benefits are received in a lump sum, the tax law imposes tax on the
amount of death benefits which exceeds the amount of gross purchase
payments not previously received.
Penalty Taxes Payable On Withdrawals, Surrenders, Or Annuity Payouts
The tax code may impose a 10% penalty tax on any distribution from your
contract which you must include in your gross income. The 10% penalty tax does
not apply if one of several exceptions exists. These exceptions include
withdrawals, surrenders, or annuity payouts that:
o you receive from an immediate annuity,
o you receive on or after you reach 591/2,
o you receive because you became disabled (as defined in the tax law),
o a beneficiary receives on or after your death, or
o you receive as a series of substantially equal periodic payments based on
your life or life expectancy (non-natural owners holding as agent for an
individual do not qualify).
Special Rules If You Own More Than One Annuity Contract
In certain circumstances, you must combine some or all of the nonqualified
annuity contracts you own in order to determine the amount of an annuity
payout, a surrender, or a withdrawal that you must include in income. For
example, if you purchase two or more deferred annuity contracts from the same
life insurance company (or its affiliates) during any calendar year, the tax
code treats all such contracts as one contract. Treating two or more contracts
as one contract could affect the amount of a surrender, a withdrawal or an
annuity payout that you must include in income and the amount that might be
subject to the penalty tax described previously.
Loans and Assignments
Except for certain qualified contracts, the tax code treats any amount received
as a loan under your contract, and any assignment or pledge (or agreement to
assign or pledge) of any portion of your contract value, as a withdrawal of
such amount or portion.
Gifting A Contract
If you transfer ownership of your contract, other than to your spouse (or to
your former spouse incident to divorce), and receive a payment less than your
contract's value, you will pay tax on your contract value to the extent it
exceeds your gross purchase payments not previously received. The new owner's
gross purchase payments in the contract would then be increased to reflect the
amount included in income.
Qualified Retirement Plans
We also designed the contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called
"qualified contracts." We issue contracts for use with various 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 the use of the contract with the various
types of qualified plans. Persons planning to use the contract in connection
with a qualified plan should obtain advice from a competent tax adviser.
Types of Qualified Contracts and Terms of Contracts
Qualified plans include the following:
o Individual Retirement Accounts and Annuities ("Traditional IRAs")
o Roth IRAs
o Traditional IRA that is part of a Simplified Employee Pension Plan ("SEP")
o SIMPLE 401(k) plans (Savings Incentive Matched Plan for Employees)
o 401(a) plans (qualified corporate employee pension and profit-sharing plans)
o 403(a) plans (qualified annuity plans)
o 403(b) plans (public school system and tax-exempt organization annuity
plans)
o H.R. 10 or Keogh Plans (self-employed individual plans)
o 457(b) plans (deferred compensation plans for state and local governments
and tax-exempt organizations)
o Roth 403(b) plans
36
We do not offer certain types of qualified plans for all of our annuity
products. Check with your representative concerning qualified plan availability
for this product.
We will amend contracts to be used with a qualified plan as generally necessary
to conform to the tax law requirements for the type of plan. However, the
rights of a person to any qualified plan benefits may be subject to the plan's
terms and conditions, regardless of the contract's terms and conditions. In
addition, we are not bound by the terms and conditions of qualified plans to
the extent such terms and conditions contradict the contract, unless we
consent.
Tax Treatment of Qualified Contracts
The Federal income tax rules applicable to qualified plans and qualified
contracts vary with the type of plan and contract. For example:
o 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
payments. These limits vary depending on the type of qualified plan and the
plan participant's specific circumstances, e.g., the participant's
compensation.
o Under most qualified plans, such as a traditional IRA, the owner must begin
receiving payments from the contract in certain minimum amounts by a
certain age, typically age 701/2. Other qualified plans may allow the
participant to take required distributions upon the later of reaching age
701/2 or retirement.
o Loans are allowed under certain types of qualified plans, but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some section 403(b) plans, but
prohibit loans under Traditional and Roth IRAs. If allowed, loans are
subject to a variety of limitations, including restrictions as to the loan
amount, the loan's duration, the rate of interest, and the manner of
repayment. Your contract or plan may not permit loans.
Tax Treatment of Payments
The Federal income tax rules generally include distributions from a qualified
contract in the participant's income as ordinary income. These taxable
distributions will include gross purchase payments that were deductible or
excludible from income. Thus, under many qualified contracts, the total amount
received is included in income since a deduction or exclusion from income was
taken for purchase payments. There are exceptions. For example, you do not
include amounts received from a Roth IRA in income if certain conditions are
satisfied.
Required Minimum Distributions
Under most qualified plans, you must begin receiving payments from the contract
in certain minimum amounts by the later of age 701/2 or retirement. You are
required to take distributions from your traditional IRAs beginning in the year
you reach age 701/2. If you own a Roth IRA, you are not required to receive
minimum distributions from your Roth IRA during your life.
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 equals 50% of the amount by which a minimum
required distribution exceeds the actual distribution from the qualified plan.
The IRS has issued new regulations concerning required minimum distributions.
The regulations may impact the distribution method you have chosen and the
amount of your distributions. Under new regulations, the presence of an
enhanced death benefit, or other benefit which could provide additional value
to your contract, may require you to take additional distributions. An enhanced
death benefit is any death benefit that has the potential to pay more than the
contract value or a return of purchase payments. Annuity contracts inside
Custodial or Trusteed IRAs will also be subject to these regulations. Please
contact your tax adviser regarding any tax ramifications.
Federal Penalty Taxes Payable on Distributions
The tax code may impose a 10% penalty tax on a distribution from a qualified
contract that must be included in income. The tax code does not impose the
penalty tax if one of several exceptions applies. The exceptions vary depending
on the type of qualified contract you purchase. For example, in the case of an
IRA, exceptions provide that the penalty tax does not apply to a withdrawal,
surrender, or annuity payout:
o received on or after the annuitant reaches 591/2,
o received on or after the annuitant's death or because of the annuitant's
disability (as defined in the tax law),
o received as a series of substantially equal periodic payments based on the
annuitant's life (or life expectancy), or
o received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
Transfers and Direct Rollovers
As a result of Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA), you may be able to move funds between different types of qualified
plans, such as 403(b) and 457(b) governmental plans, by means of a rollover or
transfer. You may be able to
37
rollover or transfer amounts between qualified plans and traditional IRAs.
These rules do not apply to Roth IRAs and 457(b) non-governmental tax-exempt
plans. The Pension Plan Act permits direct conversions from certain qualified,
403(b) or 457(b) plans to Roth IRAs (effective for distributions after 2007).
There are special rules that apply to rollovers, direct rollovers and transfers
(including rollovers or transfers of after-tax amounts). If the applicable
rules are not followed, you may incur adverse Federal income tax consequences,
including paying taxes which you might not otherwise have had to pay. Before we
send a rollover distribution, we will provide a notice explaining tax
withholding requirements (see Federal Income Tax Withholding). We are not
required to send you such notice for your IRA. You should always consult your
tax adviser before you move or attempt to move any funds.
Pursuant to IRS regulations, IRAs may not invest in life insurance contracts.
We do not believe that these regulations prohibit the death benefit from being
provided under the contract when we issue the contract as a Traditional or Roth
IRA. However, the law is unclear and it is possible that the presence of the
death benefit under a contract issued as a Traditional or Roth IRA could result
in increased taxes to you. Certain death benefit options may not be available
for all of our products.
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 you notify us prior to 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 you an explanation of
the withholding requirements.
Our Tax Status
Under existing Federal income tax laws, we do not pay tax on investment income
and realized capital gains of the VAA. We do not expect that we will incur any
Federal income tax liability on the income and gains earned by the VAA.
Therefore, we do not impose a charge for Federal income taxes. If Federal
income tax law changes and we must pay tax on some or all of the income and
gains earned by the VAA, we may impose a charge against the VAA to pay the
taxes.
Changes In The law
The above discussion is based on the tax code, IRS regulations, and
interpretations existing on the date of this prospectus. However, Congress, the
IRS, and the courts may modify these authorities, sometimes retroactively.
Additional Information
Voting Rights
As required by law, we will vote the fund shares held in the VAA at meetings of
the shareholders of the funds. The voting will be done according to the
instructions of contractowners who have interests in any subaccounts which
invest in classes of the funds. If the 1940 Act or any regulation under it
should be amended or if present interpretations should change, and if as a
result we determine that we are permitted to vote the fund shares in our own
right, we may elect to do so.
The number of votes which you have the right to cast will be determined by
applying your percentage interest in a subaccount to the total number of votes
attributable to the subaccount. In determining the number of votes, fractional
shares will be recognized.
Each underlying fund is subject to the laws of the state in which it is
organized concerning, among other things, the matters which are subject to a
shareholder vote, the number of shares which must be present in person or by
proxy at a meeting of shareholders (a "quorum"), and the percentage of such
shares present in person or by proxy which must vote in favor of matters
presented. Because shares of the underlying fund held in the Separate Account
are owned by us, and because under the 1940 Act we will vote all such shares in
the same proportion as the voting instruction which we receive, it is important
that each contractowner provide their voting instructions to us. Even though
contractowners may choose not to provide voting instruction, the shares of a
fund to which such contractowners would have been entitled to provide voting
instruction will, subject to fair representation requirements, be voted by us
in the same proportion as the voting instruction which we actually receive. As
a result, the instruction of a small number of contractowners could determine
the outcome of matters subject to shareholder vote. All shares voted by us will
be counted when the underlying fund determines whether any requirement for a
minimum number of shares be present at such a meeting to satisfy a quorum
requirement has been met. 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, we will provide or make available to
each person having a voting interest in a subaccount proxy voting material,
reports and other materials relating to the funds. Since the funds engage in
shared funding, other persons or entities besides Lincoln New York may vote
fund shares. See Investments of the Variable Annuity Account - Fund Shares.
38
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 Servicing
office at PO Box 7866, 1300 S. Clinton Street, Fort Wayne, IN 46802-7866. A
contract canceled under this provision will be void. Except as explained in the
following paragraph, we will return the contract value as of the valuation date
on which we receive the cancellation request, plus any premium taxes which had
been deducted. A purchaser who participates in the VAA is subject to the risk
of a market loss on the contract value during the free-look period.
State Regulation
As a life insurance company organized and operated under New York law, we are
subject to provisions governing life insurers and to regulation by the New York
Superintendent of Insurance. Our books and accounts are subject to review and
examination by the New York Insurance Department at all times. A full
examination of our operations is conducted by that Department at least every
five years.
Records and Reports
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
have entered into an agreement with Bank of New York Mellon, One Mellon Bank
Center, 500 Grant Street, Pittsburgh, Pennsylvania, 15258, to provide
accounting services to the VAA. We will mail to you, at your last known address
of record at the Servicing office, at least semi-annually after the first
contract year, reports containing information required by that Act or any other
applicable law or regulation. Administrative services necessary for the
operations of the VAA and the contracts are currently provided by Lincoln Life.
However, neither the assets of Lincoln Life nor the assets of LNC support the
obligation of Lincoln New York under the contracts.
Other Information
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the contracts being offered here. This prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further
information about the VAA, Lincoln New York and the contracts offered.
Statements in this prospectus about the content of contracts and other legal
instruments are summaries. For the complete text of those contracts and
instruments, please refer to those documents as filed with the SEC.
You may elect to receive your prospectus, prospectus supplements, quarterly
statements, and annual and semiannual reports electronically over the Internet,
if you have an e-mail account and access to an Internet browser. Once you
select eDelivery, via the Internet Service Center, all documents available in
electronic format will no longer be sent to you in hard copy. You will receive
an e-mail notification when the documents become available online. It is your
responsibility to provide us with your current e-mail address. You can resume
paper mailings at any time without cost, by updating your profile at the
Internet Service Center, or contacting us. To learn more about this service,
please log on to www.LFG.com, select service centers and continue on through
the Internet Service Center.
Legal Proceedings
In the ordinary course of its business, Lincoln New York, the VAA, and the
principal underwriter may become or are involved in various pending or
threatened legal proceedings, including purported class actions, arising from
the conduct of business. In some instances, these proceedings include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for alleged contractual liability or requests for equitable
relief. After consultation with legal counsel and a review of available facts,
it is management's opinion that these proceedings, after consideration of any
reserves and rights to indemnification, ultimately will be resolved without
materially affecting the financial position of Lincoln New York, the VAA, or
the principal underwriter. However, given the large and indeterminate amounts
sought in certain of these proceedings and the inherent difficulty in
predicting the outcome of such legal proceedings, it is possible that an
adverse outcome in certain matters could be material to our operating results
for any particular reporting period.
39
Contents of the Statement of Additional Information (SAI)
for Lincoln New York Account N for Variable Annuities
Item
Special Terms
Services
Principal Underwriter
Purchase of Securities Being Offered
Examples of Regular Income Payment
Calculations
Determination of Accumulation and Annuity Unit
Value
Advertising
Other Information
Financial Statements
For a free copy of the SAI complete the form below:
Statement of Additional Information Request Card
Lincoln ChoicePlus AssuranceSM (A Share) i4LIFE (Reg. TM) Advantage (New York)
Lincoln New York Account N for Variable Annuities
Please send me a free copy of the current Statement of Additional Information
for Lincoln New York Account N for Variable Annuities.
(Please Print)
Name: -------------------------------------------------------------------------
Address: ----------------------------------------------------------------------
City -------------------------------------------- State ----------- Zip -------
Mail to Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne,
Indiana 46801.
40
American Legacy Shareholder's Advantage i4LIFE (Reg. TM) Advantage (New York)
Lincoln Life & Annuity Variable Annuity
Account H
Individual Variable Annuity Contracts
Home Office:
Lincoln Life & Annuity Company of New York
100 Madison Street, Suite 1860
Syracuse, NY 13202
www.LFG.com
Servicing Office:
Lincoln Life & Annuity Company of New York
PO Box 7866
Fort Wayne, IN 46802-7866
1-800-942-5500
This prospectus describes the individual single premium immediate variable
annuity contract that is issued by Lincoln Life & Annuity Company of New York.
It is for use with nonqualified plans and for qualified retirement plans under
Sections 408 (IRAs) and 408A (Roth IRAs) of the tax code. Generally, you do not
pay federal income tax on the contract's growth until it is paid out. The
contract is designed to provide retirement income on a variable basis for the
life of the annuitant and a secondary life. The contract also provides a death
benefit and the ability to make withdrawals during a defined period of time
(access period). A minimum payout floor, the Guaranteed Income Benefit, is
available for an additional charge.
The minimum gross purchase payment for the contract is $50,000. Gross purchase
payments may not exceed $2 million without our approval.
Currently, there is no fixed account in this product.
All purchase payments for benefits on a variable basis will be placed in
Lincoln Life & Annuity Variable Annuity Account H (variable annuity account
[VAA]). The VAA is a segregated investment account of Lincoln New York. You
take all the investment risk on the account value and the retirement income for
amounts placed into one or more of the contract's variable options. If the
subaccounts you select make money, your account 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. Government nor any federal
agency insures or guarantees your investment in the contract. The contracts are
not bank deposits and are not endorsed by any bank or government agency.
The available funds, each part of the American Funds Insurance Series (Series)
Class 2 shares, are listed below:
Asset Allocation
Blue Chip Income and Growth
Bond
Cash Management
Global Bond
Global Discovery
Global Growth
Global Growth and Income
Global Small Capitalization
Growth
Growth-Income
High-Income Bond
International
New World
U.S. Government/AAA-Rated Securities
This prospectus gives you information about the contracts that you should know
before you decide to buy a contract and make gross purchase payments. You
should also review the prospectuses for the funds that accompany this
prospectus, and keep all prospectuses for future reference.
Neither the SEC nor any state securities commission has approved this contract
or determined that this prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
More information about the contracts is in the current Statement of Additional
Information (SAI), dated the same date as this prospectus. The SAI is
incorporated by reference into this prospectus and is legally part of this
prospectus. For a free copy of the SAI, write:
1
Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, IN
46802-7866, or call 1-800-942-5500. The SAI and other information about Lincoln
New York and the VAA are also available on the SEC's website
(http://www.sec.gov). There is a table of contents for the SAI on the last page
of this prospectus.
_________, 2008
2
Table of Contents
Item Page
Special Terms 4
Expense Tables 5
Summary of Common Questions 8
Lincoln Life & Annuity Company of New York 9
Variable Annuity Account (VAA) 10
Investments of the Variable Annuity Account 10
Charges And Other Deductions 12
The Contracts 14
Purchase Payments 15
Regular Income Payments During The Access Period 16
Regular Income Payments During The Lifetime Income Period 17
Access Period 17
Account Value 18
Guaranteed Income Benefit 18
Death Benefits 20
Transfers During The Access Period 22
Transfers During The Lifetime Income Period 22
Investment Requirements 25
Surrenders and Withdrawals 25
Distribution of the Contracts 26
Federal Tax Matters 27
Additional Information 32
Voting Rights 32
Return Privilege 32
Other Information 32
Legal Proceedings 33
Contents of the Statement of Additional Information (SAI)
for Lincoln Life & Annuity Variable Annuity Account H 34
3
Special Terms
In this prospectus, the following terms have the indicated meanings:
Access period - A defined period of time during which we pay variable, periodic
regular income payments and provide a death benefit, and during which you may
surrender the contract and make withdrawals from your account value.
Account or variable annuity account (VAA) - The segregated investment account,
Account H, into which we set aside and invest the assets for the variable side
of the contract offered in this prospectus.
Account value - During the access period, on any valuation date the sum of the
values of the variable subaccounts attributable to the contract.
Accumulation unit - A measure used to calculate the account value for the
variable side of the contract during the access period.
Annuitant - The person upon whose life the regular income payments will be
contingent, and upon whose life a death benefit may be paid.
Annuity unit - A measure used to calculate the amount of regular income
payments during the lifetime income period.
Contractowner (you, your, owner) - The person who can exercise the rights
within the contract (decides on investment allocations, transfers, payout
option, designates the beneficiary, etc.).
Contract year - Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Death benefit - During the access period, the amount payable if the
contractowner, joint owner or annuitant dies. See The Contracts - Death
Benefit.
Gross purchase payments - Amounts paid into the contract before deduction of
the sales charge.
Lifetime income period - The period that begins after the access period during
which we pay variable, periodic regular income payments, provided the
annuitant, or in the case of a joint life payout the annuitant or the secondary
life, is still living and the contract has not been surrendered.
Lincoln New York (we, us, our) - Lincoln Life & Annuity Company of New York.
Net purchase payments - The gross purchase payment amount less the sales
charge. The net purchase payment is the amount placed in the fixed account
and/or the variable account.
Periodic income commencement date - The valuation date on which the initial
regular income payment under this contract is calculated, as shown in your
contract.
Regular income payments - Variable, periodic regular income payments during the
access period and the lifetime income period for as long as an annuitant or
secondary life is living.
Secondary life - A person in addition to the annuitant, selected by the
contractowner, upon whose life the regular income payments will also be
contingent.
Subaccount - The portion of the VAA that reflects investments in accumulation
and annuity units of a class of a particular fund available under the
contracts. There is a separate subaccount which corresponds to each class of a
fund.
Valuation date - Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation period - The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (valuation
date) and ending at the close of such trading on the next valuation date.
4
Expense Tables
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the contract.
The first table describes the fees and expenses that you will pay at the time
that you buy the contract, surrender the contract, or transfer account value
between investment options. State premium taxes may also be deducted.
Contractowner Transaction Expenses:
o Sales charge (as a percentage of gross purchase payments): 5.75%*
* The sales charge percentage decreases as the value accumulated under
certain of the owner's investments increases. See Charges and Other
Deductions -
Sales Charge.
The next table describes the fees and expenses that you will pay periodically
during the time that you own the contract, not including fund fees and
expenses.
Separate Account Annual Expenses (as a percentage of average daily net assets
in the subaccounts):
During the Access Period:
Guarantee of Enhanced Guaranteed
Account Value Principal Death Minimum Death
Death Benefit Benefit Benefit (EGMDB)
--------------- ----------------- --------------------
o Mortality and expense risk charge 0.95% 1.05% 1.20%
o Administrative charge 0.10% 0.10% 0.10%
--
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05% 1.15% 1.30%
o Guaranteed Income Benefit
Maximum charge (optional)* 1.50% 1.50% 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55% 2.65% 2.80%
* The current Guaranteed Income Benefit charge is .50% The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
During the Lifetime Income Period:
o Mortality and expense risk charge 0.95%
o Administrative charge 0.10%
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05%
o Guaranteed Income Benefit
Maximum charge(optional)* 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55%
* The current Guaranteed Income Benefit charge is .50%. The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
The next item shows the minimum and maximum total annual operating expenses
charged by the funds that you may pay periodically during the time that you own
the contract. The expenses are for the year ended December 31, 2007. More
detail concerning each fund's fees and expenses is contained in the prospectus
for each fund.
5
Maximum Minimum
--------- --------
Total Annual Fund Operating Expenses
(expenses that are deducted from fund assets,
including management fees, distribution and/or
service (12b-1) fees, and other expenses): 1.07% 0.52%
Net Total Annual Fund Operating Expenses
(after contractual waivers/reimbursements*): 1.07% 0.52%
6
The following table shows the expenses charged by each fund for the year ended
December 31, 2007:
(as a percentage of each fund's average net assets):
Managemen
nt
Fees + Fees + Expenses = Expenses *
Asset Allocation .31 % .25 % .01 % .57 %
Blue Chip Income and Growth .41 .25 .01 .67
Bond .40 .25 .01 .66
Cash Management .32 .25 .01 .58
Global Bond .57 .25 .04 .86
Global Discovery .58 .25 .02 .85
Global Growth .53 .25 .02 .80
Global Growth and Income .69 .25 .02 .96
Global Small Capitalization .70 .25 .03 .98
Growth .32 .25 .01 .58
Growth-Income .26 .25 .01 .52
High-Income Bond .47 .25 .01 .73
International .49 .25 .03 .77
New World .76 .25 .06 1.07
U.S. Government/AAA-Rated Securities .45 .25 .01 .71
* The investment adviser is voluntarily waiving up to 10% of its management
fee. The waiver may be discontinued at any time in consultation with the
Series' board, but is expected to continue at its current level until further
review. Total Expenses do not reflect this waiver. Information regarding the
effect of any waiver on Total Expenses can be found in the Financial Highlights
table in the Series' prospectus and in the audited financial statements in the
Series' annual report.
Certain underlying funds have reserved the right to impose fees when fund
shares are redeemed within a specified period of time of purchase ("redemption
fees") not reflected in the table above. As of the date of this prospectus,
none have done so. See The Contracts - Market Timing for a discussion of
redemption fees.
For information concerning compensation paid for the sale of the contracts, see
Distribution of the Contracts.
7
EXAMPLES
This Example is intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include contractowner transaction expenses, contract fees, separate
account annual expenses, and fund fees and expenses.
The Example assumes that you invest $10,000 in the contract for the time
periods indicated. The Example also assumes that your investment has a 5%
return each year, the maximum fees and expenses of any of the funds and that
the EGMDB and the Guaranteed Income Benefit are in effect. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1) If you surrender your contract at the end of the applicable time period:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
$946 $1,699 $2,468 $4,467
2) If you do not surrender your contract at the end of the applicable time
period:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
$946 $1,699 $2,468 $4,467
For more information, see Charges and Other Deductions in this prospectus, and
the prospectuses for the funds. Premium taxes may also apply, although they do
not appear in the examples. These examples should not be considered a
representation of past or future expenses. Actual expenses may be more or less
than those shown.
Summary of Common Questions
What kind of contract am I buying? It is an immediate individual variable
annuity contract between you and Lincoln New York. This prospectus primarily
describes the variable side of the contract. The contract combines variable
regular income payments for life with the ability to make withdrawals during
the access period. See The Contracts.
What is the variable annuity account (VAA)? It is a separate account we
established under New York insurance law, and registered with the SEC as a unit
investment trust. VAA assets are allocated to one or more subaccounts,
according to your investment choices. VAA assets are not chargeable with
liabilities arising out of any other business which we may conduct. See
Variable Annuity Account.
What are Asset Allocation Models? Asset allocation models are designed to
assist you in deciding how to allocate your purchase payments among the various
subaccounts. Each model provides a diversified investment portfolio by
combining different asset classes to help it reach its stated investment goal.
See The Contracts - Asset Allocation Models.
What are Investment Requirements? If you elect the Guaranteed Income Benefit,
you will be subject to certain requirements for your subaccount investments.
You will be limited in how much you can invest in certain subaccounts. See The
Contracts - Investment Requirements.
What are my investment choices? Based upon your instruction for purchase
payments, the VAA applies your purchase payments to buy shares in one or more
of the investment options. In turn, each fund holds a portfolio of securities
consistent with its investment policy. See Investments of the Variable Annuity
Account - Description of the Funds.
Who invests my money? The investment adviser for the funds is Capital Research
and Management Company (CRMC), 333 South Hope Street, Los Angeles, California
90071. CRMC is registered as an investment adviser with the SEC. See
Investments of the Variable Annuity Account-Investment Adviser.
How does the contract work? If we approve your application, we will send you a
contract. When you purchase the contract you buy accumulation units. Your
contract provides periodic variable lifetime income payments, a death benefit,
and the ability to make withdrawals during a defined period of time (access
period). For an additional charge, you may purchase a minimum payout floor, the
Guaranteed Income Benefit. At the end of the access period your accumulation
units are converted to annuity units. Your regular income payments will be
based on the number of accumulation units or annuity units you have and the
value of each unit on payout days. See The Contracts. 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 charges do I pay under the contract? A front-end load is determined based
on the gross purchase payment. The amount of the sales charge may be reduced
based on the size of the gross purchase payment. The maximum front-end load is
5.75% of the gross purchase payment.
There is no charge for a transfer.
8
We will deduct any applicable premium tax from gross purchase payments or
contract value at the time the tax is incurred or at another time we choose.
See Expense Tables and Charges and Other Deductions for additional fees and
expenses in these contracts.
The funds' investment management fees, 12b-1 fees, expenses and expense
limitations, if applicable, are more fully described in the prospectuses for
the funds.
For information about the compensation we pay for sales of contracts, see The
Contracts - Distribution of the Contracts.
What purchase payments do I make? The minimum gross purchase payment for the
contract is $50,000. After the periodic income commencement date, additional
gross purchase payments cannot be accepted.
What is the Guaranteed Income Benefit? It is an additional option which
guarantees that your regular income payments will never be less than the
guaranteed income payment shown in your contract adjusted for withdrawals,
regardless of the actual investment performance of your contract.
What happens if the annuitant dies before the end of the access period? You may
elect to receive death benefit proceeds or continue receiving regular income
payments if there is a secondary life. See The Contracts - Death Benefit.
May I transfer account value between variable options of the contract? Yes,
subject to currently effective restrictions. For example,
transfers made during the access period are generally restricted to no more
than twelve (12) per contract year. See The Contracts - Transfers.
May I surrender the contract or make a withdrawal? Yes, during the access
period, subject to contract requirements and to the restrictions of any
qualified retirement plan through which the contract was purchased. A portion
of surrender or withdrawal proceeds may be taxable. See Federal Tax Matters.
Do I get a free look at this contract? Yes. You can cancel the contract within
ten days of the date you first receive the contract. You need to return the
contract, postage prepaid, to our Servicing office. You assume the risk of any
market drop on purchase payments you allocate to the variable side of the
contract. See Return Privilege.
Where may I find more information about accumulation unit values? Because the
subaccounts which are available under the contracts did not begin operation
before the date of this prospectus, financial information for the subaccounts
is not included in this Prospectus or in the SAI.
Investment Results
At times, the VAA may compare its investment results to various unmanaged
indices or other variable annuities in reports to shareholders, sales
literature and advertisements. The results will be calculated on a total return
basis for various periods. Total returns include the reinvestment of all
distributions, which are reflected in changes in unit value. The money market
subaccount's yield is based upon investment performance over a 7-day period,
which is then annualized.
During extended periods of low interest rates, the yields of any subaccount
investing in a money market fund may also become extremely low and possibly
negative.
The money market yield figure and annual performance of the subaccounts are
based on past performance and do not indicate or represent future performance.
Lincoln Life & Annuity Company of New York
Lincoln New York (the Company) is a stock life insurance company chartered in
New Jersey in 1897 and redomesticated to New York on April 2, 2007. Lincoln New
York is a subsidiary of The Lincoln National Life Insurance Company (Lincoln
Life). Lincoln Life is an Indiana-domiciled insurance corporation, engaged
primarily in the direct issuance of life insurance contracts and annuities.
Lincoln Life is wholly owned by Lincoln National Corporation (LNC), a publicly
held insurance and financial services holding company incorporated in Indiana.
Lincoln New York is obligated to pay all amounts promised to policy owners
under the policies. Guarantees provided within death benefit options and living
benefit riders are backed by the claims-paying ability of Lincoln New York.
Lincoln Financial Group is the marketing name for Lincoln National Corporation
(NYSE:LNC) and its affiliates. Lincoln Financial Group sells a wide variety of
financial products and solutions through financial advisors: mutual funds,
managed accounts, retirement solutions, life insurance, 401(k) and 403(b)
plans, savings plans, institutional investments and comprehensive financial
planning and advisory services
9
Variable Annuity Account (VAA)
On July 24, 1996, the VAA was established as an insurance company separate
account under New York 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 VAA is a segregated investment account, meaning that its assets may not be
charged with liabilities resulting from any other business that we may conduct.
Income, gains and losses, whether realized or not, from assets allocated to the
VAA are, in accordance with the applicable annuity contracts, credited to or
charged against the VAA. They are credited or charged without regard to any
other income, gains or losses of Lincoln New York. We are the issuer of the
contracts and the obligations set forth in the contract, other than those of
the contractowner, are ours. The VAA satisfies the definition of a separate
account under the federal securities laws. We do not guarantee the investment
performance of the VAA. Any investment gain or loss depends on the investment
performance of the funds. You assume the full investment risk for all amounts
placed in the VAA.
The VAA is used to support other annuity contracts offered by us in addition to
the contracts described in this prospectus. The other annuity contracts
supported by the VAA generally invest in the same funds as the contracts
described in this prospectus. These other annuity contracts may have different
charges that could affect the performance of their subaccounts, and they offer
different benefits.
Financial Statements
The financial statements of the VAA and the financial statements of Lincoln New
York are located in the SAI. If you would like a free copy of the SAI, complete
and mail the request on the last page of this prospectus, or call
1-800-942-5500.
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. You may
change your allocation without penalty or charges. Shares of the funds will be
sold at net asset value with no initial sales charge to the VAA in order to
fund the contracts. The funds are required to redeem fund shares at net asset
value upon our request.
Investment Adviser
The investment adviser for the funds is Capital Research and Management Company
(CRMC), 333 South Hope Street, Los Angeles, California 90071. CRMC is one of
the nation's largest and oldest investment management organizations. As
compensation for its services to the fund, the investment adviser receives a
fee from the fund which is accrued daily and paid monthly. This fee is based on
the net assets of each fund, as defined, in the prospectus for the fund.
Administrative, Marketing and Support Service Fees
The American Funds offered as part of this contract make payments to us under
their distribution plans (12b-1 plans) in consideration of services provided
and expenses incurred by us in distributing Fund shares. The payment rate is
0.25% based on the amount of assets invested in the Funds. Payments made out of
the assets of the fund will reduce the amount of assets that otherwise would be
available for investment, and will reduce the return on your investment. The
dollar amount of future asset-based fees is not predictable because these fees
are a percentage of the fund's average net assets, which can fluctuate over
time. If, however, the value of the funds goes up, then so would the payment to
us (or our affiliates). Conversely, if the value of the funds goes down,
payments to us or our affiliates would decrease.
Description of the Funds
Each of the subaccounts of the VAA is invested solely in shares of one of the
funds available under the contract. Each fund may be subject to certain
investment policies and restrictions which may not be changed without a
majority vote of shareholders of that fund.
We select the funds offered through the contract based on several factors,
including, without limitation, asset class coverage, the strength of the
manager's reputation and tenure, brand recognition, performance, and the
capability and qualification of each sponsoring investment firm. Another factor
we consider during the initial selection process is whether the fund or an
affiliate of the fund will make payments to us or our affiliates. We review
each fund periodically after it is selected. Upon review, we may remove a fund
or restrict allocation of additional purchase payments to a fund if we
determine the fund no longer meets one or more of the factors and/or if the
fund has not attracted significant contractowner assets. Finally, when we
develop a variable annuity product in cooperation with a fund family or
distributor (e.g., a "private label" product), we generally will include funds
based on recommendations made by the fund family or distributor, whose
selection criteria may differ from our selection criteria.
Certain funds offered as part of this contract have similar investment
objectives and policies to other portfolios managed by the adviser. The
investment results of the funds, however, may be higher or lower than the other
portfolios that are managed by the
10
adviser or sub-adviser. There can be no assurance, and no representation is
made, that the investment results of any of the funds will be comparable to the
investment results of any other portfolio managed by the adviser or
sub-adviser, if applicable.
Following are brief summaries of the fund descriptions. More detailed
information may be obtained from the current prospectus for the fund. You
should read each fund prospectus carefully before investing. Please be advised
that there is no assurance that any of the funds will achieve their stated
objectives.
American Funds Insurance SeriesSM, advised by Capital Research and Management
Company
o Asset Allocation Fund (Class 2): Current income.
o Blue Chip Income and Growth Fund (Class 2): Income and growth.
o Bond Fund (Class 2): Current income.
o Cash Management Fund (Class 2): Preservation of capital.
o Global Bond Fund (Class 2): Total return.
o Global Discovery Fund (Class 2): Long-term growth.
o Global Growth Fund (Class 2): Long-term growth.
o Global Growth and Income Fund (Class 2): Growth and income.
o Global Small Capitalization Fund (Class 2): Long-term growth.
o Growth Fund (Class 2): Long-term growth.
o Growth-Income Fund (Class 2): Growth and income.
o High-Income Bond Fund (Class 2): High current income.
o International Fund (Class 2): Long-term growth.
o New World Fund (Class 2): Long-term growth.
o U.S. Government/AAA Rated Securities Fund (Class 2): High current income.
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. Redeemed
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 us, 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 a fund sells any of its shares both to variable annuity and to variable
life insurance separate accounts, it is said to engage in mixed funding. When a
fund sells any of its shares to separate accounts of unaffiliated life
insurance companies, it is said to engage in shared funding.
The funds currently engage in mixed and shared funding. Therefore, due to
differences in redemption rates or tax treatment, or other considerations, the
interest of various contractowners participating in a fund could conflict. Each
of the fund's Board of Directors will monitor for the existence of any material
conflicts, and determine what action, if any, should be taken. The funds do not
foresee any disadvantage to contractowners arising out of mixed or shared
funding. If such a conflict were to occur, one of the separate accounts might
withdraw its investment in a fund. This might force a fund to sell portfolio
securities at disadvantageous prices. See the prospectuses for the funds.
Reinvestment of Dividends and Capital Gain Distributions
All dividends and capital gain distributions of the funds are automatically
reinvested in shares of the distributing funds at their net asset value on the
date of distribution. Dividends are not paid out to contractowners as
additional units, but are reflected as changes in unit values.
Addition, Deletion Or Substitution of Investments
We reserve the right, within the law, to make certain changes to the structure
and operation of the VAA at our discretion and without your consent. We may
add, delete, or substitute funds for all contract owners or only for certain
classes of contractowners. New or substitute funds may have different fees and
expenses, and may only be offered to certain classes of contractowners.
11
Substitutions may be made with respect to existing investments. We may close
subaccounts to allocations of account value at any time in our sole discretion.
The funds, which sell their shares to the subaccounts pursuant to participation
agreements, also may terminate these agreements and discontinue offering their
shares to the subaccounts.
Substitutions might also occur if shares of a fund should no longer be
available, or if investment in any fund's shares should become inappropriate,
in the judgment of our management, for the purposes of the contract, or for any
other reason in our sole discretion and after approval from the SEC.
We also may:
o remove, combine, or add subaccounts and make the new subaccounts available
to you at our discretion;
o transfer assets supporting the contracts from one subaccount to another or
from the VAA to another separate account;
o combine the VAA with other separate accounts and/or create new separate
accounts;
o deregister the VAA under the 1940 Act; and
o operate the VAA as a management investment company under the 1940 Act or as
any other form permitted by law.
We may modify the provisions of the contracts to reflect changes to the
subaccounts and the VAA and to comply with applicable law. We will not make any
changes without any necessary approval by the SEC. We will also provide you
written notice.
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.
Our administrative services include:
o processing applications for and issuing the contracts;
o processing purchases and redemptions of fund shares as required (including
dollar cost averaging, cross-reinvestment and portfolio rebalancing - See
Additional Services and the SAI for more information on these programs);
o maintaining records;
o administering regular income payments;
o furnishing accounting and valuation services (including the calculation and
monitoring of daily subaccount values);
o reconciling and depositing cash receipts;
o providing contract confirmations;
o providing toll-free inquiry services; and
o furnishing telephone and electronic fund transfer services.
The mortality and expense risks we assume include:
o the risk that annuitants receiving regular income payments under contracts
live longer than we assumed;
o the risk that death benefits paid will exceed the actual account value;
o the risk that our costs in providing the services will exceed our revenues
from contract charges (which we cannot change); and
o the risk that, if the Guaranteed Income Benefit is in effect, the required
regular income payments will exceed the account value.
The amount of a charge may not necessarily correspond to the costs associated
with providing the services or benefits indicated by the description of the
charge. For example, the sales charge collected may not fully cover all of the
sales and distribution expenses actually incurred by us. Any remaining expenses
will be paid from our general account which may consist, among other things, of
proceeds derived from mortality and expense risk charges deducted from the
account. We may profit from one or more of the fees and charges deducted under
the contract. We may use these profits for any corporate purpose, including
financing the distribution of the contracts.
Deductions from the VAA
We apply to the average daily net asset value of the subaccounts a charge which
is equal to an annual rate of:
12
During the Access Period:
Guarantee of Enhanced Guaranteed
Account Value Principal Death Minimum Death
Death Benefit Benefit Benefit (EGMDB)
--------------- ----------------- --------------------
o Mortality and expense risk charge 0.95% 1.05% 1.20%
o Administrative charge 0.10% 0.10% 0.10%
--
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05% 1.15% 1.30%
o Guaranteed Income Benefit
Maximum charge (optional)* 1.50% 1.50% 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55% 2.65% 2.80%
* The current Guaranteed Income Benefit charge is .50% The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
During the Lifetime Income Period:
o Mortality and expense risk charge 0.95%
o Administrative charge 0.10%
o Total annual charge for each
subaccount without Guaranteed
Income Benefit 1.05%
o Guaranteed Income Benefit
Maximum charge(optional)* 1.50%
o Total annual charge for each
subaccount with Guaranteed
Income Benefit 2.55%
* The current Guaranteed Income Benefit charge is .50%. The percentage charge
will change to the current charge in effect at the time of each annual
step-up, not to exceed the guaranteed maximum annual charge of 1.50%.
Guaranteed Income Benefit
The Guaranteed Income Benefit is subject to a current annual charge of 0.50%,
which is added to the i4LIFE (Reg. TM) Advantage charge for a total of 1.55% of
the net asset value of the Account Value in the VAA for the i4LIFE (Reg. TM)
Advantage Account Value death benefit and 1.65% for the i4LIFE (Reg. TM)
Advantage Guarantee of Principal death benefit. The annual charge is 1.80% if
the i4LIFE (Reg. TM) Advantage EGMDB is elected.
The Guaranteed Income Benefit percentage charge may increase annually subject
to the guaranteed maximum charge of 1.50% each time the Guaranteed Income
Benefit increases as a result of the annual automatic step-up (described
later). Therefore, your percentage charge for the Guaranteed Income Benefit
could increase on every periodic income commencement date anniversary. If your
percentage charge is increased, you may ask us to reverse the step-up by giving
us notice within 30 days after the periodic income commencement anniversary. If
we receive this notice, we will decrease your Guaranteed Income Benefit and
percentage charge to the amounts they were before the step-up occurred.
Increased fees collected during the 30 day period will be refunded into your
contract. This reversal will only apply for this particular automatic annual
step-up. You will need to notify us each time the percentage charge increases
if you do not want the automatic annual step-up.
13
Sales Charge
A front-end load, or sales charge, will be applied to the initial gross
purchase payment that you may make. The charge is a percentage of the gross
purchase payment and is made according to the following scale:
Initial Gross Purchase Payment Sales Charge
-------------------------------- -------------
Under $25,000................. 5.75%
$25,000-$49,999............... 5.00%
$50,000-$99,999............... 4.50%
$100,000-$249,999............. 3.50%
$250,000-$499,999............. 2.50%
$500,000-$749,999............. 2.00%
$750,000-$999,999............. 1.50%
$1,000,000 or greater......... 1.00%
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 account
value when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation or by judicial action. These premium taxes
generally depend upon the law of your state of residence. The tax ranges from
zero to 3.5%. Currently, there is no premium tax levied for New York residents.
Other Charges and Deductions
There are additional deductions from and expenses paid out of the assets of the
underlying funds that are more fully described in the prospectuses for the
funds. Among these deductions and expenses are 12b-1 fees which reimburse us or
an affiliate for certain expenses incurred in connection with certain
administrative and distribution support services provided to the funds.
Additional Information
The charges described previously may be reduced or eliminated for any
particular contract. However, these reductions may be available only to the
extent that we anticipate lower distribution and/or administrative expenses, or
that we perform fewer sales or administrative services than those originally
contemplated in establishing the level of those charges, or when required by
law. Lower distribution and administrative expenses may be the result of
economies associated with:
o the use of mass enrollment procedures,
o the performance of administrative or sales functions by the employer,
o the use by an employer of automated techniques in submitting deposits or
information related to deposits on behalf of its employees, or
o any other circumstances which reduce distribution or administrative
expenses.
The exact amount of charges and fees applicable to a particular contract will
be stated in that contract.
The Contracts
Purchase of Contracts
If you wish to purchase a contract, you must apply for it through a sales
representative authorized by us. Certain broker-dealers may not offer all of
the features discussed in this prospectus. The completed application is sent to
us and we decide whether to accept or reject it. If the application is
accepted, a contract is prepared and executed by our legally authorized
officers. The contract is then sent to you through your sales representative.
See Distribution of the Contracts.
When a completed application and all other information necessary for processing
a purchase order is received at our Servicing office, an initial gross purchase
payment will be priced no later than two business days after we receive the
order. If you submit your application and/or initial gross purchase payment to
your agent, we will not begin processing your purchase order until we receive
the application and initial gross purchase payment from your agent's
broker-dealer. While attempting to finish an incomplete application, we may
hold the initial gross purchase payment for no more than five business days
unless we receive your consent to our retaining the payment until the
application is completed. If the incomplete application cannot be completed
within those five days and we have not received your consent, you will be
informed of the reasons, and the gross purchase payment will be returned
immediately. Once the application is complete, we will allocate your initial
gross purchase payment within two business days.
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Who Can Invest
To apply for a contract, you must be of legal age in a state where the
contracts may be lawfully sold and also be eligible to participate in any of
the qualified and nonqualified plans for which the contracts are designed. At
the time of issue, the contractowner, joint owner and annuitant must be under
age 81 for qualified contracts and under age 86 for non-qualified contracts.
Certain death benefit options may not be available at all ages. To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person who opens an account. When you open an
account, we will ask for your name, address, date of birth, and other
information that will allow us to identify you. We may also ask to see your
driver's license, photo i.d. or other identifying documents.
In accordance with money laundering laws and federal economic sanction policy,
the Company may be required in a given instance to reject a purchase payment
and/or freeze a contractowner's account. This means we could refuse to honor
requests for transfers, withdrawals, surrenders or death benefits. Once frozen,
monies would be moved from the VAA to a segregated interest-bearing account
maintained for the contractowner, and held in that account until instructions
are received from the appropriate regulator.
If you are purchasing the contract through a tax-favored arrangement, including
traditional IRAs and Roth IRAs, you should consider carefully the costs and
benefits of the contract (including annuity income benefits) before purchasing
the contract, since the tax-favored arrangement itself provides tax-deferred
growth.
Replacement of Existing Insurance
Careful consideration should be given prior to surrendering or withdrawing
money from an existing insurance contract to purchase the contract described in
this prospectus. Surrender charges may be imposed on your existing contract. An
investment representative or tax adviser should be consulted prior to making an
exchange. Cash surrenders from an existing contract may be subject to tax and
tax penalties.
Purchase Payments
The minimum gross purchase payment for the contract is $50,000. Additional
gross purchase payments are not permitted.
Valuation Date
Accumulation and annuity units will be valued once daily at the close of
trading (normally, 4:00 p.m., New York time) on each day the New York Stock
Exchange is open (valuation date). On any date other than a valuation date, the
accumulation unit value and the annuity unit value will not change.
Allocation of Purchase Payments
Net purchase payments allocated to the variable account are placed into the
VAA's subaccounts, according to your instructions.
The minimum amount of any purchase payment which can be put into any one
subaccount is $20.
If we receive your gross purchase payment from you or your broker-dealer in
good order at our Servicing office prior to 4:00 p.m., New York time, we will
use the accumulation unit value computed on that valuation date when processing
your gross purchase payment. If we receive your gross purchase payment at or
after 4:00 p.m., New York time, we will use the accumulation unit value
computed on the next valuation date. If you submit your gross purchase payment
to your representative, we will generally not begin processing the gross
purchase payment until we receive it from your representative's broker-dealer.
If your broker-dealer submits your gross purchase payment to us through the
Depository Trust and Clearing Corporation (DTCC) or, pursuant to terms
agreeable to us, uses a proprietary order placement system to submit your gross
purchase payment to us, and your gross purchase payment was placed with your
broker-dealer prior to 4:00 p.m., New York time, then we will use the
accumulation unit value computed on that valuation date when processing your
gross purchase payment. If your gross purchase payment was placed with your
broker-dealer at or after 4:00 p.m. New York time, then we will use the
accumulation unit value computed on the next valuation date.
The number of accumulation units determined in this way is not impacted by any
subsequent change in the value of an accumulation unit. However, the dollar
value of an accumulation unit will vary depending not only upon how well the
underlying fund's investments perform, but also upon the expenses of the VAA
and the underlying funds.
Valuation of Accumulation Units
Net purchase payments allocated to the VAA are converted into accumulation
units. This is done by dividing the amount allocated by the value of an
accumulation unit for the valuation period during which the purchase payments
are allocated to the VAA. The accumulation unit value for each subaccount was
or will be established at the inception of the subaccount. It may increase or
decrease from valuation period to valuation period. Accumulation unit values
are affected by investment performance of the funds, fund expenses, and the
contract charges. The accumulation unit value for a subaccount for a later
valuation period is determined as follows:
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1. The total value of the fund shares held in the subaccount is calculated by
multiplying the number of fund shares owned by the subaccount at the
beginning of the valuation period by the net asset value per share of the
fund at the end of the valuation period, and adding any dividend or other
distribution of the fund if an ex-dividend date occurs during the valuation
period; minus
2. The liabilities of the subaccount at the end of the valuation period; these
liabilities include daily charges imposed on the subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine result from the operations of the VAA; and
3. The result 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. Contracts
with different features have different daily charges, and therefore, will have
different corresponding accumulation unit values on any given day.
In certain circumstances, and when permitted by law, it may be prudent for us
to use a different standard industry method for this calculation, called the
Net Investment Factor method. We will achieve substantially the same result
using either method.
Valuation of Annuity Units
The annuity unit value for any valuation period for any variable subaccount is
determined by multiplying the annuity unit value for the immediately preceding
valuation period by 'A' divided by 'B', where:
'A' is a variable subaccount's accumulation unit value as of the end of the
current valuation period divided by the accumulation unit value of the same
variable subaccount as of the end of the immediately preceding valuation
period; and
'B' is the daily factor raised to a power equal to the number of days in the
current valuation period, where the daily factor is equal to (1+ assumed
interest rate) raised to the power of 1/365.
Regular Income Payments During The Access Period
This contract provides for variable, periodic regular income payments for the
life of the annuitant (and a secondary life if desired) and access to your
account value during the access period. When you purchase your contract, you
choose the annuitant, secondary life if applicable, the date you will receive
the initial regular income payment (which must be within one year of the
contract effective date), the frequency of the payments (monthly, quarterly,
semi-annually or annually), how often the payment is recalculated, the length
of the access period and the assumed investment return. For qualified
contracts, the secondary life must be your spouse, and both the annuitant and
secondary life must be older than 591/2. These choices will influence the
amount of your regular income payments.
Regular income payments must begin within one year of the contract effective
date. If you do not choose a payment frequency, the default is a monthly
frequency. You may also elect to have regular income payments from
non-qualified contracts recalculated only once each year rather than
recalculated at the time of each payment. This results in level regular income
payments between recalculation dates. Qualified contracts are only recalculated
once per year, at the beginning of each calendar year. You also choose the
assumed investment return. Return rates of 3%, 4% or 5% may be available. The
higher the assumed investment return you choose, the higher your initial
regular income payment will be and the higher the return must be to increase
subsequent regular income payments. You also choose the length of the access
period. Generally, shorter access periods will produce higher regular income
payments than longer access periods. At this time, changes can only be made on
periodic income commencement date anniversaries.
For information regarding income tax consequences of regular income payments,
please refer to Federal Tax Matters - Taxation of Regular Income Payments.
The amount of the initial regular income payment is determined on the periodic
income commencement date by dividing the account value (or, if within 90 days
of the effective date of the contract, the gross purchase payment if greater),
less applicable premium taxes by 1000 and multiplying the result by an annuity
factor. The annuity factor is based upon:
o the age and sex of the annuitant and secondary life, if applicable;
o the length of the access period selected;
o the frequency of the regular income payments;
o the assumed investment return you selected; and
o the Individual Annuity Mortality table specified in your contract.
The annuity factor used to determine the regular income payments reflects the
fact that, during the access period, you have the ability to withdraw the
entire account value and that a death benefit of the entire account value will
be paid to your beneficiary upon your death. These benefits during the access
period result in a slightly lower regular income payment, during both the
access period and the lifetime income period, than would be payable if this
access was not permitted and no lump-sum death benefit of the full account
value was payable. The annuity factor also reflects the requirement that there
be sufficient account value at the end of the access period to continue your
regular income payments for the remainder of your life (and/or the secondary
life if applicable), during the Lifetime Income Period, with no further access
or death benefit.
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The account value will vary with the actual net investment return of the
subaccounts selected, which then determines the subsequent regular income
payments during the access period. Each subsequent regular income payment
(unless the levelized option is selected) is determined by dividing the account
value on the applicable valuation date by 1000 and multiplying this result by
an annuity factor revised to reflect the declining length of the access period.
As a result of this calculation, the actual net returns in the account value
are measured against the assumed investment return to determine subsequent
regular income payments. If the actual net investment return (annualized) for
the contract exceeds the assumed investment return, the regular income payment
will increase at a rate approximately equal to the amount of such excess.
Conversely, if the actual net investment return for the contract is less than
the assumed investment return, the regular income payment will decrease. For
example, if net investment return is 3% higher (annualized) than the assumed
investment return, the regular income payment for the next year will increase
by approximately 3%. Conversely, if actual net investment return is 3% lower
than the assumed investment return, the regular income payment will decrease by
approximately 3%. If a higher assumed investment return is selected, regular
income payments will start at a higher level but will decrease more rapidly or
increase more slowly. See Examples of Regular Income Payment Calculations in
the SAI.
Withdrawals made during the access period will also reduce the account value
that is available for regular income payments, and subsequent regular income
payments will be reduced in the same proportion that withdrawals reduce the
account value.
For a joint life option, if either the annuitant or secondary life dies during
the access period, regular income payments will be recalculated using a revised
annuity factor based on the single surviving life, if doing so provides a
higher regular income payment. For nonqualified contracts, if both the
annuitant and secondary life,if applicable, die during the access period, the
annuity factor will be revised for a non-life contingent regular income payment
and regular income payments will continue until the account value is fully paid
out and the access period ends. As an alternative, a death benefit may be paid.
For qualified contracts, if the annuitant and secondary life, if applicable.
both die during the access period, the contract (and the Guaranteed Income
Benefit, if applicable) will terminate and a death benefit will be paid. See
The Contracts - Death Benefit.
Regular Income Payments During The Lifetime Income Period
The lifetime income period begins at the end of the access period if either the
annuitant or secondary life is living. Your earlier elections regarding the
frequency of regular income payments, assumed investment return and the
frequency of the recalculation do not change. The initial regular income
payment during the lifetime income period is determined by dividing the account
value on the last valuation date of the access period by 1000 and multiplying
the result by an annuity factor revised to reflect that the access period has
ended. The annuity factor is based upon:
o the age and sex of the annuitant and secondary life (if living);
o the frequency of the regular income payments;
o the assumed investment return you selected; and
o the Individual Annuity Mortality table specified in your contract.
The impact of the length of the access period and any withdrawals made during
the access period will continue to be reflected in the regular income payments
during the lifetime income period. See Examples of Regular Income Payment
Calculations in the SAI. To determine subsequent regular income payments, the
contract is credited with a fixed number of annuity units equal to the initial
regular income payment (during the lifetime income period) divided by the
annuity unit value (by subaccount). Subsequent regular income payments are
determined by multiplying the number of annuity units per subaccount by the
annuity unit value. Your regular income payments will vary based on the value
of your annuity units. If your regular income payments are adjusted on an
annual basis, the total of the annual payment is transferred to Lincoln New
York's general account to be paid out based on the payment mode you selected.
Your payment(s) will not be affected by market performance that year. Your
regular income payment(s) for the following year will be recalculated at the
beginning of the following year based on the current value of the annuity
units.
Regular income payments will continue for as long as the annuitant or secondary
life, if applicable, is living, and will continue to be adjusted for investment
performance of the subaccounts your annuity units are invested in. Regular
income payments vary with investment performance.
During the lifetime income period, there is no longer an account value;
therefore, no withdrawals are available and no death benefit is payable.
Access Period
You select the access period, which begins on the periodic income commencement
date. The access period is a defined period of time during which we pay
variable, periodic regular income payments and provide a death benefit, and
during which you may surrender the contract and make withdrawals from your
account value (defined below). At the end of the access period, the remaining
account value is used to make regular income payments for the rest of your life
(or the secondary life if applicable) and you will no longer be able to make
withdrawals or surrenders or receive a death benefit.
We will establish the minimum (currently 5 years) and maximum (currently to age
115 for non-qualified contracts; to age 100 for qualified contracts) access
periods. Generally, shorter access periods will produce a higher initial
regular income payment than longer access periods. At any time during the
access period, and subject to the rules in effect at that time, you may extend
or shorten the
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access period by sending us notice. Currently, if you extend the access period,
it must be extended at least 5 years. If you change the access period,
subsequent regular income payments will be adjusted accordingly, and the
account value remaining at the end of the new access period will be applied to
continue regular income payments for your life. Additional limitations on issue
ages and features may be necessary to comply with the IRC provisions for
required minimum distributions. We may reduce or terminate the access period in
order to keep the regular income payments in compliance with IRC provisions for
required minimum distributions. The minimum access period requirements for
Guaranteed Income Benefits are longer than the requirements for contracts
without a Guaranteed Income Benefit. Shortening the access period will
terminate the Guaranteed Income Benefit.
Account Value
The account value is the amount available to you during the access period for
withdrawals, surrender or as a death benefit. The initial account value is the
contract value on the valuation date, less any applicable premium taxes. During
the access period, the account value will be increased/decreased by any
investment gains/losses and will be reduced by regular income payments made and
any withdrawals taken.
After the access period ends, the remaining account value will be applied to
continue regular income payments for your life and the account value will be
reduced to zero.
Guaranteed Income Benefit
The Guaranteed Income Benefit may be elected at the time the contract is
purchased or at anytime during the access period (if the minimum access period
requirements can be met). Check with your investment representative regarding
the availability of this benefit. Election of this rider will limit how much
you can invest in certain subaccounts. See The Contracts - Investment
Requirements.
There is no guarantee that this Guaranteed Income Benefit option will be
available to elect in the future, as we reserve the right to discontinue this
option for new elections at any time. We also reserve the right to change the
assumed investment return for future purchasers only, at any time.
If the Guaranteed Income Benefit is in effect, your regular income payments
will never be less than a guaranteed minimum amount, regardless of the actual
investment performance of your contract. The Guaranteed Income Benefit is equal
to 75% of the initial regular income payment if elected at contract issue. If
the Guaranteed Income Benefit is elected after issue, it will equal 75% of the
regular income payment based on the account value on the effective date of the
election.
The Guaranteed Income Benefit is reduced by withdrawals (other than regular
income payments) in the same proportion that the withdrawals reduce the account
value. Additional withdrawals from account value will also reduce your death
benefit. You may want to discuss the impact of additional withdrawals with your
financial adviser.
The following example demonstrates the impact of a withdrawal on the regular
income payments and the Guaranteed Income Benefit payments:
o i4LIFE (Reg. TM) Regular Income Payment before Withdrawal $ 1,200
o Guaranteed Income Benefit before Withdrawal $ 750
o Account Value at time of Additional Withdrawal $150,000
o Additional Withdrawal $ 15,000 (a 10% withdrawal)
Reduction in i4LIFE (Reg. TM) Regular Income payment for Withdrawal = $1,200 X
10 % = $120
i4LIFE (Reg. TM) Regular Income payment after Withdrawal = $1,200 - $120 =
$1,080
Reduction in Guaranteed Income Benefit for Withdrawal = $750 X 10% = $75
Guaranteed Income Benefit after Withdrawal = $750 - $75 = $675
If the amount of your i4LIFE (Reg. TM) Advantage regular income payment (which
is based on your account value) has fallen below the Guaranteed Income Benefit,
because of poor investment results, a payment equal to the Guaranteed Income
Benefit is the minimum payment you will receive. If the Guaranteed Income
Benefit is paid, it will be paid with the same frequency as your regular income
payment. If your regular income payment is less than the Guaranteed Income
Benefit, we will reduce the account value by the regular income payment plus an
additional amount equal to the difference between your regular income payment
and the Guaranteed Income Benefit. This withdrawal will be made from the
variable subaccounts on a pro-rata basis according to your investment
allocations.
If your account value reaches zero as a result of withdrawals to provide the
Guaranteed Income Benefit, we will continue to pay you an amount equal to the
Guaranteed Income Benefit. If your account value reaches zero, your access
period will end and your Lifetime Income Period will begin. If your account
value equals zero, no death benefit will be paid. Additional amounts withdrawn
from the account value to provide the Guaranteed Income Benefit may terminate
your access period earlier than originally scheduled, and will reduce your
death benefit. See Death Benefits. After the access period ends, we will
continue to pay the Guaranteed Income Benefit
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for as long as the annuitant (or the secondary life, if applicable) is living.
If the market performance in your contract is sufficient to provide regular
income payments at a level that exceeds the Guaranteed Income Benefit, the
Guaranteed Income Benefit will never come into effect.
The following example illustrates how poor investment performance, which
results in a Guaranteed Income Benefit payment affects the account value:
o i4LIFE (Reg. TM) Account Value before payment $ 80,000
o Regular Income Payment -$ 5,280
o Additional Withdrawal for Guaranteed Income Benefit -$ 412
o i4LIFE (Reg. TM) Account Value after payouts $ 74,308
The Guaranteed Income Benefit will automatically Step-Up every year on the
periodic income commencement date anniversary to 75% of the current regular
income payment, if that result is greater than the immediately prior Guaranteed
Income Benefit. The i4LIFE (Reg. TM) Guaranteed Income Benefit percentage
charge may increase subject to the guaranteed maximum charge of 1.50% each time
the Guaranteed Income Benefit increases as a result of the annual automatic
step-up (i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed
Income Benefit charges). Therefore, your percentage charge for the Guaranteed
Income Benefit could increase on every periodic income commencement date
anniversary. If your percentage charge is increased, you may ask us to reverse
the step-up by giving us notice within 30 days after the periodic income
commencement anniversary. If we receive this notice, we will decrease your
Guaranteed Income Benefit and percentage charge to the amounts they were before
the step-up occurred. Increased fees collected during the 30 day period will be
refunded into your contract. This reversal will only apply for this particular
automatic annual step-up. You will need to notify us each time the percentage
charge increases if you do not want the automatic annual step-up.
Impacts to Regular Income Payments
When you select this Guaranteed Income Benefit, certain restrictions apply to
your contract:
o A 4% assumed investment return (AIR) will be used to calculate the regular
income payments.
o The minimum access period required for this benefit is the longer of 15
years or the difference between the age of the annuitant (or, the younger
of annuitant and secondary life) (nearest birthday) and age 85.
o The maximum access period available for this benefit is to age 115 of the
annuitant (or younger of annuitant and secondary life) for non-qualified
contracts; to age 100 of the annuitant for qualified contracts.
If you choose to lengthen your access period, (which must be increased by a
minimum of 5 years) thereby reducing your regular income payment, your i4LIFE
(Reg. TM) Advantage Guaranteed Income Benefit will also be reduced. The i4LIFE
(Reg. TM) Advantage Guaranteed Income Benefit will be reduced in proportion to
the reduction in the regular income payment. If you choose to shorten your
access period, the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will
terminate.
The following is an example of what happens when you extend the access period:
Assume:
i4LIFE (Reg. TM) Advantage remaining Access Period = 10 years
Current i4LIFE (Reg. TM) Advantage regular income payment = $6375
Current Guaranteed Income Benefit = $5692
Extend Access Period 5 years:
i4LIFE (Reg. TM) Advantage regular income payment after extension = $5355
Percentage change in i4LIFE (Reg. TM) Advantage regular income payment =
$5355 \d $6375 = 84%
New Guaranteed Income Benefit = $5692 x 84% = $4781
The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will terminate due to
any of the following events:
o the death of the annuitant (or the later of the death of the annuitant or
secondary life if a joint payout was elected); or
o a contractowner requested decrease in the access period or a change to the
regular income payment frequency; or
o upon written notice to us; or
o assignment of the contract.
A termination due to a decrease in the access period, a change in the regular
income payment frequency, or upon written notice from the contractowner will be
effective as of the valuation date on the next periodic income commencement
date anniversary. Termination will be only for the i4LIFE (Reg. TM) Advantage
Guaranteed Income Benefit and not the i4LIFE (Reg. TM) Advantage election,
unless otherwise specified.
If you terminate the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit you
may be able to re-elect it, if available, after one year. The election will be
treated as a new purchase, subject to the terms and charges in effect at the
time of election and the i4LIFE (Reg. TM) Advantage regular income payments
will be recalculated. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit
will be based on the account value at the time of the election.
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Death Benefits
i4LIFE (Reg. TM) Advantage Account Value Death Benefit. The i4LIFE (Reg. TM)
Advantage account value death benefit is available during the access period.
This death benefit is equal to the account value as of the valuation date on
which we approve the payment of the death claim. You may not change this death
benefit once it is elected.
i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit. The i4LIFE
(Reg. TM) Advantage Guarantee of Principal death benefit is available during
the access period and will be equal to the greater of:
o the account value as of the valuation date we approve the payment of the
claim; or
o the sum of all purchase payments, less the sum of regular income payments
and other withdrawals where:
o regular income payments, including withdrawals to provide the Guaranteed
Income Benefits, reduce the death benefit by the dollar amount of the
payment; and
o all other withdrawals, if any, reduce the death benefit in the same
proportion that withdrawals reduce the account value.
In a declining market, withdrawals which are deducted in the same proportion
that withdrawals reduce the account value, may have a magnified effect on the
reduction of the death benefit payable. All references to withdrawals include
deductions for applicable charges and premium taxes, if any.
The following example demonstrates the impact of a proportionate withdrawal on
your death benefit:
o i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit $200,000
o Total i4LIFE (Reg. TM) Regular Income payments $ 25,000
o Additional Withdrawal $15,000 ($15,000/$150,000=10% withdrawal)
o Account value at the time of Additional Withdrawal $150,000
i4LIFE (Reg. TM)Death Benefit Value after regular income payment = $200,000 -
$25,000 = $175,000
Death Benefit Value after additional withdrawal = $175,000 - $17,500 = $157,500
Reduction in Death Benefit Value for Withdrawal = $175,000 X 10% = $17,500
The regular income payments reduce the death benefit by $25,000 and the
additional withdrawal causes a 10% reduction in the death benefit, the same
percentage that the withdrawal reduced the account value.
During the access period, contracts with the i4LIFE (Reg. TM) Advantage
Guarantee of Principal death benefit may elect to change to the i4LIFE (Reg.
TM) Advantage account value death benefit. We will effect the change in death
benefit on the valuation date we receive a completed election form at our
Servicing office, and we will begin deducting the lower i4LIFE (Reg. TM)
Advantage charge at that time. Once the change is effective, you may not elect
to return to the i4LIFE (Reg. TM) Advantage Guarantee of Principal death
benefit.
i4LIFE (Reg. TM) Advantage EGMDB. The i4LIFE (Reg. TM) Advantage EGMDB is only
available during the access period. This benefit is the greatest of:
o the account value as of the valuation date on which we approve the payment
of the claim; or
o the sum of all purchase payments, less the sum of regular income payments
and other withdrawals where:
o regular income payments, including withdrawals to provide the Guaranteed
Income Benefit, reduce the death benefit by the dollar amount of the
payment; and
o all other withdrawals, if any, reduce the death benefit in the same
proportion that withdrawals reduce the account value.
o the highest account value on any contract anniversary date (including the
inception date of the contract) after the EGMDB is effective prior to the
81st birthday of the deceased and prior to the date of death. The highest
account value or contract value is increased by purchase payments and is
decreased by regular income payments, including withdrawals to provide the
Guaranteed Income Benefits and all other withdrawals subsequent to the
anniversary date on which the highest account value is obtained. Regular
income payments and withdrawals are deducted in the same proportion that
regular income payments and withdrawals reduce the account value.
In a declining market, withdrawals which are deducted in the same proportion
that withdrawals reduce the account value, may have a magnified effect on the
reduction of the death benefit payable. All references to withdrawals include
deductions for applicable charges and premium taxes, if any.
Contracts with the i4LIFE (Reg. TM) Advantage EGMDB may elect to change to the
i4LIFE (Reg. TM) Advantage Guarantee of Principal or i4LIFE (Reg. TM) Advantage
account value death benefit. We will effect the change in death benefit on the
valuation date we receive a completed election form at our Servicing office,
and we will begin deducting the lower i4LIFE (Reg. TM) Advantage charge at that
time. Once the change is effective, you may not elect to return to the i4LIFE
(Reg. TM) Advantage EGMDB.
Death during the access period - If the contractowner (or a joint owner) or
annuitant dies during the access period, a death benefit may be payable. You
can choose the death benefit. Only one death benefit may be in effect at any
one time and this election terminates when the access period ends.
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You may designate a beneficiary during your lifetime and change the beneficiary
by filing a written request with our Servicing office. Each change of
beneficiary revokes any previous designation. We reserve the right to request
that you send us the contract for endorsement of a change of beneficiary.
Upon the death of the contractowner, a death benefit will be paid to the
beneficiary. Upon the death of a joint owner, the death benefit will be paid to
the surviving joint owner. If the contractowner is a corporation or other
non-individual (non-natural person), the death of the annuitant will be treated
as death of the contractowner.
If an annuitant who is not the contractowner or joint owner dies, a death
benefit may be paid to the contractowner (and joint owner, if applicable, in
equal shares).
For non-qualified contracts, upon the death of the contractowner, joint owner
or annuitant, the contractowner (or beneficiary) may elect to continue the
contract and receive regular income payments if the annuitant or secondary life
is still living. Any portion of the death benefit that would have been payable
(if the contract had not been continued) that exceeds the current contract
value on the date the surviving joint owner or beneficiary elects to continue
the contract will be added to the contract value. If the contract is continued
in this way, the death benefit in effect at the time the beneficiary elected to
continue the contract will remain as the death benefit option. Upon the death
of the secondary life, who is not also an owner, only the account value is
paid.
If you are the owner of an IRA annuity contract, and there is no secondary
life, and you die during the access period, the i4LIFE (Reg. TM) Advantage will
terminate. A spouse beneficiary may start a new i4LIFE (Reg. TM) Advantage
program.
Death during the lifetime income period - Upon the death of the annuitant, or
secondary life (if designated), regular income payments will continue after the
first death until the death of the other party. When both the annuitant and
secondary life are no longer surviving, regular income payments will cease and
the contract will terminate.
General Death Benefit Provisions. For all death benefit options, following the
access period, there is no death benefit. The death benefits also terminate
when the account value equals zero, because the access period terminates.
If there is a change in the contractowner or joint owner during the life of the
contract, for any reason other than death, the only death benefit payable for
the new person will be the i4LIFE (Reg. TM) Advantage account value death
benefit.
If a death occurs during the access period, the value of the death benefit will
be determined as of the valuation date we approve the payment of the claim.
Approval of payment will occur upon our receipt of all the following:
1. proof (e.g. an original certified death certificate), or any other proof of
death satisfactory to us; and
2. written authorization for payment; and
3. all required claim forms, fully completed (including selection of a
settlement option).
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.
Death benefits may be taxable. See Federal tax matters.
Upon notification to us of the death, regular income payments may be suspended
until the death claim is approved. Upon approval, a lump sum payment for the
value of any suspended payments will be made as of the date the death claim is
approved, and regular income payments will continue, if applicable. The excess,
if any, of the death benefit over the account value will be credited into the
contract at that time.
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.
In the case of a death of one of the parties to the annuity contract, if the
recipient of the death benefit has elected a lump sum settlement and the
contract value is over $10,000, the proceeds will be placed into the
interest-bearing account in the recipient's name as the owner of the account.
The SecureLine (Reg. TM) account allows the recipient additional time to decide
how to manage death benefit proceeds with the balance earning interest from the
day the account is opened. SecureLine (Reg. TM) is not a method of deferring
taxation.
The SecureLine (Reg. TM) account is a special service that we offer in which
the death benefit proceeds are placed into an interest-bearing account. Instead
of mailing you (or the recipient of the death proceeds) a check, we will send a
checkbook so that you (or the death proceeds recipient) will have access to the
account simply by writing a check for all or any part of the proceeds. The
SecureLine (Reg. TM) account is part of our general account. It is not a bank
account and it is not insured by the FDIC or any other government agency. As
part of our general account, it is subject to the claims of our creditors. We
receive a benefit from all amounts left in the SecureLine (Reg. TM) account.
The recipient of death benefit proceeds may request that a check be issued
directly to him or her instead of deposited into the SecureLine (Reg. TM)
account.
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Transfers During The Access Period
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 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.
Transfers among the variable subaccounts are limited to twelve (12) per
contract year unless otherwise authorized by us. This limit does not apply to
transfers made under the automatic transfer programs of dollar cost averaging,
cross re-investment or portfolio rebalancing elected on forms available from
us. See Additional Services and the SAI for more information on 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 request may be made to our Servicing office using written,
telephone, fax, or electronic instructions, if the appropriate authorization is
on file with us. Our address, telephone number, and Internet address are on the
first page of this prospectus. In order to prevent unauthorized or fraudulent
transfers, we may require certain identifying information before we will act
upon instructions. We may also assign the contractowner a Personal
Identification Number (PIN) to serve as identification. We will not be liable
for following instructions we reasonably believe are genuine. Telephone
requests will be recorded and written confirmation of all transfer requests
will be mailed to the contractowner on the next valuation date.
Please note that the telephone and/or electronic devices may not always be
available. Any telephone or electronic device, whether it is yours, your
service provider's, or your agent's, can experience outages or slowdowns for a
variety of reasons. These outages or slowdowns may delay or prevent our
processing of your request. Although we have taken precautions to limit these
problems, we cannot promise complete reliability under all circumstances. If
you are experiencing problems, you should make your transfer request by writing
to our Servicing office.
Requests for transfers will be processed on the valuation date that they are
received when they are received at our Servicing office before the end of the
valuation date (normally 4:00 p.m. New York time). If we receive a transfer
request at or after 4:00 p.m. New York time, we will process the request using
the accumulation unit value computed on the next valuation date.
Transfers may be delayed as permitted by the 1940 Act. See Delay of Payments.
Transfers During The Lifetime Income Period
Transfers between the variable subaccounts will be limited to three times per
contract year.
Market Timing
Frequent, large, or short-term transfers among subaccounts and the fixed
account, such as those associated with "market timing" transactions, can affect
the funds and their investment returns. Such transfers may dilute the value of
the fund shares, interfere with the efficient management of the fund's
portfolio, and increase brokerage and administrative costs of the funds. As an
effort to protect our contractowners and the funds from potentially harmful
trading activity, we utilize certain market timing policies and procedures (the
"Market Timing Procedures"). Our Market Timing Procedures are designed to
detect and prevent such transfer activity among the subaccounts and the fixed
account that may affect other contractowners or fund shareholders.
In addition, the funds may have adopted their own policies and procedures with
respect to frequent purchases and redemptions of their respective shares. The
prospectuses for the funds describe any such policies and procedures, which may
be more or less restrictive than the frequent trading policies and procedures
of other funds and the Market Timing Procedures we have adopted to discourage
frequent transfers among subaccounts. While we reserve the right to enforce
these policies and procedures, contractowners and other persons with interests
under the contracts should be aware that we may not have the contractual
authority or the operational capacity to apply the frequent trading policies
and procedures of the funds. However, under SEC rules, we are required to: (1)
enter into a written agreement with each fund or its principal underwriter that
obligates us to provide to the fund promptly upon request certain information
about the trading activity of individual contractowners, and (2) execute
instructions from the fund to restrict or prohibit further purchases or
transfers by specific contractowners who violate the excessive trading policies
established by the fund.
You should be aware that the purchase and redemption orders received by the
funds generally are "omnibus" orders from intermediaries such as retirement
plans or separate accounts funding variable insurance contracts. The omnibus
orders reflect the aggregation and netting of multiple orders from individual
retirement plan participants and/or individual owners of variable insurance
contracts. The omnibus nature of these orders may limit the funds' ability to
apply their respective disruptive trading policies and procedures. We cannot
guarantee that the funds (and thus our contractowners) will not be harmed by
transfer activity relating to the retirement plans and/or other insurance
companies that may invest in the funds. In addition, if a fund believes that an
omnibus order we submit may reflect one or more transfer requests from policy
owners engaged in disruptive trading activity, the fund may reject the entire
omnibus order.
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Our Market Timing Procedures detect potential "market timers" by examining the
number of transfers made by contractowners within given periods of time. In
addition, managers of the funds might contact us if they believe or suspect
that there is market timing. If requested by a fund company, we may vary our
Market Timing Procedures from subaccount to subaccount to comply with specific
fund policies and procedures.
We may increase our monitoring of contractowners who we have previously
identified as market timers. When applying the parameters used to detect market
timers, we will consider multiple contracts owned by the same contractowner if
that contractowner has been identified as a market timer. For each
contractowner, we will investigate the transfer patterns that meet the
parameters being used to detect potential market timers. We will also
investigate any patterns of trading behavior identified by the funds that may
not have been captured by our Market Timing Procedures.
Once a contractowner has been identified as a "market timer" under our Market
Timing Procedures, we will notify the contractowner in writing that future
transfers (among the subaccounts and/or the fixed account) will be temporarily
permitted to be made only by original signature sent to us by U.S. mail,
standard delivery for the remainder of the contract year. Overnight delivery or
electronic instructions (which may include telephone, facsimile, or Internet
instructions) submitted during this period will not be accepted. If overnight
delivery or electronic instructions are inadvertently accepted from a
contractowner that has been identified as a market timer, upon discovery, we
will reverse the transaction within 1 or 2 business days. We will impose this
"original signature" restriction on that contractowner even if we cannot
identify, in the particular circumstances, any harmful effect from that
contractowner's particular transfers.
Contractowners seeking to engage in frequent, large, or short-term transfer
activity may deploy a variety of strategies to avoid detection. Our ability to
detect such transfer activity may be limited by operational systems and
technological limitations. The identification of contractowners determined to
be engaged in such transfer activity that may adversely affect other
contractowners or fund shareholders involves judgments that are inherently
subjective. We cannot guarantee that our Market Timing Procedures will detect
every potential market timer. If we are unable to detect market timers, you may
experience dilution in the value of your fund shares and increased brokerage
and administrative costs in the funds. This may result in lower long-term
returns for your investments.
Our Market Timing Procedures are applied consistently to all contractowners. An
exception for any contractowner will be made only in the event we are required
to do so by a court of law. In addition, certain funds available as investment
options in your contract may also be available as investment options for owners
of other, older life insurance policies issued by us. Some of these older life
insurance policies do not provide a contractual basis for us to restrict or
refuse transfers which are suspected to be market timing activity. In addition,
because other insurance companies and/or retirement plans may invest in the
funds, we cannot guarantee that the funds will not suffer harm from frequent,
large, or short-term transfer activity among subaccounts and the fixed accounts
of variable contracts issued by other insurance companies or among investment
options available to retirement plan participants.
In our sole discretion, we may revise our Market Timing Procedures at any time
without prior notice as necessary to better detect and deter frequent, large,
or short-term transfer activity to comply with state or federal regulatory
requirements, and/or to impose additional or alternate restrictions on market
timers (such as dollar or percentage limits on transfers). If we modify our
Market Timing Procedures, they will be applied uniformly to all contractowners
or as applicable to all contractowners investing in underlying funds. We also
reserve the right to implement and administer redemption fees imposed by one or
more of the funds in the future.
Some of the funds have reserved the right to temporarily or permanently refuse
payments or transfer requests from us if, in the judgment of the fund's
investment adviser, the fund would be unable to invest effectively in
accordance with its investment objective or policies, or would otherwise
potentially be adversely affected. To the extent permitted by applicable law,
we reserve the right to defer or reject a transfer request at any time that we
are unable to purchase or redeem shares of any of the funds available through
the VAA, including any refusal or restriction on purchases or redemptions of
the fund shares as a result of the funds' own policies and procedures on market
timing activities. If a fund refuses to accept a transfer request we have
already processed, we will reverse the transaction within 1 or 2 business days.
We will notify you in writing if we have reversed, restricted or refused any of
your transfer requests. Some funds also may impose redemption fees on
short-term trading (i.e., redemptions of mutual fund shares within a certain
number of business days after purchase). We reserve the right to administer and
collect any such redemption fees on behalf of the funds. You should read the
prospectuses of the funds for more details on their redemption fees and their
ability to refuse or restrict purchases or redemptions of their shares.
Additional Services
These are the additional services available to you under your contract:
dollar-cost averaging (DCA), cross-reinvestment service and portfolio
rebalancing. Currently, there is no charge for these services. However, we
reserve the right to impose one. In order to take advantage of one of these
services, you will need to complete the appropriate election form that is
available from our Servicing office. For further detailed information on these
services, please see Additional Services in the SAI.
Dollar-cost averaging allows you to transfer amounts from the DCA fixed
account, if available, or certain variable subaccounts into the variable
subaccounts on a monthly basis. We reserve the right to discontinue this
program at any time. DCA does not assure a profit or protect against loss.
23
The cross-reinvestment service allows you to automatically transfer the account
value in a designated variable subaccount that exceeds a baseline amount to
another specific variable subaccount at specific intervals.
Portfolio rebalancing is an option that restores to a pre-determined level the
percentage of account value allocated to each variable account subaccount. The
rebalancing may take place monthly, quarterly, semi-annually or annually.
Only one of the three additional services (DCA, cross reinvestment and
portfolio rebalancing) may be used at one time. For example, you cannot have
DCA and cross reinvestment running simultaneously.
Asset Allocation Models
Your registered representative may discuss asset allocation models with you to
assist you in deciding how to allocate your purchase payments among the various
subaccounts. The models listed below were designed and prepared by Wilshire
Associates, a registered investment advisory firm for use by Lincoln Financial
Distributors, Inc., (LFD) the principal underwriter of the contracts. LFD
provides models to broker dealers who may offer the models to their own
clients. The models do not constitute investment advice and you should consult
with your broker dealer representative to determine whether you should utilize
a model or which model is suitable for you based upon your goals, risk
tolerance and time horizon.
Each model invests different percentages of contract value in some or all of
the American Legacy subaccounts currently available within your annuity
contract. If you select an asset allocation model, 100% of your contract value
(and any additional purchase payments you make) will be allocated among certain
subaccounts in accordance with the model's asset allocation strategy. You may
not make transfers among the subaccounts. We will deduct any withdrawals you
make from the subaccounts in the asset allocation model on a pro rata basis.
You may only choose one asset allocation model at a time, though you may change
to a different asset allocation model available in the contract at any time.
Each of the asset allocation models seeks to meet its investment objective
while avoiding excessive risk. The models also strive to achieve
diversification among asset classes in order to help reduce volatility and
boost returns over the long-term. There can be no assurance, however, that any
of the asset allocation models will achieve its investment objective. If you
are seeking a more aggressive strategy, these models are probably not
appropriate for you.
The asset allocation models are intended to provide a diversified investment
portfolio by combining different asset classes to help it reach its stated
investment goal. While diversification may help reduce overall risk, it does
not eliminate the risk of losses and it does not protect against losses in a
declining market.
In order to maintain the model's specified subaccount allocation percentages,
you agree to be automatically enrolled in and you thereby authorize us to
automatically rebalance your contract value on a quarterly basis based upon
your allocation instructions in effect at the time of the rebalancing.
Confirmation of the rebalancing will appear on your quarterly statement and you
will not receive an individual confirmation after each allocation. We reserve
the right to change the rebalancing frequency at any time, in our sole
discretion, but will not make changes more than once per calendar year. You
will be notified at least 30 days prior to the date of any change in frequency.
The models are static asset allocation models. This means that that they have
fixed allocations made up of underlying funds that are offered within your
contract and the percentage allocations will not change over time. Once you
have selected an asset allocation model, we will not make any changes to the
fund allocations within the model except for the rebalancing described above.
If you desire to change your contract value or purchase payment allocation or
percentages to reflect a revised or different model, you must submit new
allocation instructions to us. You may terminate a model at any time. There is
no charge from Lincoln for participating in a model.
The election of the Guaranteed Income Benefit will require that you allocate
purchase payments in accordance with Investment Requirements that may be
satisfied by choosing one of the asset allocation models. Different
requirements and/or restrictions may apply under the individual rider. See The
Contracts - Investment Requirements.
The following four asset allocation models have been prepared by Wilshire
Associates. The models are comprised of funds from the American Funds Insurance
Series that are offered within your contract.
At this time, the available models are as follows:
o The American Legacy Fundamental Growth Model is composed of specified
underlying subaccounts presenting a target allocation of approximately 90%
in eight equity subaccounts and 10% in two fixed income subaccounts. This
model seeks long-term growth of capital.
o The American Legacy Fundamental Growth and Income Model is composed of
specified underlying subaccounts representing a target allocation of
approximately 80% in eight equity subaccounts and 20% in four fixed income
subaccounts. This model seeks a balance between a high level of current
income and growth of capital, with greater emphasis on growth of capital.
o American Legacy Fundamental Balanced Model is composed of specified
underlying subaccounts representing a target allocation of approximately
60% in seven equity subaccounts and 40% in four fixed income subaccounts.
This model seeks a balance between a high level of current income and
growth of capital, with an emphasis on growth of capital.
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o American Legacy Fundamental Income Model is composed of specified underlying
subaccounts representing a target allocation of approximately 40% in six
equity subaccounts and 60% in three fixed income subaccounts. This model
seeks a high level of current income with some consideration given to
growth of capital.
Your registered representative will have more information on the specific
investments of each model.
Investment Requirements
If you purchase the Guaranteed Income Benefit you will be required to comply
with the Investment Requirements described in this section. We have divided the
subaccounts of your contract into two groups. We will specify the minimum or
maximum percentages of your contract value that must be in each group at the
time you purchase the Guaranteed Income Benefit. In addition, you may allocate
your contract value and purchase payments in accordance with certain asset
allocation models. The Investment Requirements may not be consistent with an
aggressive investment strategy. You should consult with your registered
representative to determine if the Investment Requirements are consistent with
your investment objectives. If you terminate an asset allocation model, you
must follow the Investment Requirements applicable to your rider.
You can select the percentages of contract value to allocate to individual
funds within each group, but the total investment for all funds in a group must
comply with the specified minimum or maximum percentages for that group.
In accordance with these Investment Requirements, you agree to be automatically
enrolled in the portfolio rebalancing option under your contract and thereby
authorize us to automatically rebalance your contract value on a periodic
basis. On each quarterly anniversary of the effective date of the Rider, we
will rebalance your contract value, on a pro-rata basis, based on your
allocation instructions in effect at the time of the rebalancing. Confirmation
of the rebalancing will appear on your quarterly statement and you will not
receive an individual confirmation after each reallocation.
At this time, the subaccount groups are as follows:
Group 1 Group 2
Investments must be at least 25% of contract value Investments cannot exceed 75% of contract value
---------------------------------------------------- --------------------------------------------------------
1. Bond Fund All other investment options except as discussed below.
2. Global Bond Fund
3. High Income Bond Fund
4. U.S. Government/AAA-Rated Securities
To satisfy the Investment Requirements, you may allocate 100% of your contract
value to the Asset Allocation Fund, an individual mutual fund offered by the
American Funds Insurance Series as one of the subaccount options in your
contract. If you allocate less than 100% of contract value to the Asset
Allocation Fund, then the Asset Allocation Fund will be considered as part of
Group 2 above and you will be subject to Group 2 restrictions.
In addition, to satisfy the Investment Requirements, contract value can be
allocated in accordance with certain asset allocation models made available to
you by your broker-dealer as described above. At this time, 100% of the
contract value can be allocated to one of the following models: American Legacy
Fundamental Growth and Income Model, American Legacy Fundamental Balanced Model
or American Legacy Fundamental Income Model. You may only choose one asset
allocation model at a time, though you may change to a different asset
allocation model available in your contract and that meets the Investment
Requirements or reallocate contract value among Group 1 or Group 2 subbaccounts
as described above.
Ownership
The owner on the date of issue will be the person or entity designated in the
contract specifications.
As contractowner, you have all rights under the contract. According to New York
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. Assignments may have an adverse impact on any death benefits or living
benefits in this product. We assume no responsibility for the validity or
effect of any assignment. Consult your tax adviser about the tax consequences
of an assignment.
Annuitant
The annuitant and secondary life may not be changed.
Surrenders and Withdrawals
You may request a withdrawal at any time during the access period (or before
the access period begins). We reduce the account value by the amount of the
withdrawal on a dollar for dollar basis, and all subsequent regular income
payments and Guaranteed Income Benefit payments, if applicable, will be reduced
in the same proportion that withdrawals reduce the account value. See
Guaranteed
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Income Benefit for an example of the impact of withdrawals on regular income
payments and Guaranteed Income Benefit payments. At any time prior to or during
the access period, you may surrender the contract by withdrawing the surrender
value. If the contract is surrendered, the contract terminates and no further
regular income payments will be made. Any withdrawal or surrender request must
be submitted on an approved Lincoln distribution request form, available from
the Servicing Office.
The amount available upon surrender/withdrawal is the account value, less any
applicable charges, account fees and taxes at the end of the valuation period
during which the written request for surrender/withdrawal is received at the
Servicing office. If we receive a surrender or withdrawal request at or after
4:00 p.m., New York time, we will process the request using the accumulation
unit value computed on the next valuation date. Unless a request for withdrawal
specifies otherwise, withdrawals will be made from all subaccounts within the
VAA in the same proportion that the amount of withdrawal bears to the total
account value. Unless prohibited, surrender/withdrawal payments will be mailed
within seven days after we receive a valid written request at the Servicing
office. The payment may be postponed as permitted by the 1940 Act.
If you request a lump sum surrender and your surrender value is over $10,000,
your money will be placed into a SecureLine (Reg. TM) account in your name. You
are the owner of the account, and are the only one authorized to transfer
proceeds from the account. You may choose to leave the proceeds in this
account, or you may begin writing checks immediately.
The SecureLine (Reg. TM) account is a special service that we offer in which
your surrender proceeds are placed into an interest-bearing account. Instead of
mailing you a check, we will send a checkbook so that you will have access to
the account simply by writing a check for all or any part of the proceeds. The
SecureLine (Reg. TM) account is part of our general account. It is not a bank
account and it is not insured by the FDIC or any other government agency. As
part of our general account, it is subject to the claims of our creditors. We
receive a benefit from all amounts left in the SecureLine (Reg. TM) account.
You may request that surrender proceeds be paid directly to you instead of
deposited in a SecureLine (Reg. TM) account.
The tax consequences of a surrender/withdrawal are discussed later in this
booklet. See Federal Tax Matters - Taxation of Withdrawals and Surrenders.
Small Contract Surrenders
We may surrender your contract, in accordance with the laws of your state if
your account value drops below certain state specified minimum amounts ($2,000
or less) due to a withdrawal.
Delay of Payments
Contract proceeds from the VAA will be paid within seven days, except:
o when the NYSE is closed (other than weekends and holidays);
o times when market trading is restricted or the SEC declares an emergency,
and we cannot value units or the funds cannot redeem shares; or
o when the SEC so orders to protect contractowners.
Due to federal laws designed to counter terrorism and prevent money laundering
by criminals, we may be required to reject a purchase payment and/or deny
payment of a request for transfers, withdrawals, surrenders, or death benefits,
until instructions are received from the appropriate regulator. We also may be
required to provide additional information about a contractowner's account to
government regulators.
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. Any changes are
subject to prior approval of your state's insurance department (if required).
Distribution of the Contracts
Lincoln Financial Distributors ("LFD") serves as Principal Underwriter of this
contract. LFD is affiliated with Lincoln New York and is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 and is a
member of FINRA. The Principal Underwriter has entered into selling agreements
with Lincoln Financial Advisors ("LFA"), also an affiliate of ours. The
Principal Underwriter has also entered into selling agreements with
broker-dealers that are unaffiliated with us ("Selling Firms"). While the
Principal Underwriter has the legal authority to make payments to
broker-dealers which have entered into selling agreements, we will make such
payments on behalf of the Principal Underwriter in compliance with appropriate
regulations. We also pay on behalf of LFD certain of its operating expenses
related to the distribution of this and other of our contracts. The following
paragraphs describe how payments are made by us and the Principal Underwriter
to various parties.
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Compensation Paid to LFA. The maximum commission the Principal Underwriter pays
to LFA is 5.00% of purchase payments. LFA may elect to receive a lower
commission when a purchase payment is made along with an earlier quarterly
payment based on contract value for so long as the contract remains in effect.
Lincoln New York also pays for the operating and other expenses of LFA,
including the following sales expenses: sales representative training
allowances; compensation and bonuses for LFA's management team; advertising
expenses; and all other expenses of distributing the contracts. LFA pays its
sales representatives a portion of the commissions received for their sales of
contracts. LFA sales representatives and their managers are also eligible for
various cash benefits, such as bonuses, insurance benefits and financing
arrangements, and non-cash compensation items that we may provide jointly with
LFA. Non-cash compensation items may include conferences, seminars, trips,
entertainment, merchandise and other similar items. In addition, LFA sales
representatives who meet certain productivity, persistency and length of
service standards and/or their managers may be eligible for additional
compensation. Sales of the contracts may help LFA sales representatives and/or
their managers qualify for such benefits. LFA sales representatives and their
managers may receive other payments from us for services that do not directly
involve the sale of the contracts, including payments made for the recruitment
and training of personnel, production of promotional literature and similar
services.
Compensation Paid to Unaffiliated Selling Firms. The Principal Underwriter pays
commissions to all Selling Firms. The maximum commission the Principal
Underwriter pays to Selling Firms, other than LFA, is 5.00% of purchase
payments. Some Selling Firms may elect to receive a lower commission when a
purchase payment is made along with an earlier quarterly payment based on
contract value for so long as the contract remains in effect. LFD also acts as
wholesaler of the contracts and performs certain marketing and other functions
in support of the distribution and servicing of the contracts.
LFD may pay certain Selling Firms or their affiliates additional amounts for,
among other things: (1) "preferred product" treatment of the contracts in their
marketing programs, which may include marketing services and increased access
to sales representatives; (2) sales promotions relating to the contracts; (3)
costs associated with sales conferences and educational seminars for their
sales representatives; (4) other sales expenses incurred by them; (5) and
inclusion in the financial products the Selling Firm offers.
Lincoln New York may provide loans to broker-dealers or their affiliates to
help finance marketing and distribution of the contracts, and those loans may
be forgiven if aggregate sales goals are met. In addition, we may provide
staffing or other administrative support and services to broker-dealers who
distribute the contracts. LFD, as wholesaler, may make bonus payments to
certain Selling Firms based on aggregate sales of our variable insurance
contracts (including the contracts) or persistency standards.
These additional types of compensation are not offered to all Selling Firms.
The terms of any particular agreement governing compensation may vary among
Selling Firms and the amounts may be significant. The prospect of receiving, or
the receipt of, additional compensation may provide Selling Firms and/or their
registered representatives with an incentive to favor sales of the contracts
over other variable annuity contracts (or other investments) with respect to
which a Selling Firm does not receive additional compensation, or lower levels
of additional compensation. You may wish to take such payment arrangements into
account when considering and evaluating any recommendation relating to the
contracts. Additional information relating to compensation paid in 2007 is
contained in the Statement of Additional Information (SAI).
Compensation Paid to Other Parties. Depending on the particular selling
arrangements, there may be others whom LFD compensates for the distribution
activities. For example, LFD may compensate certain "wholesalers", who control
access to certain selling offices, for access to those offices or for
referrals, and that compensation may be separate from the compensation paid for
sales of the contracts. LFD may compensate marketing organizations,
associations, brokers or consultants which provide marketing assistance and
other services to broker-dealers who distribute the contracts, and which may be
affiliated with those broker-dealers. A marketing expense allowance is paid to
American Funds Distributors (AFD) in consideration of the marketing assistance
AFD provides to LFD. This allowance, which ranges from 0.10% to 0.16% is based
on the amount of purchase payments initially allocated to the American Funds
Insurance Series underlying the variable annuity. Commissions and other
incentives or payments described above are not charged directly to contract
owners or the Separate Account. All compensation is paid from our resources,
which include fees and charges imposed on your contract.
Contractowner Questions
The obligations to purchasers under the contracts are those of Lincoln New
York. This prospectus provides a general description of the contract. Questions
about your contract should be directed to us at 1-800-942-5500.
Federal Tax Matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax
rules that may affect you and your contract.
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This discussion also does not address other Federal tax consequences (including
consequences of sales to foreign individuals or entities), or state or local
tax consequences, associated with the contract. As a result, you should always
consult a tax adviser about the application of tax rules to your individual
situation.
Nonqualified Annuities
This part of the discussion describes some of the Federal income tax rules
applicable to nonqualified annuities. A nonqualified annuity is a contract not
issued in connection with a qualified retirement plan, such as an IRA or a
section 403(b) plan, receiving special tax treatment under the tax code. We may
not offer nonqualified annuities for all of our annuity products.
Tax Deferral On Earnings
The Federal income tax law generally does not tax any increase in your contract
value until you receive a contract distribution. However, for this general rule
to apply, certain requirements must be satisfied:
o An individual must own the contract (or the tax law must treat the contract
as owned by an individual).
o The investments of the VAA must be "adequately diversified" in accordance
with IRS regulations.
o Your right to choose particular investments for a contract must be limited.
o The annuity commencement date must not occur near the end of the annuitant's
life expectancy.
Contracts Not Owned By An Individual
If a contract is owned by an entity (rather than an individual) the tax code
generally does not treat it as an annuity contract for Federal income tax
purposes. This means that the entity owning the contract pays tax currently on
the excess of the contract value over the purchase payments for the contract.
Examples of contracts where the owner pays current tax on the contract's
earnings are contracts issued to a corporation or a trust. Some exceptions to
the rule are:
o immediate annuity contracts, purchased with a single premium, when the
annuity starting date is no later than a year from purchase of the annuity
and substantially equal periodic payments are made, not less frequently
than annually, during the annuity payout period;
o contracts in which the named owner is a trust or other entity that holds the
contract as an agent for an individual;
o contracts acquired by an estate of a decedent;
o certain qualified contracts;
o contracts purchased by employers upon the termination of certain qualified
plans; and
o certain contracts used in connection with structured settlement agreements.
Investments In The VAA Must Be Diversified
For a contract to be treated as an annuity for Federal income tax purposes, the
investments of the VAA must be "adequately diversified." IRS regulations define
standards for determining whether the investments of the VAA are adequately
diversified. If the VAA fails to comply with these diversification standards,
you could be required to pay tax currently on the excess of the contract value
over the contract gross purchase payments. Although we do not control the
investments of the underlying investment options, we expect that the underlying
investment options will comply with the IRS regulations so that the VAA will be
considered "adequately diversified."
Restrictions
Federal income tax law limits your right to choose particular investments for
the contract. Because the IRS has not issued guidance specifying those limits,
the limits are uncertain and your right to allocate contract values among the
subaccounts may exceed those limits. If so, you would be treated as the owner
of the assets of the VAA and thus subject to current taxation on the income,
bonus credits, persistency credits and gains, if applicable, 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.
Loss Of Interest Deduction
After June 8, 1997, if a contract is issued to a taxpayer that is not an
individual, or if a contract is held for the benefit of an entity, the entity
will lose a portion of its deduction for otherwise deductible interest
expenses.
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
possible that the tax law will not treat the contract as an annuity for Federal
income tax purposes. In that event, you would be currently taxed on the excess
of the contract value over the purchase payments of the contract.
Tax Treatment Of Payments
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We make no guarantees regarding the tax treatment of any contract or of any
transaction involving a contract. However, the rest of this discussion assumes
that your contract will be treated as an annuity for Federal income tax
purposes and that the tax law will not tax any increase in your contract value
until there is a distribution from your contract.
Taxation Of Withdrawals And Surrenders
You will pay tax on withdrawals to the extent your contract value exceeds your
gross purchase payments in the contract. This income (and all other income from
your contract) is considered ordinary income (and does not receive capital
gains treatment and is not qualified dividend income). A higher rate of tax is
paid on ordinary income than on capital gains. You will pay tax on a surrender
to the extent the amount you receive exceeds your gross purchase payments. In
certain circumstances, your gross purchase payments are reduced by amounts
received from your contract that were not included in income.
Taxation Of Regular Income Payments
The tax code imposes tax on a portion of each regular income payment (at
ordinary income tax rates) and treats a portion as a nontaxable return of your
purchase payments in the contract. If required by law, we will notify you
annually of the taxable amount of your regular income payment. Once you have
recovered the total amount of the gross purchase payment in the contract, you
will pay tax on the full amount of your regular income payments. If regular
income payments end because of the annuitant's death and before the total
amount in the contract has been distributed, the amount not received will
generally 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 periodic income
commencement date.
Death prior to the periodic income commencement date:
o If the beneficiary receives death benefits as regular income payments, they
are taxed in the same manner as annuity payouts.
o If the beneficiary does not receive death benefits as regular income
payments, they are taxed in the same manner as a withdrawal.
Death after the periodic income commencement date:
o If death benefits are received in accordance with the existing regular
income payment option, they are excludible from income if they do not
exceed the purchase payments not yet distributed from the contract. All
regular income payments in excess of the purchase payments not previously
received are includible in income.
o If death benefits are received in a lump sum, the tax law imposes tax on the
amount of death benefits which exceeds the amount of gross purchase
payments not previously received.
Penalty Taxes Payable On Withdrawals, Surrenders, Or Annuity Payouts
The tax code may impose a 10% penalty tax on any distribution from your
contract which you must include in your gross income. The 10% penalty tax does
not apply if one of several exceptions exists. These exceptions include
withdrawals, surrenders, or annuity payouts that:
o you receive from an immediate annuity,
o you receive on or after you reach 591/2,
o you receive because you became disabled (as defined in the tax law),
o a beneficiary receives on or after your death, or
o you receive as a series of substantially equal periodic payments based on
your life or life expectancy (non-natural owners holding as agent for an
individual do not qualify).
Special Rules If You Own More Than One Annuity Contract
In certain circumstances, you must combine some or all of the nonqualified
annuity contracts you own in order to determine the amount of an annuity
payout, a surrender, or a withdrawal that you must include in income. For
example, if you purchase two or more deferred annuity contracts from the same
life insurance company (or its affiliates) during any calendar year, the tax
code treats all such contracts as one contract. Treating two or more contracts
as one contract could affect the amount of a surrender, a withdrawal or an
annuity payout that you must include in income and the amount that might be
subject to the penalty tax described previously.
Loans and Assignments
Except for certain qualified contracts, the tax code treats any amount received
as a loan under your contract, and any assignment or pledge (or agreement to
assign or pledge) of any portion of your contract value, as a withdrawal of
such amount or portion.
Gifting A Contract
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If you transfer ownership of your contract, other than to your spouse (or to
your former spouse incident to divorce), and receive a payment less than your
contract's value, you will pay tax on your contract value to the extent it
exceeds your gross purchase payments not previously received. The new owner's
gross purchase payments in the contract would then be increased to reflect the
amount included in income.
Qualified Retirement Plans
We also designed the contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called
"qualified contracts." We issue contracts for use with various 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 the use of the contract with the various
types of qualified plans. Persons planning to use the contract in connection
with a qualified plan should obtain advice from a competent tax adviser.
Types of Qualified Contracts and Terms of Contracts
Qualified plans include the following:
o Individual Retirement Accounts and Annuities ("Traditional IRAs")
o Roth IRAs
o Traditional IRA that is part of a Simplified Employee Pension Plan ("SEP")
o SIMPLE 401(k) plans (Savings Incentive Matched Plan for Employees)
o 401(a) plans (qualified corporate employee pension and profit-sharing plans)
o 403(a) plans (qualified annuity plans)
o 403(b) plans (public school system and tax-exempt organization annuity
plans)
o H.R. 10 or Keogh Plans (self-employed individual plans)
o 457(b) plans (deferred compensation plans for state and local governments
and tax-exempt organizations)
o Roth 403(b) plans
We do not offer certain types of qualified plans for all of our annuity
products. Check with your representative concerning qualified plan availability
for this product.
We will amend contracts to be used with a qualified plan as generally necessary
to conform to the tax law requirements for the type of plan. However, the
rights of a person to any qualified plan benefits may be subject to the plan's
terms and conditions, regardless of the contract's terms and conditions. In
addition, we are not bound by the terms and conditions of qualified plans to
the extent such terms and conditions contradict the contract, unless we
consent.
Tax Treatment of Qualified Contracts
The Federal income tax rules applicable to qualified plans and qualified
contracts vary with the type of plan and contract. For example:
o 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
payments. These limits vary depending on the type of qualified plan and the
plan participant's specific circumstances, e.g., the participant's
compensation.
o Under most qualified plans, such as a traditional IRA, the owner must begin
receiving payments from the contract in certain minimum amounts by a
certain age, typically age 701/2. Other qualified plans may allow the
participant to take required distributions upon the later of reaching age
701/2 or retirement.
o Loans are allowed under certain types of qualified plans, but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some section 403(b) plans, but
prohibit loans under Traditional and Roth IRAs. If allowed, loans are
subject to a variety of limitations, including restrictions as to the loan
amount, the loan's duration, the rate of interest, and the manner of
repayment. Your contract or plan may not permit loans.
Tax Treatment of Payments
The Federal income tax rules generally include distributions from a qualified
contract in the participant's income as ordinary income. These taxable
distributions will include gross purchase payments that were deductible or
excludible from income. Thus, under many qualified contracts, the total amount
received is included in income since a deduction or exclusion from income was
taken for purchase payments. There are exceptions. For example, you do not
include amounts received from a Roth IRA in income if certain conditions are
satisfied.
Required Minimum Distributions
Under most qualified plans, you must begin receiving payments from the contract
in certain minimum amounts by the later of age 701/2 or retirement. You are
required to take distributions from your traditional IRAs beginning in the year
you reach age 701/2. If you own a Roth IRA, you are not required to receive
minimum distributions from your Roth IRA during your life.
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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 equals 50% of the amount by which a minimum
required distribution exceeds the actual distribution from the qualified plan.
The IRS has issued new regulations concerning required minimum distributions.
The regulations may impact the distribution method you have chosen and the
amount of your distributions. Under new regulations, the presence of an
enhanced death benefit, or other benefit which could provide additional value
to your contract, may require you to take additional distributions. An enhanced
death benefit is any death benefit that has the potential to pay more than the
contract value or a return of purchase payments. Annuity contracts inside
Custodial or Trusteed IRAs will also be subject to these regulations. Please
contact your tax adviser regarding any tax ramifications.
Federal Penalty Taxes Payable on Distributions
The tax code may impose a 10% penalty tax on a distribution from a qualified
contract that must be included in income. The tax code does not impose the
penalty tax if one of several exceptions applies. The exceptions vary depending
on the type of qualified contract you purchase. For example, in the case of an
IRA, exceptions provide that the penalty tax does not apply to a withdrawal,
surrender, or annuity payout:
o received on or after the annuitant reaches 591/2,
o received on or after the annuitant's death or because of the annuitant's
disability (as defined in the tax law),
o received as a series of substantially equal periodic payments based on the
annuitant's life (or life expectancy), or
o received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
Transfers and Direct Rollovers
As a result of Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA), you may be able to move funds between different types of qualified
plans, such as 403(b) and 457(b) governmental plans, by means of a rollover or
transfer. You may be able to rollover or transfer amounts between qualified
plans and traditional IRAs. These rules do not apply to Roth IRAs and 457(b)
non-governmental tax-exempt plans. The Pension Plan Act permits direct
conversions from certain qualified, 403(b) or 457(b) plans to Roth IRAs
(effective for distributions after 2007). There are special rules that apply to
rollovers, direct rollovers and transfers (including rollovers or transfers of
after-tax amounts). If the applicable rules are not followed, you may incur
adverse Federal income tax consequences, including paying taxes which you might
not otherwise have had to pay. Before we send a rollover distribution, we will
provide a notice explaining tax withholding requirements (see Federal Income
Tax Withholding). We are not required to send you such notice for your IRA. You
should always consult your tax adviser before you move or attempt to move any
funds.
Pursuant to IRS regulations, IRAs may not invest in life insurance contracts.
We do not believe that these regulations prohibit the death benefit from being
provided under the contract when we issue the contract as a Traditional or Roth
IRA. However, the law is unclear and it is possible that the presence of the
death benefit under a contract issued as a Traditional or Roth IRA could result
in increased taxes to you. Certain death benefit options may not be available
for all of our products.
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 you notify us prior to 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 you an explanation of
the withholding requirements.
Our Tax Status
Under existing Federal income tax laws, we do not pay tax on investment income
and realized capital gains of the VAA. We do not expect that we will incur any
Federal income tax liability on the income and gains earned by the VAA.
Therefore, we do not impose a charge for Federal income taxes. If Federal
income tax law changes and we must pay tax on some or all of the income and
gains earned by the VAA, we may impose a charge against the VAA to pay the
taxes.
Changes In The law
The above discussion is based on the tax code, IRS regulations, and
interpretations existing on the date of this prospectus. However, Congress, the
IRS, and the courts may modify these authorities, sometimes retroactively.
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Additional Information
Voting Rights
As required by law, we will vote the fund shares held in the VAA at meetings of
the shareholders of the funds. The voting will be done according to the
instructions of contractowners who have interests in any subaccounts which
invest in classes of the funds. If the 1940 Act or any regulation under it
should be amended or if present interpretations should change, and if as a
result we determine that we are permitted to vote the fund shares in our own
right, we may elect to do so.
The number of votes which you have the right to cast will be determined by
applying your percentage interest in a subaccount to the total number of votes
attributable to the subaccount. In determining the number of votes, fractional
shares will be recognized.
Each underlying fund is subject to the laws of the state in which it is
organized concerning, among other things, the matters which are subject to a
shareholder vote, the number of shares which must be present in person or by
proxy at a meeting of shareholders (a "quorum"), and the percentage of such
shares present in person or by proxy which must vote in favor of matters
presented. Because shares of the underlying fund held in the Separate Account
are owned by us, and because under the 1940 Act we will vote all such shares in
the same proportion as the voting instruction which we receive, it is important
that each contractowner provide their voting instructions to us. Even though
contractowners may choose not to provide voting instruction, the shares of a
fund to which such contractowners would have been entitled to provide voting
instruction will, subject to fair representation requirements, be voted by us
in the same proportion as the voting instruction which we actually receive. As
a result, the instruction of a small number of contractowners could determine
the outcome of matters subject to shareholder vote. All shares voted by us will
be counted when the underlying fund determines whether any requirement for a
minimum number of shares be present at such a meeting to satisfy a quorum
requirement has been met. 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, we will provide or make available to
each person having a voting interest in a subaccount proxy voting material,
reports and other materials relating to the funds. Since the funds engage in
shared funding, other persons or entities besides Lincoln New York may vote
fund shares. See Investments of the Variable Annuity Account - Fund Shares.
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 Servicing
office at PO Box 7866, 1300 S. Clinton Street, Fort Wayne, IN 46802-7866. A
contract canceled under this provision will be void. Except as explained in the
following paragraph, we will return the contract value as of the valuation date
on which we receive the cancellation request, plus any premium taxes which had
been deducted. A purchaser who participates in the VAA is subject to the risk
of a market loss on the contract value during the free-look period.
State Regulation
As a life insurance company organized and operated under New York law, we are
subject to provisions governing life insurers and to regulation by the New York
Superintendent of Insurance. Our books and accounts are subject to review and
examination by the New York Insurance Department at all times. A full
examination of our operations is conducted by that Department at least every
five years.
Records and Reports
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
have entered into an agreement with Bank of New York Mellon, One Mellon Bank
Center, 500 Grant Street, Pittsburgh, Pennsylvania, 15258, to provide
accounting services to the VAA. We will mail to you, at your last known address
of record at the Servicing office, at least semi-annually after the first
contract year, reports containing information required by that Act or any other
applicable law or regulation. Administrative services necessary for the
operations of the VAA and the contracts are currently provided by Lincoln Life.
However, neither the assets of Lincoln Life nor the assets of LNC support the
obligation of Lincoln New York under the contracts.
Other Information
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the contracts being offered here. This prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further
information about the VAA, Lincoln New York and the contracts offered.
Statements in this prospectus about the content of contracts and other legal
instruments are summaries. For the complete text of those contracts and
instruments, please refer to those documents as filed with the SEC.
You may elect to receive your prospectus, prospectus supplements, quarterly
statements, and annual and semiannual reports electronically over the Internet,
if you have an e-mail account and access to an Internet browser. Once you
select eDelivery, via the Internet Service Center, all documents available in
electronic format will no longer be sent to you in hard copy. You will receive
an e-mail notification when the documents become available online. It is your
responsibility to provide us with your current e-mail
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address. You can resume paper mailings at any time without cost, by updating
your profile at the Internet Service Center, or contacting us. To learn more
about this service, please log on to www.LFG.com, select service centers and
continue on through the Internet Service Center.
Legal Proceedings
In the ordinary course of its business, Lincoln New York, the VAA, and the
principal underwriter may become or are involved in various pending or
threatened legal proceedings, including purported class actions, arising from
the conduct of business. In some instances, these proceedings include claims
for unspecified or substantial punitive damages and similar types of relief in
addition to amounts for alleged contractual liability or requests for equitable
relief. After consultation with legal counsel and a review of available facts,
it is management's opinion that these proceedings, after consideration of any
reserves and rights to indemnification, ultimately will be resolved without
materially affecting the financial position of Lincoln New York, the VAA, or
the principal underwriter. However, given the large and indeterminate amounts
sought in certain of these proceedings and the inherent difficulty in
predicting the outcome of such legal proceedings, it is possible that an
adverse outcome in certain matters could be material to our operating results
for any particular reporting period.
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Contents of the Statement of Additional Information (SAI)
for Lincoln Life & Annuity Variable Annuity Account H
Item
Special Terms
Services
Principal Underwriter
Purchase of Securities Being Offered
Examples of Regular Income Payment
Calculations
Determination of Accumulation and Annuity Unit
Value
Advertising
Other Information
Financial Statements
For a free copy of the SAI complete the form below:
Statement of Additional Information Request Card
American Legacy Shareholder's Advantage i4LIFE (Reg. TM) Advantage (New York)
Lincoln Life & Annuity Variable Annuity Account H
Please send me a free copy of the current Statement of Additional Information
for Lincoln Life & Annuity Variable Annuity Account H.
(Please Print)
Name: -------------------------------------------------------------------------
Address: ----------------------------------------------------------------------
City ---------------------------------------------State ---------Zip ---------
Mail to Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne,
Indiana 46801.
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