Lincoln National Variable Annuity Fund A
Group Variable Annuity Contracts
Home Office:
The Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46801-2340
www.LincolnFinancial.com
1-800-454-6265
This prospectus describes a group variable annuity contract that is issued by
The Lincoln National Life Insurance Company (Lincoln Life). This prospectus is
primarily for use with certain qualified retirement plans on behalf of
participants. Generally, you do not pay federal income tax on the contract's
growth until it is paid out. Qualified retirement plans already provide for tax
deferral. Therefore, there should be reasons other than tax deferral for
acquiring the contract within a qualified plan. The contract is designed to
accumulate contract value to provide retirement income that a participant
cannot outlive or for an agreed upon time. These benefits may be a variable or
fixed amount or a combination of both. If the participant dies before the
annuity commencement date, we will pay the beneficiary a death benefit.
Additional purchase payments may be made to periodic payment contracts and must
be at least $25 per payment, and total $600 annually.
The contractowner or participant, if applicable, chooses whether the contract
value accumulates on a variable or a fixed (guaranteed) basis or both. If
purchase payments are allocated into the fixed account, we guarantee the
principal and a minimum interest rate. We limit withdrawals and transfers from
the fixed side of the contract.
All purchase payments for benefits on a variable basis will be placed in
Lincoln National Variable Annuity Fund A (variable annuity account (VAA)). The
VAA is a segregated investment account of Lincoln Life. You take all the
investment risk on the contract value and the retirement income derived from
purchase payments into the contract's variable option. If the subaccount makes
money, your contract value goes up; if the subaccount loses money, it goes
down. How much it goes up or down depends on the performance of the fund. We do
not guarantee how the variable option or its fund 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 fund is: LVIP Delaware Growth and Income Fund (fund), a series of
the Lincoln Variable Insurance Products Trust.
This prospectus gives you information about the contracts that you should know
before deciding to buy a contract and make purchase payments. You should also
review the prospectus for the fund that accompanies 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 The Lincoln National Life
Insurance Company, P.O. Box 2340, Fort Wayne, IN 46801 or call 1-800-454-6265.
The SAI and other information about Lincoln Life 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.
July 17, 2009
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Table of Contents
Item Page
Special Terms 3
Expense Tables 4
Summary of Common Questions 5
Condensed Financial Information 6
The Lincoln National Life Insurance Company 6
Fixed Side of the Contract 7
Variable Annuity Account (VAA) 8
Charges and Other Deductions 10
The Contracts 11
Transfers On or Before the Annuity Commencement Date 12
Death Benefit Before the Annuity Commencement Date 13
Surrenders and Withdrawals 14
Annuity Payouts 16
Federal Tax Matters 18
Voting Rights 22
Distribution of the Contracts 23
Other Information 24
Legal Proceedings 24
Statement of Additional Information
Table of Contents for Lincoln National Variable Annuity Fund A 25
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Special Terms
In this prospectus, the following terms have the indicated meanings:
Accumulation unit - A measure used to calculate contract value for the variable
side of the contract before the annuity commencement date.
Annuitant - The person upon whose life the annuity payments are based.
Annuity commencement date - The valuation date when funds are withdrawn or
converted into annuity units or fixed dollar payout for payment of annuity
benefits under the annuity payout option you select.
Annuity unit - A measure used to calculate the amount of annuity payouts for
the variable side of the contract after the annuity commencement date. See
Annuity Payouts.
Beneficiary - The person or entity designated by the participant to receive any
death benefit paid if the participant dies before the annuity commencement
date.
Contractowner (you, your, owner) - An employer or a plan sponsor, a trustee of
a trust or a custodian of: (1) a qualified pension or profit sharing plan under
Section 401(a) of the Internal Revenue Code, or "tax code"; (2) an Individual
Retirement Annuity under Section 408 of the tax code; (3) a tax deferred
annuity under Section 403(b) of the tax code; or (4) a deferred compensation
plan under Section 457 of the tax code. These entities can exercise the rights
within the contract (e.g.: decide on investment allocations, transfers, payout
options, beneficiary designation).
Contract value - At a given time before the annuity commencement date, the
total value of all accumulation units for a contract plus the value of the
fixed side of the contract.
Contract year - Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
Death benefit-Before the annuity commencement date, the amount payable to a
designated beneficiary if the participant dies.
Good Order - The actual receipt at our Home Office of the requested transaction
in writing or by other means we accept, along with all information and
supporting legal documentation necessary to effect the transaction. The forms
we provide will identify the necessary documentation. We may, in our sole
discretion, determine whether any particular transaction request is in good
order, and we reserve the right to change or waive any good order requirements
at any time.
Lincoln Life (we, us, our) - The Lincoln National Life Insurance Company.
Participant - The individual participating in the qualified pension or
profit-sharing plan, deferred compensation plan or tax deferred annuity. This
individual is also the Annuitant.
Purchase payments - Amounts paid into the contract.
Subaccount - The portion of the VAA that reflects investments in accumulation
and annuity units of a particular fund available under the contracts.
Valuation date - Each day the New York Stock Exchange (NYSE) is open for
trading.
Valuation period - The period starting at the close of 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.
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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 contract value
between the investment option and the fixed account. State premium taxes may
also be deducted.
Contractowner Transaction Expenses:
Single Premium Periodic Premium
o Sales load on purchase payments (as a percentage of purchase payments, as applicable) 2%+$50* 4.25%
o Administrative expenses (as a percentage of purchase payments, as applicable) $ 65* 1.00%
o Minimum death benefit rider (if elected)** (as a percentage of purchase payments) .75% .75%
We may waive or reduce these charges in certain situations. See Charges and
Other Deductions.
*This charge is deducted at the time of purchase of the contract and is a
one-time charge.
** The minimum death benefit rider is no longer available for sale.
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 subaccount):
o Mortality and expense risk charge 1.002%*
* Lincoln Life has contractually agreed to waive a portion of the mortality
and expense risk charge to the extent needed to ensure that the
contractowners and participants do not incur aggregate contract or
certificate expenses that are higher than 1.325% which was the aggregate
contract or certificate expense prior to the reorganization of Fund A into
the LVIP Delaware Growth and Income Fund.
The next item shows the minimum and maximum total annual operating expenses
charged by the fund that you may pay periodically during the time that you own
the contract. The expenses are for the year ended December 31, 2008. More
detail concerning the fund's fees and expenses is contained in the prospectus
for the fund.
Maximum Minimum
--------- --------
Total Annual Fund Operating Expenses
(expenses that are deducted from fund assets,
including management fees, distribution and/or
service fees, and other expenses*): 0.41% 0.41%
* These expenses do not include any contractual waiver or reimbursement
arrangements.
The following table shows the expenses charged by the fund for the year ended
December 31, 2008:
(as a percentage of the fund's average net assets):
Total
Management Other Expenses
Fees 12b-1 Fees Expenses (before
(before (before (before any
any any any Acquired waivers/
waivers/ waivers/ waivers/ Fund reimburse
reimburse- reimburse- reimburse- Fees and e-
ments) + ments) + ments) + Expenses = ments)
LVIP Delaware Growth and Income Fund (Standard Class) 0.34 % 0.00 % 0.07 % 0.00 % 0.41 %
The fund has 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, it has not 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.
EXAMPLES
These examples are 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.
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The examples assume that you invest $10,000 in the contract for the time
periods indicated, and that your investment has a 5% annual return on assets
and the maximum fees and expenses of the fund. The examples also assume that
the minimum death benefit at the guaranteed maximum charge is in effect.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Single Premium $254 $ 546 $ 860 $1,748
Periodic Premium $732 $1,010 $1,308 $2,153
For more information - See Charges and Other Deductions in this prospectus.
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 is this? It is a group variable annuity contract between
the contractowner and Lincoln Life under which payments are allocated to the
accounts of individual participants, and is one of two types: an immediate
annuity or a deferred annuity. Immediate annuities may only be purchased with a
single payment; deferred annuities may be purchased with a single payment or
periodic payments. It may provide for a fixed annuity and/or a variable
annuity. This prospectus describes the variable side of the contract. See The
Contracts. This prospectus provides a general description of the contract. The
contracts are no longer being sold to new contractowners. Certain benefits,
features, and charges may vary in certain states. You should refer to your
contract for any state-specific provisions.
What is the variable annuity account (VAA)? It is a separate account we
established under Indiana insurance law, and registered with the SEC as a unit
investment trust. VAA assets are allocated to the subaccount. VAA assets are
not chargeable with liabilities arising out of any other business which we may
conduct. See Variable Annuity Account.
What is my investment choice? The VAA applies your purchase payments to buy
shares in the LVIP Delaware Growth and Income Fund (fund). In turn, the fund
holds a portfolio of securities consistent with its investment policy. See
Investments of the Variable Annuity Account - Description of the Fund.
Who invests the money? The investment adviser for the fund is Lincoln
Investment Advisors Corporation. The sub-adviser for the fund is Delaware
Management Company (DMC), a series of Delaware Management Business Trust. See
Investments of the Variable Annuity Account - Description of the Fund.
How does the contract work? If we approve your application, we will send you a
contract. When you make purchase payments during the accumulation phase, you
buy accumulation units. If you or the participant, if applicable, decides to
annuitize the participant account value to receive an annuity payout, the
accumulation units are converted to annuity units. Annuity payouts will be
based on the number of annuity units received and the value of each annuity
unit on payout days. Participants receive a group annuity certificate which
covers their rights in the group annuity contract which include the right to
name a beneficiary and the right to receive an annuity payout. The
participant's share of the contract value is called the participant account
value. See The Contracts.
What charges are there under the contract? We deduct sales load from each
purchase payment (2% +$50 from a single payment, 4.25% from each periodic
payment), along with an administrative expense ($65 from a single payment,
1.00% from each periodic premium); and if the contractowner elects the minimum
death benefit, an additional charge of 0.75% from each purchase payment. We may
reduce or waive these charges in certain situations. See Charges and Other
Deductions.
We also will deduct any applicable premium tax from purchase payments.
See Expense Tables and Charges and Other Deductions for additional fees and
expenses in these contracts, including the mortality and risk charge.
The fund's investment management fee, expenses and expense limitations, if
applicable, are more fully described in the prospectus for the fund.
For information about the compensation we pay for sales of contracts, see
Distribution of the Contracts.
What purchase payments must be made, and how often? Subject to the minimum
payment amounts, the payments are completely flexible. See The Contracts -
Periodic Purchase Payments.
How will my annuity payouts be calculated? If a participant decides to
annuitize, the participant may select an annuity option and start receiving
annuity payouts from the contract as a fixed option or variable option or a
combination of both. See Annuity Payouts - Annuity Options. Remember that
contractowners and particpants in the VAA benefit from any gain, and take a
risk of any loss, in the value of the securities in the fund's portfolios.
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What happens if the participant dies before annuitization? If the contractowner
of a qualified contract elects the minimum death benefit, and the participant
is age 64 or younger at the time of death, the beneficiary will receive the
greater of purchase payments made on behalf of the participant (less rider
premiums and withdrawals) or participant account value. If the contractowner
does not elect the minimum death benefit or the annuitant is 65 or older at the
time of death, the beneficiary will receive the participant account value. The
beneficiary has options as to how the death benefit is paid. See Death Benefit
Before the Annuity Commencement Date.
May contract value be transfered between the variable and the fixed side of the
contract? Yes, with certain limits. See - The Contracts - Transfers On or
Before the Annuity Commencement Date and Transfers After the Annuity
Commencement Date.
May the participant surrender the participant account or make a withdrawal?
Yes, subject to contract requirements and to the restrictions of any qualified
retirement plan for which the contract was purchased. See The Contracts -
Surrenders and Withdrawals. A portion of surrender or withdrawal proceeds may
be taxable. In addition, if the participant decides to take a distribution
before age 591/2, a 10% Internal Revenue Service (IRS) tax penalty may apply. A
surrender or a withdrawal also may be subject to 20% withholding. See Federal
Tax Matters.
Condensed Financial Information
(For an accumulation unit outstanding throughout the year)
Accumulation Unit Values
The following information relating to accumulation unit values and number of
accumulation units for the VAA in the period ending December 31. It should be
read along with the VAA's financial statements and notes which are included in
the SAI.
2008 2007 2006 2005
----------- ----------- ------------ ------------
Investment Income.............................. $ .382 $ .388 $ .354 $ .338
Expenses....................................... .252 .297 .257 .239
--------- --------- -------- --------
Net investment income (loss)................... .130 .091 .097 .099
Net realized and unrealized gain (loss) on
investments................................... (8.234) 1.016 2.022 .732
--------- --------- -------- --------
Net increase (decrease) in
accumulation unit value....................... (8.104) 1.107 2.119 .831
Accumulation unit value at
beginning of period........................... 22.369 21.262 19.143 18.312
--------- --------- -------- --------
ACCUMULATION UNIT VALUE AT
END OF PERIOD................................. 14.265 22.369 $ 21.262 $ 19.143
--------- --------- -------- --------
RATIOS
Ratio of expenses to average net assets........ 1.33% 1.32% 1.28% 1.28%
Ratio of net investment income (loss) to
average net assets............................ .65% .43% .48% .53%
Portfolio turnover rate........................ 36.35% 29.16% 28.83% 20.40%
Number of accumulation units
outstanding at end of year
(expresed in thousands)....................... 2,617 2,912 3,330 3,689
2004 2003 2002 2001 2000 1999
------------ ------------ ----------- ----------- ----------- ------------
Investment Income.............................. $ .343 $ .245 $ .253 $ .249 $ .265 $ .283
Expenses....................................... .218 .184 .191 .228 .275 .256
-------- -------- -------- -------- ------- --------
Net investment income (loss)................... .125 .061 .062 .021 (.010) 0.27
Net realized and unrealized gain (loss) on
investments................................... 1.642 3.612 (4.238) (2.354) (2.454) 3.106
-------- -------- -------- -------- ------- --------
Net increase (decrease) in
accumulation unit value....................... 1.767 3.673 (4.176) (2.333) (2.464) 3.133
Accumulation unit value at
beginning of period........................... 16.545 12.872 17.048 19.381 21.845 18.712
-------- -------- -------- -------- ------- --------
ACCUMULATION UNIT VALUE AT
END OF PERIOD................................. $ 18.312 $ 16.545 $ 12.872 $ 17.048 $19.381 $ 21.845
-------- -------- -------- -------- ------- --------
RATIOS
Ratio of expenses to average net assets........ 1.28% 1.27% 1.28% 1.28% 1.28% 1.28%
Ratio of net investment income (loss) to
average net assets............................ .73% .42% .41% .12% (.05)% .14%
Portfolio turnover rate........................ 38.72% 77.30% 60.26% 78.03% 66.67% 21.46%
Number of accumulation units
outstanding at end of year
(expresed in thousands)....................... 4,103 4,466 4,747 5,305 5,787 6,366
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 the changes in unit value. Performance is
based on past performance and does not indicate or represent future
performance.
Financial Statements
The December 31, 2008 financial statements of the VAA and the December 31, 2008
consolidated financial statements of Lincoln Life 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 1-800-454-6265.
The Lincoln National Life Insurance Company
The Lincoln National Life Insurance Company (Lincoln Life), organized in 1905,
is an Indiana-domiciled insurance company, engaged primarily in the direct
issuance of life insurance contracts and annuities. Lincoln Life is wholly
owned by Lincoln National Corporation
6
(LNC), a publicly held insurance and financial services holding company
incorporated in Indiana. Lincoln Life is obligated to pay all amounts promised
to policy owners under the policies.
You or the participant, if applicable, may be permitted to make allocations to
the fixed account, which is part of our general account. See The Fixed Side of
the Contract. In addition, any guarantees under the contract that exceed your
contract value, such as those associated with a death benefit option are paid
from our general account (not the VAA). Therefore, any amounts that we may pay
under the contract in excess of contract value are subject to our financial
strength and claims-paying ability and our long-term ability to make such
payments.
We issue other types of insurance policies and financial products as well, and
we also pay our obligations under these products from our assets in the general
account. Moreover, unlike assets held in the VAA, the assets of the general
account are subject to the general liabilities of the Company and, therefore,
to the Company's general creditors. In the event of an insolvency or
receivership, payments we make from our general account to satisfy claims under
the contract would generally receive the same priority as our other
contractowner obligations.
The general account is not segregated or insulated from the claims of the
insurance company's creditors. Investors look to the financial strength of the
insurance companies for these insurance guarantees. Therefore, guarantees
provided by the insurance company as to benefits promised in the prospectus are
subject to the claims paying ability of the insurance company and are subject
to the risk that the insurance company may not be able to cover or may default
on its obligations under those guarantees.
Our Financial Condition. Among the laws and regulations applicable to us as an
insurance company are those which regulate the investments we can make with
assets held in our general account. In general, those laws and regulations
determine the amount and type of investments which we can make with general
account assets.
In addition, state insurance regulations require that insurance companies
calculate and establish on their financial statements, a specified amount of
reserves in order to meet the contractual obligations to pay the claims of our
policyholders. In order to meet our claims-paying obligations, we regularly
monitor our reserves to ensure we hold sufficient amounts to cover actual or
expected contract and claims payments. However, it is important to note that
there is no guarantee that we will always be able to meet our claims paying
obligations, and that there are risks to purchasing any insurance product.
State insurance regulators also require insurance companies to maintain a
minimum amount of capital in excess of liabilities, which acts as a cushion in
the event that the insurer suffers a financial impairment, based on the
inherent risks in the insurer's operations. These risks include those
associated with losses that we may incur as the result of defaults on the
payment of interest or principal on assets held in our general account, which
include bonds, mortgages, general real estate investments, and stocks, as well
as the loss in value of these investments resulting from a loss in their market
value.
How to Obtain More Information. We encourage both existing and prospective
policyholders to read and understand our financial statements. We prepare our
financial statements on both a statutory basis and according to Generally
Accepted Accounting Principles (GAAP). Our audited GAAP financial statements,
as well as the financial statements of the VAA, are located in the SAI. If you
would like a free copy of the SAI, please write to us at: PO Box 2340, Fort
Wayne, IN 46801-2340 , or call 1-800-454-6265. In addition, the Statement of
Additional Information is available on the SEC's website at http://www.sec.gov.
You may obtain our audited statutory financial statements and any unaudited
statutory financial statements that may be available by visiting our website at
www.LincolnFinancial.com.
You also will find on our website information on ratings assigned to us by one
or more independent rating organizations. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance and annuity contracts based on its financial strength and/or
claims-paying ability. Additional information about rating agencies is included
in the Statement of Additional Information.
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.
Fixed Side of the Contract
The value of net purchase payments (gross purchase payments minus sales and
administrative expenses) allocated to the fixed side of the contract becomes
part of our general account, and does not participate in the investment
experience of the VAA. The general account is subject to regulation and
supervision by the Indiana Insurance Department as well as the insurance laws
and regulations of the jurisdictions in which the contracts are distributed.
In reliance on certain exemptions, exclusions and rules, we have not registered
interests in the general account as a security under the Securities Act of 1933
(1933 Act) and have not registered the general account as an investment company
under the Investment Company Act of 1940 (1940 Act). Accordingly, neither the
general account nor any interests in it are regulated under the 1933 Act or the
7
1940 Act. These disclosures, however, may be subject to certain provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses. Complete details regarding the fixed side of
the contract are in the contract.
Net purchase payments allocated to the fixed side of the contract are
guaranteed to be credited with a minimum interest rate, specified in the
contract, of at least 3.5%. A net purchase payment allocated to the fixed side
of the contract is credited with interest beginning on the next calendar day
following the date of receipt if all data is complete. Lincoln Life under which
payments are allocated to the accounts of individual participants may vary the
way in which it credits interest to the fixed side of the contract from time to
time.
ANY INTEREST IN EXCESS OF 3.5% WILL BE DECLARED IN ADVANCE AT LINCOLN LIFE'S
SOLE DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF
3.5% WILL BE DECLARED.
Variable Annuity Account (VAA)
The VAA, which was originally established on September 16, 1966, was registered
with the SEC as an open end, diversified management investment company under
the provisions of the Investment Company Act of 1940 (1940 Act).
Following the close of business on July 17, 2009, a reorganization occurred
whereby the assets and liabilities of the VAA (other than liabilities
associated with insurance obligations) were transferred to the LVIP Delaware
Growth and Income Fund, a series of Lincoln Variable Insurance Products Trust,
in exchange for Standard Class shares of the LVIP Delaware Growth and Income
Fund. On that same date, the VAA was restructured as a unit investment trust
under the 1940 Act.
The VAA is also a segregated investment account under Indiana law, 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
contracts, credited to or charged against the VAA. They are credited or charged
without regard to any other income, gains or losses of Lincoln Life. The
obligations arising under the contract are obligations of Lincoln Life. The VAA
satisfies the definition of separate account under the federal securities laws.
We do not guarantee the investment performance of the VAA. Any investment gain
or loss depends on the investment performance of the fund. The contract owner
or participant assumes the full investment risk for all amounts placed in the
VAA.
Financial Statements
The financial statements of the VAA and consolidated financial statements of
Lincoln Life are incorporated by reference into 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 1-800-454-6265.
Subsequent to December 31, 2008, we recorded $600 million of goodwill
impairment for the Retirement Solutions - Annuities reporting unit, which was
attributable primarily to higher discount rates driven by higher debt costs and
equity market volatility, deterioration in sales and declines in equity
markets.
Investments of the Variable Annuity Account
Any purchase payments that you or the participant, if authorized by the
contractowner, allocate to the subaccount will be allocated to the Standard
Class of the fund. Shares of the fund will be sold at net asset value with no
initial sales charge to the VAA in order to fund the contracts. The fund is
required to redeem fund shares at net asset value upon our request.
Investment Adviser and Sub-Adviser
Lincoln Investment Advisors Corporation (LIA) is the investment adviser for the
fund. LIA is registered under the Investment Advisers Act of 1940. 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 the fund, as defined in the prospectus for the fund.
A sub-advisory agreement is in effect between LIA and Delaware Management
Company (DMC), a series of Delaware Management Business Trust (DMBT), 2005
Market Street, Philadelphia, PA 19103, a Delaware statutory trust that is
registered with the SEC as an investment adviser. DMBT is a wholly owned
indirect subsidiary of Delaware Management Company, Inc. and ultimately of
Lincoln National Corporation. Under the sub-advisory agreement, DMC may perform
substantially all of the investment advisory services required by the fund.
However, LIA remains primarily responsible for investment decisions affecting
the fund, and no additional compensation from the assets of the fund is
assessed as a result of this agreement.
Description of the Fund
The subaccount of the VAA is invested solely in shares of the LVIP Delaware
Growth and Income Fund. The LVIP Delaware Growth and Income Fund is an equity
fund with a diversified portfolio. The fund primarily invests in stocks of
large-sized U.S. companies, and its
8
benchmark is the Russell 1000 (Reg. TM) Index. The fund may be subject to
certain investment policies and restrictions which may not be changed without a
majority vote of shareholders of the fund.
The fund offered as part of this contract may have similar investment
objectives and policies to other portfolios managed by the adviser. The
investment results of the fund, 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 the
fund will be comparable to the investment results of any other portfolio
managed by the adviser or sub-adviser, if applicable.
Following is a brief summary of the fund description. More detailed information
may be obtained from the current prospectus for the fund. You should read the
fund prospectus that accompanies this prospectus carefully before investing.
Please be advised that there is no assurance that the fund will achieve its
stated objective.
Lincoln Variable Insurance Products Trust, advised by Lincoln Investment
Advisors Corporation.
o LVIP Delaware Growth and Income Fund (Standard Class): Investment
Objective: Capital appreciation.
(Subadvised by Delaware Management Company, a series of Delaware
Management Business Trust.)
Fund Shares
We will purchase shares of the fund at net asset value and direct them to the
subaccount of the VAA. We will redeem sufficient shares of the fund to pay
annuity payouts, death benefits, surrender/withdrawal proceeds or for other
purposes described in the contract. Redeemed shares are retired, but they may
be reissued later.
Shares of the fund 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 subaccount 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 fund currently engages 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. 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 fund does
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 fund 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 the fund for all contractowners 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 or the
investment of future purchase payments, or both. We may close the subaccount to
allocations of purchase payments or contract value, or both, at any time in our
sole discretion. The fund, which sells shares to the subaccount pursuant to a
participation agreement, also may terminate the agreement and discontinue
offering its shares to the subaccount. A substitution might also occur if
shares of a fund should no longer be available, or if investment in the 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.
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
subaccount 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.
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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
paying the benefits under the contracts.
Our administrative services include:
o processing applications for and issuing the contracts;
o processing purchases and redemptions of fund shares as required;
o maintaining records;
o administering annuity payouts;
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; and
o providing toll-free inquiry services.
The benefits we provide include:
o death benefits;
o annuity payout benefits and
o cash surrender value benefits.
The risks we assume include:
o the risk that annuitants receiving annuity payouts under contracts live
longer than we assumed when we calculated our guaranteed rates (these rates
are incorporated in the contract and cannot be changed);
o the risk that death benefits paid under the minimum death benefit option
(see below) will exceed the actual contract value;
o the risk that more owners than expected will qualify for reduced sales or
administrative charges; and
o the risk that our costs in providing the services will exceed our revenues
from contract charges (which we cannot change).
The amount of a charge may not necessarily correspond to the costs associated
with providing the services or benefits indicated by the description of the
charge. For example, the sales expense charge 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 VAA.
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 Purchase Payments
Under periodic payment contracts, we deduct 4.25% for sales expenses and 1% for
administrative expenses from each purchase payment when it is received. Under
single payment contracts, we deduct 2% plus $50 from the single purchase
payment for sales expense and $65 for administrative expenses. Deductions for
sales and administrative expenses made from purchase payments applied to the
fixed side of the contract are the same as those made from purchase payments
applied to the VAA.
If the contractowner elected the minimum death benefit, we make an additional
deduction of .75% from each purchase payment. We expect to make a profit from
the sale of this death benefit. This death benefit is no longer available for
purchase.
Deductions from the VAA
We apply to the daily net asset value of the subaccount a charge which is equal
to an annual rate of:
VAA Annual Expenses (as a percentage of average daily net assets in the
subaccount):
o Mortality and expense risk charge 1.002%*
* Lincoln Life has contractually agreed to waive a portion of the mortality
and expense risk charge to the extent needed to ensure that the
contractowners and participants do not incur aggregate contract or
certificate expenses that are higher than 1.325%, which was the aggregate
contract or certificate expense prior to the reorganization of Fund A into
the LVIP Delaware Growth and Income Fund.
Deduction for Premium Taxes
We will deduct from purchase payments any premium tax or other tax levied by
any governmental entity with regard to the contracts. 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 the contractowner's state of residence. The tax ranges from 0% to
3.5%.
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Other Charges and Deductions
There are additional deductions from and expenses paid out of the assets of the
underlying fund that are more fully described in the prospectus for the fund.
Additional Information
The sales and administrative charges described previously may be reduced or
eliminated for any particular contract. However, these charges will be reduced
only to the extent that we anticipate lower distribution and/or administrative
expenses, or that we perform fewer sales or administrative services than those
originally contemplated in establishing the level of those charges. Lower
distribution and administrative expenses may be the result of economies
associated with:
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 sales and administrative charges applicable to a particular
contract will be stated in that contract.
In accordance with the terms of the periodic payment contract, on each
anniversary after the second anniversary, the terms of the contract, including
the charges, may be modified. The contractowner will receive at least 90 days
written notice of a modification to the contract, and no modification will
affect any account which has been annuitized prior to the effective date of the
modification.
The Contracts
Purchase of Contracts
We no longer offer contracts for sale. However, existing contractowners (and
participants if applicable) can make periodic purchase payments under the
periodic contracts.
This prospectus describes group variable annuity contracts under which we
allocate payments to the accounts of individual participants. Each participant
under the group variable annuity contract receives a certificate which
summarizes the provisions of the group contract and is proof of participation.
The participant names a beneficiary of the death benefit and elects the annuity
option. Each contractowner elects whether the standard or minimum death benefit
rider applies to the contract. The death benefit option selected by the
contractowner will apply to all participants in that group. Either the
contractowner or the participant, if allowed by the contractowner, may chose
whether to invest in the subaccount or the fixed account. The participant's
share of the contract value is called the participant account value.
Periodic Purchase Payments
Periodic purchase payments are payable to us at a frequency and in an amount
the contractowner selected in the application. Additional purchase payments
must be for at least $25 per payment, and total at least $600 annually. If the
contractowner stops making purchase payments, the contract will remain in force
as a paid-up contract. However, we may terminate the contract as allowed by the
contractowner's state's non-forfeiture law for deferred annuities. If you
submit a purchase payment to your agent, we will not begin processing the
purchase payment until we receive it from our agent's broker-dealer.
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
Purchase payments are placed into the VAA's subaccount or into the fixed
account, according to the contractowner's instructions, or participant's
instructions, if applicable. Net purchase payments allocated to the VAA are
converted into accumulation units and are credited to the account of each
participant. The number of accumulation units credited is determined by
dividing the net purchase payment by the value of an accumulation unit on the
valuation date on which the purchase payment is received at our home office if
received before 4:00 p.m., New York time. If the purchase payment is received
at or after 4:00 p.m., New York time, we will process the request using the
accumulation unit value computed on the next valuation date. The number of
accumulation units determined in this way is not changed by any subsequent
change in the value of an accumulation unit. However, the dollar value of an
accumulation unit will vary depending not only upon how well the fund performs,
but also upon the expenses of the VAA and the fund.
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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 the subaccount was
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 fund, fund expenses, and the
deduction of certain contract charges. We determine the value of an
accumulation unit on the last day of any following valuation period as follows:
1. The total value of the fund shares held in the subaccount is calculated by
multiplying the number of fund shares owned by the subaccount at the
beginning of the valuation period by the net asset value per share of the
fund at the end of the valuation period, and adding any dividend or other
distribution of the fund if an ex-dividend date occurs during the valuation
period; minus
2. The liabilities of the subaccount at the end of the valuation period; these
liabilities include daily charges imposed on the subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine result from the operations of the VAA; and
3. The result is divided by the number of subaccount units outstanding at the
beginning of the valuation period.
The daily charges imposed on the subaccount for any valuation period are equal
to the daily mortality and expense risk charge multiplied by the number of
calendar days in the valuation period.
Transfers On or Before the Annuity Commencement Date
The contractowner or participant, if authorized by the contractowner, may
transfer all or any part of the contract value from the subaccount to the fixed
side of the contract.
The contractowner or participant, if authorized by the contractowner, may also
transfer all or any part of the contract value from the fixed account to the
subaccount subject to the following restrictions:
(1) the sum of the percentages of fixed value transferred is limited to 25% of
the value of the fixed side in any 12-month period; and
(2) the minimum amount which can be transferred is $300 or the amount in the
fixed account.
Market Timing
Frequent, large, or short-term transfers among the subaccount and the fixed
account, such as those associated with "market timing" transactions, can affect
the fund and its 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 fund. As an effort to
protect our contractowners and the fund 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 subaccount and the fixed account that
may affect other contractowners or fund shareholders.
In addition, the fund may have adopted its own policies and procedures with
respect to frequent purchases and redemptions of its respective shares. The
prospectus for the fund describes 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 fund. 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
fund 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 fund's ability to
apply their respective disruptive trading policies and procedures. We cannot
guarantee that the fund (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 fund. 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.
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 fund 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.
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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 fund 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 subaccount and 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 calendar 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, the fund may also be available as an
investment option 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 fund, we cannot guarantee that the fund will
not suffer harm from frequent, large, or short-term transfer activity among the
subaccount 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 the fund available through the VAA,
including any refusal or restriction on purchases or redemptions of the fund
shares as a result of the fund's own policies and procedures on market timing
activities. If the 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. The fund 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 fund. You should read the prospectus
of the fund for more details on its redemption fees and its ability to refuse
or restrict purchases or redemptions of its shares.
Transfers After the Annuity Commencement Date
The contractowner or participant, if authorized by the contractowner, may
transfer all or a portion of the investment in the VAA to the fixed side of the
contract. Those transfers will be limited to three times per contract year.
Currently, there is no charge for these transers, but we reserve the right to
impose a charge. However, after the annuity commencement date, no transfers are
allowed from the fixed side of the contract to the variable side of the
contract.
Death Benefit Before the Annuity Commencement Date
If the participant dies prior to the annuity commencement date, a death benefit
is payable.
The participant may designate a beneficiary and change the beneficiary by
filing a written request with our home office. Each change of the beneficiary
revokes any previous designation. We reserve the right to request that the
contract be sent to us for endorsement of a change of beneficiary.
Qualified Contracts. There are two death benefit provisions available. At the
time of purchase, the contractowner elected either the standard death benefit
or, for a premium, the Minimum Death Benefit rider.
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Standard death benefit. If the participant dies prior to the annuity
commencement date, we will pay the beneficiary the value of the participant
account value.
Minimum Death Benefit rider. If the participant dies prior to the annuity
commencement date and before age 65, we will pay to the beneficiary the greater
of the participant account value or net purchase payments (i.e., the sum of all
purchase payments made on behalf of the deceased participant minus any
withdrawals, premium taxes incurred, and rider premiums). If the participant
dies on or after age 65, the beneficiary will receive the participant account
value.
Nonqualified Contracts. Prior to the annuity commencement date, a death benefit
equal to the participant account value will be paid to the beneficiary upon the
death of the participant.
General Information
The value of the death benefit will be determined as of the date on which the
death claim is approved for payment. This payment will occur upon receipt of:
(1) proof, satisfactory to us, of the death;
(2) written authorization for payment; and
(3) our receipt of all required claim forms, fully completed.
If the death benefit becomes payable upon the death of the participant, the
beneficiary may elect to receive payment either in the form of a lump sum
settlement or an annuity payout. Federal tax law requires that an annuity
election be made no later than 60 days after we receive satisfactory notice of
death as discussed previously. If an election has not been made by the end of
the 60 day period, a lump sum settlement will be made to the beneficiary at
that time.
If a lump sum settlement is requested, the proceeds will be mailed within seven
days of receipt of satisfactory claim documentation as discussed previously,
subject to the laws and regulations governing payment of death benefits. This
payment may be postponed as permitted by the 1940 Act.
Payment will be made in accordance with applicable laws and regulations
governing payment of death benefits. Notwithstanding any provision to the
contrary, the payment of death benefits provided under the contract must be
made in compliance with Code Section 72(s) or 401(a)(9) as applicable, as
amended from time to time.
The tax code requires that any distribution be paid within five years of the
death of the participant unless the beneficiary begins receiving, within one
year of the participant's death, the distribution in the form of a life annuity
or an annuity for a designated period not exceeding the beneficiary's life
expectancy.
Unless otherwise provided in the beneficiary designation, one of the following
procedures will take place on the death of the beneficiary:
1. If any beneficiary dies before the participant, that beneficiary's interest
will go to any other beneficiaries named, according to their respective
interests (There are no restrictions on the beneficiary's use of the
proceeds.); and/or
2. If no beneficiary survives the participant, the proceeds will be paid to the
participant's estate.
Surrenders and Withdrawals
Before the annuity commencement date, we will allow the surrender of the
contract or a withdrawal of a portion of the contract value upon your written
request or the written request of a participant, if authorized by the
contractowner, subject to the conditions of the contract discussed below.
Surrender or withdrawal rights after the annuity commencement date depend on
the annuity payout option selected.
The amount available upon surrender/withdrawal is the contract value at the end
of the valuation period during which the written request for
surrender/withdrawal is received at the home 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 prohibited, surrender/withdrawal payments will be mailed within seven
days after we receive a valid written request at the home office. The payment
may be postponed as permitted by the 1940 Act.
The tax consequences of a surrender/withdrawal are discussed later in this
prospectus. See Federal Tax Matters.
Participants in the Texas Optional Retirement Program should refer to the
Restrictions Under the Texas Optional Retirement Program, later in this
prospectus.
For contracts issued in connection with qualified plans, including H.R.-10
plans and tax-deferred annuity plans, participants should consult the terms of
the plan for limitations on early surrender or payment. See Federal Tax Matters
and the SAI.
For nonqualified contracts, if the contractowner stops making purchase payments
for a participant before the annuity commencement date, a participant has the
following options:
14
1. The participant may direct us to apply the participant's account value to
provide annuity payments under the selected annuity option. See Annuity
Payouts - Annuity Options.
2. A participant may request a surrender of all or any portion of the
participant's account value by submitting a written request for surrender
and the certificate to our home office. The participant will receive his or
her account value determined as of the day of the surrender request.
3. A participant may also purchase a new individual variable annuity contract
currently being issued by Lincoln Life by contacting their broker-dealer
representative. A participant in a nonqualified contract can apply his or
her participant account value toward the purchase of the new annuity.
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 fund cannot redeem shares; or
o when the SEC so orders to protect contractowners.
Payment of proceeds from the fixed account may be delayed for up to six months.
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.
Reinvestment Privilege
You or the participant may elect to make a reinvestment purchase with any part
of the proceeds of a surrender/withdrawal.
This election must be made by your written authorization to us on an approved
Lincoln reinvestment form and received in our Home office within 30 days of the
date of the surrender/withdrawal, and the repurchase must be of a contract
covered by this prospectus. In the case of a qualified retirement plan, a
representation must be made that the proceeds being used to make the purchase
have retained their tax-favored status under an arrangement for which the
contracts offered by this prospectus are designed. The number of accumulation
units which will be credited when the proceeds are reinvested will be based on
the value of the accumulation unit(s) on the next valuation date. This
computation will occur following receipt of the proceeds and request for
reinvestment at the Home office. You may utilize the reinvestment privilege
only once. For tax reporting purposes, we will treat a surrender/withdrawal and
a subsequent reinvestment purchase as separate transactions (and a Form 1099
may be issued, if applicable). You should consult a tax adviser before you
request a surrender/withdrawal or subsequent reinvestment purchase.
Amendment of Contract
We reserve the right to amend the contract to meet the requirements of the 1940
Act or other applicable federal or state laws or regulations. You will be
notified in writing of any changes, modifications or waivers. Any changes are
subject to prior approval of your state's insurance department (if required).
Otherwise, we cannot modify the contract without contractowner approval until
the contract has been in force for at least three years. We also cannot modify
the contract as it applies to retired participants unless we get their written
consent.
Ownership
The owner on the date of issue will be the entity designated in the contract
specifications.
As contractowner, you have all rights under the contract. A contractowner who
is a custodian or trustee may provide certain ownership rights to the
participant/annuitant. According to Indiana law, the assets of the VAA are held
for the exclusive benefit of all contractowners, participants and their
designated beneficiaries; and the assets of the VAA are not chargeable with
liabilities arising from any other business that we may conduct. Qualified
contracts may not be assigned or transferred except as permitted by applicable
law and upon written notification to us. We assume no responsibility for the
validity or effect of any assignment. Consult your tax adviser about the tax
consequences of an assignment.
Contractowner Questions
The obligations to purchasers under the contracts are those of Lincoln Life.
Contracts, endorsements and riders may vary as required by state law. This
prospectus provides a general description of the contract. Questions about your
contract should be directed to us at 1-800-454-6265.
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Annuity Payouts
When you applied for a contract, you or the annuitant/participant, if
authorized by the contractowner, could select any annuity commencement date
permitted by law. (Please note the following exception: Contracts issued under
qualified employee pension and profit-sharing trusts [described in Section
401(a) and tax exempt under Section 501(a) of the tax code] and qualified
annuity plans [described in Section 403(a) of the tax code], including H.R. 10
trusts and plans covering self-employed individuals and their employees,
provide for annuity payouts to start at the date and under the option specified
in the plan.)
The contract provides optional forms of payouts of annuities (annuity options),
each of which is payable on a variable basis, a fixed basis or a combination of
both as you specify. The contract provides that all or part of the contract
value may be used to purchase an annuity payout option.
You or the annuitant/participant, if authorized by the contractowner, may elect
annuity payouts in monthly, quarterly, semiannual or annual installments. If
the payouts would be or become less than $50, we have the right to reduce their
frequency until the payouts are at least $50 each. The amount of each annuity
payout will depend upon the frequency of payout you select. For example, if you
select frequent payments (e.g., monthly), the amount of each payout will be
lower than if you choose a less frequent payout (e.g., annual installments).
Also, the amount of each annuity payout will depend upon the duration of payout
you select. For example, if you choose the Life Annuity option, the amount of
each payout likely will be higher than if you choose the Joint Life Annuity
since the Life Annuity assumes a shorter period of time than the Joint Life
Annuity. Following are explanations of the annuity options available.
Annuity Options
Payouts Guaranteed for Designated Period. This option guarantees periodic
payouts during a guaranteed period, usually 10 or 20 years. However, under
contracts issued in connection with Section 403(b) plans, this option is not
available if the sum of the number of years over which monthly payouts would be
made and the age of the annuitant on the first scheduled payment date is
greater than 95.
Life Annuity with Payouts Guaranteed for Designated Period. This option
guarantees periodic payouts during a designated period, usually 10, 15 or 20
years, and then continues throughout the lifetime of the annuitant. The
designated period is selected by the participant.
Unit Refund Life Annuity. This option offers a periodic payout during the
lifetime of the annuitant with the guarantee that upon death a payout will be
made of the value of the number of annuity units (see Variable Annuity Payouts)
equal to the excess, if any, of:
o the total amount applied under this option divided by the annuity unit value
for the date payouts begin, divided by
o the annuity units represented by each payout to the annuitant multiplied by
the number of payouts paid before death.
The value of the number of annuity units is computed on the date the death
claim is approved for payment by the home office. (Not available as a fixed
payout.)
Annuity Settlement. This option offers payouts in the form provided by any
single payment immediate annuity contract issued by us on the date the proceeds
become payable. However, the amount of the first payment shall be 103% of the
first payment which such proceeds would otherwise provide under such annuity
contract on the basis of the Company's rates in effect on such date. In
calculating the first payment under the single payment immediate annuity
contract selected under this option, we assume that a deduction for sales and
administrative expenses has been made from the amount applied.
Life Annuity. This option offers a periodic payout during the lifetime of the
annuitant and ends with the last payout before the death of the annuitant. This
option offers the highest periodic payout since there is no guarantee of a
minimum number of payouts or provision for a death benefit for beneficiaries.
However, there is the risk under this option that the recipient would receive
no payouts if the annuitant dies before the date set for the first payout; only
one payout if death occurs before the second scheduled payout, and so on.
Joint Life Annuity. This option offers a periodic payout during the joint
lifetime of the annuitant and a designated joint annuitant. The payouts
continue during the lifetime of the survivor.
Joint Life and Two Thirds to Survivor Annuity. This option provides a periodic
payout during the joint lifetime of the annuitant and a designated joint
annuitant. When one of the joint annuitants dies, the survivor receives two
thirds of the periodic payout made when both were alive.
If any payee dies after an annuity payout becomes operative, then we will pay
the following to the payee's estate (unless otherwise specified in the election
option):
o the present value of unpaid payments under the payouts guaranteed for
designated period or life annuity with payouts guaranteed for designated
period;
o the amount payable at the death of the payee under the unit refund life
annuity; or
o the proceeds remaining with Lincoln Life under the payouts guaranteed for
designated amount or interest income, if available.
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If the annuity settlement has been selected and becomes operative, when the
last payee dies, we will pay the remainder of the contract in a single sum to
the last payee's estate (unless otherwise specified in the election option).
Present values will be based on the Assumed Investment Rate [See Assumed
Investment Rate (AIR)] used in determining annuity payments. The mortality and
expense risk charge and the charge for administrative services will be assessed
on all annuity options, including those that do not have a life contingency and
thus no mortality risks.
General Information
None of the options listed above currently provides withdrawal features,
permitting the contractowner to withdraw commuted values as a lump sum payment.
Other options, with or without withdrawal features, may be made available by
us. Options are only available to the extent they are consistent with the
requirements of the contract as well as Sections 72(s) and 401 (a)(9) of the
tax code, if applicable.
The annuity commencement date must be at least one year from the effective date
of the contract but before the annuitant's 85th birthday. If allowed by the
plan, you or the participant, if allowed, may change the annuity commencement
date up to 30 days before the scheduled annuity commencement date, upon written
notice to the Home office. You or the participant, if allowed, must give us at
least 30 days notice before the date on which you want payouts to begin. If
proceeds become available to a beneficiary in a lump sum, the beneficiary may
choose any annuity payout option.
Unless you select another option, the contract automatically provides for a
life annuity with annuity payouts guaranteed for 10 years (on a fixed, variable
or combination fixed and variable basis, in proportion to the account
allocations at the time of annuitization) except when a joint life payout is
required by law. Under any option providing for guaranteed period payouts, the
number of payouts which remain unpaid at the date of the annuitant's death (or
surviving annuitant's death in case of joint life annuity) will be paid to the
beneficiary as payouts become due after we are in receipt of:
o proof, satisfactory to us, of the death;
o written authorization for payment; and
o all claim forms, fully completed.
Once you begin to receive annuity payouts, you cannot change the payout option,
payout amount, or payout period. You or the participant, if authorized by the
contractowner, may transfer from the VAA to the fixed side of the contract
three times per contract year, but you may not transfer from the fixed side of
the contract to the VAA after the annuity commencement date.
Assumed Investment Rate (AIR)
The contractowner or the particpant, if authorized by the contractowner, may
elect an AIR of 3.5%, 4.5%, 5% or 6%, as state law or regulations permit. These
AIRs are used to determine the required level of employer contributions in
connection with certain pension plans. They do not reflect how the value of the
Fund's investments has grown or will grow.
The contractowner's choice of AIR affects the pattern of annuity payments. A
higher AIR will produce a higher initial payment but a more slowly rising
series of subsequent payments (or a more rapidly falling series of subsequent
payments) than a lower AIR.
The following table shows the annuity unit values at each year end for the
different AIRs:
Assumed Investment Rate
December
Annuity UnitValues 31
-------------------- ------------------------------
3.5% 4.5% 5% 6%
------- ------- ------- ------
1998.............. 6.353 4.699 4.045 3.004
1999.............. 7.167 5.250 4.500 3.309
2000.............. 6.144 4.458 3.801 2.770
2001.............. 5.221 3.751 3.184 2.298
2002.............. 3.808 2.710 2.289 1.637
2003.............. 4.730 3.334 2.803 1.985
2004.............. 5.057 3.531 2.954 2.072
2005.............. 5.108 3.532 2.941 2.044
2006.............. 5.483 3.755 3.111 2.142
2007.............. 5.572 3.779 3.117 2.125
Variable Annuity Payouts
Variable annuity payouts will be determined using:
o The contract value on the annuity commencement date, less applicable premium
taxes;
o The annuity tables contained in the contract;
o The annuity option selected; and
o The investment performance of the fund(s) selected.
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To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the contract with a fixed number of annuity units equal to the first
periodic payout divided by the annuity unit value; and
3. Calculate the value of the annuity units each period thereafter.
We may use sex distinct tables in contracts that are not associated with
employer sponsored plans.
When calculating the first payment under a single payment immediate annuity
contract, assume that a deduction for sales and administrative expenses (which
currently amounts to 2% plus $115 for single payment variable annuity
contracts) has been made from the amount applied under this provision.
Immediate Annuity Contracts. For immediate annuities, the number of annuity
units purchased is specified in the contract. We determine the number of
annuity units by:
(a) multiplying the net single payment (after deductions) by the applicable
annuity factor from the annuity table that we are then using for immediate
variable annuity contracts, and then
(b) dividing by the value of the annuity unit based on the net investment
factor calculated on the valuation date of the day or the day after the
contract was issued.
This number of annuity units does not change during the annuity period, and we
determine the dollar amount of the annuity payment by multiplying the number of
annuity units by the then value of an annuity unit.
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, bonus credits and persistency credits, if applicable, are contracts
issued to a corporation or a trust. Exceptions to this rule exist. For example,
the tax code treats a contract as owned by an individual if the named owner is
a trust or other entity that holds the contract as an agent for an individual.
However, this exception does not apply in the case of any employer that owns a
contract to provide deferred compensation for its employees.
Investments in the VAA Must Be Diversified
For a 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
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contract 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 I.R.S. 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 I.R.S. 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, bonus credits, persistency credits 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
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 purchase payments. In certain
circumstances, your purchase payments are reduced by amounts received from your
contract that were not included in income. Surrender and reinstatement of your
contract will generally be taxed as a withdrawal.
Taxation Of Annuity Payouts
The tax code imposes tax on a portion of each annuity payout (at ordinary
income tax rates) and treats a portion as a nontaxable return of your purchase
payments in the contract. We will notify you annually of the taxable amount of
your annuity payout. Once you have recovered the total amount of the purchase
payment in the contract, you will pay tax on the full amount of your annuity
payouts. If annuity payouts end because of the annuitant's death and before the
total amount in the contract have been distributed, the amount not received
will generally be deductible. If withdrawals, other than regular income
payments, are taken from during the Access Period, they are taxed subject to an
exclusion ratio that is determined based on the amount of the payment.
Taxation Of Death Benefits
We may distribute amounts from your contract because of the death of a
contractowner or an annuitant. The tax treatment of these amounts depends on
whether you or the annuitant dies before or after the annuity commencement
date.
Death prior to the annuity commencement date:
o If the beneficiary receives death benefits under an annuity payout option,
they are taxed in the same manner as annuity payouts.
o If the beneficiary does not receive death benefits under an annuity payout
option, they are taxed in the same manner as a withdrawal.
Death after the annuity commencement date:
o If death benefits are received in accordance with the existing annuity
payout option, they are excludible from income if they do not exceed the
purchase payments not yet distributed from the contract. All annuity
payouts in excess of the purchase payments not previously received are
includible in income.
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 purchase payments not
previously received.
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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 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).
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 purchase payments not previously received. The new owner's
purchase payments in the contract would then be increased to reflect the amount
included in income.
Charges For Additional Benefits
Your contract automatically includes a basic death benefit and may include
other optional riders. Certain enhancements to the basic death benefit may be
available to you. The cost of the basic death benefit and any additional
benefit are deducted from your contract. It is possible that the tax law may
treat all or a portion of the death benefit charge and for other optional
riders, if any, as a contract withdrawal.
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:
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.
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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.
If your contract was issued pursuant to a 403(b) plan, we now are generally
required to confirm, with your 403(b) plan sponsor or otherwise, that
contributions (purchase payments), as well as surrenders, loans or transfers
you request, comply with applicable tax requirements and to decline purchase
payments or requests that are not in compliance. We will defer crediting
purchase payments we receive or processing payments you request until all
information required under the tax law has been received. By directing purchase
payments to the contract or requesting a surrender, loan or transfer, you
consent to the sharing of confidential information about you, the contract, and
transactions under the contract and any other 403(b) contracts or accounts you
have under the 403(b) plan among us, your employer or plan sponsor, any plan
administrator or recordkeeper, and other product providers.
Also, for 403(b) contracts issued on or after January 1, 2009, amounts
attributable to employer contributions are subject to restrictions on
withdrawals specified in your employer's 403(b) plan, in order to comply with
new tax regulations (previously, only amounts attributable to your
salary-reduction contributions were subject to withdrawal restrictions).
Amounts transferred to a 403(b) contract from other 403(b) contracts or
accounts must generally be subject to the same restrictions on withdrawals
applicable under the prior contract or account.
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 Minimum annual distributions are required under most qualified plans once
you reach a certain age, typically age 701/2, as described below.
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 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.
Congress enacted The Worker, Retiree, and Employer Recovery Act of 2008 (the
Act) in December, 2008. The Act includes a number of relief provisions,
including the suspension of the RMD requirement for IRAs and certain qualified
plans in 2009. You should consult your tax advisor to determine whether the RMD
relief applies to your annuity contract. If your RMD is currently paid
automatically each year, Lincoln will not make any changes to your payments for
2009 unless you specifically request that a change be made.
Federal Penalty Taxes Payable On Distributions
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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 the Economic Growth and Tax Relief Reconciliation Act of 2001,
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. 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.
Death Benefit And IRAs
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.
Certain payments from your contract may be considered eligible rollover
distributions (even if such payments are not being rolled over). Such
distributions may be subject to special tax withholding requirements. The
Federal income tax withholding rules require that we withhold 20% of the
eligible rollover distribution from the payment amount, unless you elect to
have the amount directly transferred to certain qualified plans or contracts.
The IRS requires that tax be withheld, even if you have requested otherwise.
Such tax withholding requirements are generally applicable to 401(a), 403(a) or
(b), HR 10, and 457(b) governmental plans and contracts used in connection with
these types of plans.
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.
Voting Rights
As required by law, we will vote the fund shares held in the VAA at meetings of
the shareholders of the fund. If the contractowner does not object, the voting
will be done according to the instructions of the participants who have
interests in the subaccount which invests in the fund. 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.
22
The 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 VAA 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 fund. Since the fund engages in
shared funding, other persons or entities besides Lincoln Life may vote fund
shares. See Investments of the Variable Annuity Account - Fund Shares.
Distribution of the Contracts
Lincoln Financial Distributors ("LFD") serves as Principal Underwriter of this
contract. LFD is affiliated with Lincoln Life 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. 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 5.10% of purchase payments, plus up to 0.25% quarterly based on
contract value. 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. Upon annuitization, the maximum
commission the Principal Underwriter pays to LFA is 5.10% of annuitized
value/or ongoing annual compensation of up to 1.00 of annuity value or
statutory reserves.
Lincoln Life 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
Underwriters pays to Selling Firms, other than LFA, is 2.50% of purchase
payments, plus up to 0.30% quarterly based on contract value. 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. Upon annuitization, the maximum commission the
Principal Underwriter pays to Selling Firms is 4.00% of annuitized value and/or
ongoing annual compensation of up to 1.15% of annuity value or statutory
reserves. 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:
(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; and (5) inclusion
in the financial products the Selling Firm offers.
Lincoln Life 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 payments are not
offered to all Selling Firms, and the terms of any particular agreement
governing the payments may vary among Selling Firms.
23
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. Commissions and other incentives or
payments described above are not charged directly to contract owners or the
Fund. All compensation is paid from our resources, which include fees and
charges imposed on your contract.
State Regulation
As a life insurance company organized and operated under Indiana law, we are
subject to provisions governing life insurers and to regulation by the Indiana
Commissioner of Insurance. Our books and accounts are subject to review and
examination by the Indiana Department of Insurance at all times. A full
examination of our operations is conducted by that Department at least every
five years.
Restrictions Under the Texas Optional Retirement Program
Title 8, Section 830.105 of the Texas Government Code, consistent with prior
interpretations of the Attorney General of the State of Texas, permits
participants in the Texas Optional Retirement Program (ORP) to redeem their
interest in a variable annuity contract issued under the ORP only upon:
o Termination of employment in all institutions of higher education as defined
in Texas law;
o Retirement; or
o Death.
Accordingly, a participant in the ORP will be required to obtain a certificate
of termination from their employer before accounts can be redeemed.
Records and Reports
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA.
Certain records and accounts of the Fund may also be maintained by the Fund's
subadviser and custodian. Also, accounts, books, and other documents are
maintained by The Bank of New York Mellon (the Fund's accounting services
provider), 135 Santilli Highway, Everett, Massachusetts 02149-1950; and
Delaware Services Company, Inc. (The Fund's fund accounting and financial
administration oversight provider), One commerce Square, 2005 Market Street,
Philadelphia, Pennsylvania 19103.
Other Information
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the contracts being offered here. This prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further
information about the VAA, Lincoln Life and the contracts offered. Statements
in this prospectus about the content of contracts and other legal instruments
are summaries. For the complete text of those contracts and instruments, please
refer to those documents as filed with the SEC.
Legal Proceedings
In the ordinary course of its business, Lincoln Life, 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 consolidated financial position of Lincoln Life, the
financial position of the VAA, or the principal underwriter.
24
Statement of Additional Information
Table of Contents for Lincoln National Variable Annuity Fund A
Item Page
Special terms B-2
Investment Objectives and Policies of the Fund B-2
Managers and Officers B-2
Proxy Voting Policies and Procedures B-6
Investment Advisory and Related Services B-6
Portfolio Managers B-6
Portfolio Transactions and Brokerage B-6
Purchase and Pricing of Securities Being
Offered B-7
Other Services B-8
Principal Underwriter B-9
Determination of Accumulation Unit Value B-9
Capital Markets B-9
Advertising & Ratings B-9
Financial Statements B-9
Appendix A B-10
Appendix B B-11
For a free copy of the SAI complete the form below.
Statement of Additional Information Request Card
Lincoln National Variable Annuity Fund A (Individual or Group)
Please send me a free copy of the current Statement of Additional Information
for Lincoln National Variable Annuity Fund A (Individual or Group).
(Please Print)
Name: -------------------------------------------------------------------------
Address: ----------------------------------------------------------------------
City ---------------------------------------- State --------- Zip ---------
25
Mail to: The Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne,
Indiana 46801
26
(This page intentionally left blank)
27
Lincoln National Variable Annuity Fund A (Group)
(Registrant)
The Lincoln National Life Insurance Company
(Insurance Company)
Statement of Additional Information (SAI)
This SAI should be read in conjunction with the prospectus of Lincoln National
Variable Annuity Fund A (Group) dated July 17, 2009. You may obtain a copy of
the Fund A (Group) prospectus on request and without charge. Please write
Annuities Customer Service, The Lincoln National Life Insurance Company, PO Box
2340, Fort Wayne, IN 46801-2340, or call 1-800-454-6265.
The VAA, which was originally established on September 16, 1966, was registered
with the SEC as an open end, diversified management investment company under
the provisions of the 1940 Act. Following the close of business on July 17,
2009, a reorganization occurred whereby the assets and liabilities of the VAA
(other than liabilities associated with insurance obligations) were transferred
to the LVIP Delaware Growth and Income Fund, a series of Lincoln Variable
Insurance Products Trust, in exchange for Standard Class shares of the LVIP
Delaware Growth and Income Fund. On that same date, Fund A was restructured as
a unit investment trust under the 1940 Act.
Table of Contents
Item Page
Special Terms B-2
Services B-2
Principal Underwriter B-2
Purchase of Securities Being Offered B-2
Annuity Payouts B-2
Item Page
Determination of Accumulation and Annuity Unit
Value B-3
Capital Markets B-3
Advertising & Ratings B-4
Financial Statements B-4
This SAI is not a prospectus.
The date of this SAI is July 17, 2009.
Special Terms
The special terms used in this SAI are the ones defined in the Prospectus.
Services
Independent Registered Public Accounting Firm
The financial statements of the VAA, and the consolidated financial statements
of Lincoln Life incorporated by reference into this SAI and Registration
Statement have been audited by Ernst & Young LLP, independent registered public
accounting firm, Two Commerce Square, 2001 Market Street, Suite 4000,
Philadelphia, Pennsylvania 19103, as set forth in their reports, also
incorporated by reference into this SAI and in the Registration Statement. The
financial statements audited by Ernst & Young LLP have been incorporated by
reference herein in reliance on their reports given on their authority as
experts in accounting and auditing.
Keeper of Records
All accounts, books, records and other documents which are required to be
maintained for the VAA are maintained by us or by third parties responsible to
Lincoln Life. We have entered into an agreement with The Bank of New York
Mellon, One Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania,
15258, to provide accounting services to the VAA. No separate charge against
the assets of the VAA is made by us for this service.
Principal Underwriter
Lincoln Financial Distributors ("LFD") serves as Principal Underwriter (the
"Principal Underwriter") for the variable annuity contracts as described in the
prospectus. LFD is affiliated with Lincoln Life 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 anticipates continuing to accept payments under the
contracts, but reserves the right to discontinue accepting such payments. The
contracts are no longer being sold. The Principal Underwriter paid
approximately $59,902 in 2008; $53,436 in 2007; and 462,251 in 2006 as sales
compensation with respect to the contracts. The Principal Underwriter did not
retain any underwriting commissions from the sale of the variable annuity
contracts during the past three fiscal years.
Purchase of Securities Being Offered
The variable annuity contracts are offered to the public through licensed
insurance agents who specialize in selling our products; through independent
insurance brokers; and through certain securities brokers/dealers selected by
us whose personnel are legally authorized to sell annuity products. There are
no special purchase plans for any class of prospective buyers. However, under
certain limited circumstances described in the prospectus under the section
Charges and Other Deductions, any applicable account fee and/or surrender
charge may be reduced or waived.
Both before and after the annuity commencement date, there are exchange
privileges from the VAA to the general account (if available) subject to
restrictions set out in the prospectus. See The Contracts, in the prospectus.
No exchanges are permitted between the VAA and other separate accounts.
The offering of the contracts is continuous.
Annuity Payouts
Variable Annuity Payouts
Variable annuity payouts will be determined on the basis of:
o the dollar value of the contract on the annuity commencement date less any
applicable premium tax;
o the annuity tables contained in the contract;
o the type of annuity option selected; and
o the investment results of the fund(s) selected.
In order to determine the amount of variable annuity payouts, we make the
following calculation:
o first, we determine the dollar amount of the first payout;
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o second, we credit the contract with a fixed number of annuity units based on
the amount of the first payout; and
o third, we calculate the value of the annuity units each period thereafter.
These steps are explained below.
The dollar amount of the first periodic variable annuity payout is determined
by applying the total value of the accumulation units credited under the
contract valued as of the annuity commencement date (less any premium taxes) to
the annuity tables contained in the contract. The first variable annuity payout
will be paid 14 days after the annuity commencement date. This day of the month
will become the day on which all future annuity payouts will be paid. Amounts
shown in the tables are based on the 1983 Table "a" Individual Annuity
Mortality Tables, modified, with an assumed investment return at the rate of
3%, 4%, 5% or 6% per annum, depending on the terms of your contract. The first
annuity payout is determined by multiplying the benefit per $1,000 of value
shown in the contract tables by the number of thousands of dollars of value
accumulated under the contract. These annuity tables vary according to the form
of annuity selected and the age of the annuitant at the annuity commencement
date. The assumed interest rate is the measuring point for subsequent annuity
payouts. If the actual net investment rate (annualized) exceeds the assumed
interest rate, the payout will increase at a rate equal to the amount of such
excess.
Conversely, if the actual rate is less than the assumed interest rate, annuity
payouts will decrease. If the assumed rate of interest were to be increased,
annuity payouts would start at a higher level but would decrease more rapidly
or increase more slowly.
We may use sex-distinct annuity tables in contracts that are not associated
with employer sponsored plans and where not prohibited by law.
At an annuity commencement date, the contract is credited with annuity units
for each subaccount on which variable annuity payouts are based. The number of
annuity units to be credited is determined by dividing the amount of the first
periodic payout by the value of an annuity unit in each subaccount selected.
Although the number of annuity units is fixed by this process, the value of
such units will vary with the value of the underlying fund. The amount of the
second and subsequent periodic payouts is determined by multiplying the
contractowner's fixed number of annuity units in each subaccount by the
appropriate annuity unit value for the valuation date ending 14 days prior to
the date that payout is due.
The value of each subaccount's annuity unit will be set initially at $1.00. The
annuity unit value for each subaccount at the end of any valuation date is
determined by multiplying the subaccount annuity unit value for the immediately
preceding valuation date by the product of:
o The net investment factor of the subaccount for the valuation period for
which the annuity unit value is being determined, and
o A factor to neutralize the assumed investment return in the annuity table.
The value of the annuity units is determined as of a valuation date 14 days
prior to the payment date in order to permit calculation of amounts of annuity
payouts and mailing of checks in advance of their due dates. Such checks will
normally be issued and mailed at least three days before the due date.
Proof of Age, Sex and Survival
We may require proof of age, sex, or survival of any payee upon whose age, sex,
or survival payments depend.
Determination of Accumulation and Annuity Unit Value
A description of the days on which the Fund's accumulation unit values will be
determined is given in the Prospectus. The New York Stock Exchange is generally
closed on New Year's Day, Martin Luther King's birthday, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. It may also be closed on other days.
Capital Markets
Beginning in 2008 and continuing as of the date of this prospectus, the capital
and credit markets have experienced an unusually high degree of volatility. As
a result, the market for fixed income securities has experienced illiquidity,
increased price volatility, credit downgrade events and increased expected
probability of default. Securities that are less liquid are more difficult to
value and may be hard to sell, if desired. During this time period, domestic
and international equity markets have also been experiencing heightened
volatility and turmoil, with issuers (such as our company) that have exposure
to the real estate, mortgage and credit markets particularly affected.
In any particular year, our capital may increase or decrease depending on a
variety of factors - the amount of our statutory income or losses (which itself
is sensitive to equity market and credit market conditions), the amount of
additional capital we must hold to support business growth, changes in
reserving requirements, our inability to secure capital market solutions to
provide reserve relief, such as issuing letters of credit to support captive
reinsurance structures, changes in equity market levels, the value of certain
fixed-income and equity securities in our investment portfolio and changes in
interest rates.
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Advertising & Ratings
We may include in certain advertisements, endorsements in the form of a list of
organizations, individuals or other parties which recommend Lincoln Life or the
policies. Furthermore, we may occasionally include in advertisements
comparisons of currently taxable and tax deferred investment programs, based on
selected tax brackets, or discussions of alternative investment vehicles and
general economic conditions.
Nationally recognized rating agencies rate the financial strength of our
Company. The ratings do not imply approval of the product and do not refer to
the performance of the product, or to the VAA, including underlying investment
options. Ratings are not recommendations to buy our products. Each of the
rating agencies reviews its ratings periodically. Accordingly, all ratings are
subject to revision or withdrawal at any time by the rating agencies, and
therefore, no assurance can be given that these ratings will be maintained. In
late September and early October of 2008, A.M. Best Company, Fitch, Moody's and
Standard & Poor's each revised their outlook for the U.S. life insurance sector
from stable to negative. Our financial strength ratings, which are intended to
measure our ability to meet contract holder obligations, are an important
factor affecting public confidence in most of our products and, as a result,
our competitiveness. A downgrade of our financial strength rating could affect
our competitive position in the insurance industry by making it more difficult
for us to market our products as potential customers may select companies with
higher financial strength ratings and by leading to increased withdrawals by
current customers seeking companies with higher financial strength ratings.
Financial Statements
The December 31, 2008 financial statements of the VAA and the December 31, 2008
consolidated financial statements of Lincoln Life are incorporated by reference
into this SAI. Subsequent to December 31, 2008, we recorded $600 million of
goodwill impairment for the Retirement Solutions - Annuities reporting unit,
which was attributable primarily to higher discount rates driven by higher debt
costs and equity market volatility, deterioration in sales and declines in
equity markets.
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