lincolns-1.htm
File No.
333-
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________________
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
The Lincoln National Life
Insurance Company Agents’ Savings and Profit-Sharing Plan
(Exact
Name of Registrant as Specified in Its Charter)
N/A
(State or
Other Jurisdiction of Incorporation or Organization)
35-0472300
(I.R.S.
Employer Identification No.)
1300
South Clinton Street
Fort
Wayne, IN 46802
(219)
455-2000
(Address,
Including Zip Code, and Telephone Number, Including
Area
Code, of Registrant's Principal Executive Offices)
Dennis
L. Schoff
150
N. Radnor Chester Road
Radnor,
PA 19087
(484)
583-1400
(Name,
Address, Including Zip Code, and Telephone Number, Including
Area
Code, of Agent for Service)
______________________
Approximate
date of commencement of proposed sale to the public: From time to time after the
effective date of this registration statement.
If
this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 462(d) under the Securities Act, check
the following box. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one): Large accelerated filer
[X] Accelerated filer [ ] Non-accelerated filer
[ ] Smaller reporting company
[ ]
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CALCULATION
OF REGISTRATION FEE
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Title
of
Securities
to be
registered
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Amount
to be
registered
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Proposed
Maximum
offering
price
per share
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Proposed
maximum
aggregate
offering price
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Amount
of
registration fee
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Plan
interests (1)
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*
(1)
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*
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*
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*(2)
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(1) The
plan interests relate to the 4,000,000 shares of Common Stock (no par value) of
Lincoln National Corporation being offered or sold pursuant to the Lincoln
National Life Insurance Company Agents’ Savings and Profit-Sharing
Plan. The Common Stock is being separately registered under a
Registrations Statement on Form S-3 of Lincoln National Corporation
(Registration No. 333-163672) being filed concurrently herewith (“Form S-3), and
the registration fee is being paid in connection therewith. Pursuant
to Rule 457(h)(2) under the Securities Act of 1933, as amended, no fee is due
with respect to the plan interests.
(2)
Pursuant to Rule 429 under the Securities Act, the prospectus included in
this registration statement is a combined prospectus, which also relates to the
Form S-3 being filed concurrently herewith.
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the Registration Statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
EXPLANATORY
NOTE
The prospectus included in this
Registration Statement is a combined prospectus pursuant to Rule 429 of the
Securities Act of 1933, as amended. The combined prospectus relates
to this Registration Statement as well as a Registration Statement on Form S-3
(Registration No. 333-163672) registering the common stock of Lincoln National
Corporation. The portions of the prospectus relating to each
Registration Statement are being combined into a single prospectus as a matter
of convenience for the participants in The Lincoln National Life Insurance
Company Agents’ Savings and Profit-Sharing Plan.
The
information included in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities,
in any state where the offer or sale is not permitted.
Subject
to Completion, Dated December 11, 2009
4,000,000
Shares
LINCOLN
NATIONAL CORPORATION
COMMON
STOCK
(No Par
Value)
And
RELATED
PLAN INTERESTS
Offered
as set forth in this Prospectus pursuant to the
THE
LINCOLN NATIONAL LIFE INSURANCE COMPANY
AGENTS’
SAVINGS AND PROFIT-SHARING PLAN
This
prospectus relates to 4,000,000 shares of the Common Stock of Lincoln National
Corporation to be offered and sold to eligible agents of The Lincoln National
Life Insurance Company and certain of its affiliated entities under The Lincoln
National Life Insurance Company Agents’ Savings and Profit-Sharing Plan, which
we refer to in this prospectus as the “Plan.” This prospectus also
relates to an indeterminate number of Plan interests in The Lincoln National
Life Insurance Company Agents’ Savings and Profit-Sharing Plan, which are
referred to as “Plan Interests” in this prospectus. The Plan Interests do not
carry separate voting rights.
Our
Common Stock is listed on the New York and Chicago Stock Exchanges under the
symbol “LNC.” On December 10, 2009, the last reported sale price of our Common
Stock on the New York Stock Exchange composite transaction tape was $22.76 per
share. The Plan Interests are not listed for trading on any
securities exchange or included in any automated quotation system. We
will not apply to list the Plan Interests on any securities exchange or to
include the Plan Interests in any automated quotation system.
Each
investment option offered to participants under the Plan, referred to as
investment options or separate accounts, has its own investment objectives or
goals and strategies for meeting those objectives. Investing in each
option involves risks, including possible loss of principal, and there is no
guarantee that an option will achieve its stated investment
objectives. If an option’s investment manager makes incorrect
judgments about the markets, the economy, or companies, the return on a
participant’s investment may be adversely affected. Investments in
any of these options are not bank deposits and are not endorsed, insured, or
guaranteed by the Federal Deposit Insurance Corporation (FDIC), any government
agency, or bank.
Investing
in our Common Stock involves risks. See “Risk Factors” beginning on
page 5 of this prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or
disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date
of this Prospectus is December 11, 2009
ABOUT
THIS PROSPECTUS
This
prospectus also constitutes a Summary Plan Description, and highlights the key
features of the Plan. This prospectus does not describe all
the details of the Plan. The Plan Document explains your benefits, rights and
responsibilities in more detail, and is the controlling document in the case of
any discrepancy between this prospectus supplement and the Plan
Document. It is important for you to read and consider all
information contained in this prospectus in making your investment
decision. You should also read and consider the additional
information under the caption “Where You Can Find More
Information.” You should rely only on information in this prospectus,
the Plan Document or information to which we have referred you. We
have not authorized anyone to provide you with information that is
different. We are not making an offer of these securities in any
state or jurisdiction where the offer is not permitted. The
information contained or incorporated by reference in this prospectus supplement
is accurate only as of the respective dates of such information. Our
business, financial condition, results of operations and prospectus may have
changed since those dates.
If you
have any questions about the Plan that are not answered in this Prospectus, or
if you would like a copy of the Plan Document, such additional information can
be obtained (without charge) from the Lincoln National Corporation Benefits
Committee, c/o Kim Miner, Interim Chairman, 150 N. Radnor Chester Road, Building
B, 2nd Floor Radnor,
PA 19087-5238.
IRS CIRCULAR 230 NOTICE: As
required by the IRS, we inform you that any tax advice contained in this
Prospectus was not intended or written to be used or referred to, and cannot be
used or referred to (i) for the purpose of avoiding penalties under the Internal
Revenue Code, or (ii) in promoting, marketing, or recommending to another party
any transaction or matter addressed in this Prospectus. Individuals should
seek tax advice based on their own particular circumstances from an independent
tax advisor.
Unless
otherwise indicated, all references in this prospectus to “LNC,” “we,” “our,”
“us,” or similar terms refer to Lincoln National Corporation together with its
subsidiaries and affiliates.
TABLE OF
CONTENTS
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General
Information
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1
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Forward
Looking Statements-Cautionary Language
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2
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Risk
Factors
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5
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Summary
of the Plan
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27
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Eligibility
and Participation
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27
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Participant
Contributions
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29
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Company
Contributions
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31
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Account
Statements
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32
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Limitations
on Contributions
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32
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Expenses
of the Plan
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32
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Vesting
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33
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Distributions
From the Plan
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34
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Participant
Loans
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37
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Lump
Sum Distributions
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38
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Periodic
Payments of Distributions
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39
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Fractional
Shares
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40
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Beneficiary
Designation
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40
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Assignment
and Qualified Domestic Relations Orders
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41
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Amendment
or Termination of the Plan
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41
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Administration
of the Plan
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42
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Federal
Income Tax Consequences
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43
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Your
Rights and Protections Under ERISA
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45
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ERISA
Claims Procedures
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47
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Important
Information About This Plan
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47
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Valuation
of Investments
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49
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Your
Investment Options
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50
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Plan
Interests are Securities
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68
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Lincoln
National Corporation Common Stock and Preferred Stock
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68
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Experts
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72
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Legal
Matters
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72
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Where
You Can Find More Information
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72
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Documents
Incorporated By Reference
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73
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REQUIRED DISCLOSURE FOR NORTH
CAROLINA RESIDENTS
THE COM
MISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR
DISAPPROVED OF THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS.
The
Lincoln National Life Insurance Company’s (“LNL”) Board of Directors first
adopted the Plan on May 11, 1978 for the benefit of eligible participants and
those of participating affiliates. The Plan became effective January
1, 1979.
The Plan
enables eligible participants serving as independent contractors to us with a
convenient and systematic method of saving. Under the Plan, there are
currently twenty-four (24) investment Accounts,
one of which is the LNC Stock Fund (see the section entitled “Investment of
Contributions”). Wilmington Trust Company, Wilmington, Delaware, is the Plan
Trustee of the Plan (see the sections entitled “Administration of the Plan” and
“Plan Trustee”).
LNC is a holding company, which
operates multiple insurance and investment management businesses through
subsidiary companies. LNL is its wholly owned
subsidiary. Through our business segments, we sell a wide range of
wealth protection, accumulation and retirement income products and
solutions. These products include institutional and/or retail fixed
and indexed annuities, variable annuities, universal life insurance (“UL”),
variable universal life insurance (“VUL”), term life insurance and group
insurance products. LNC was organized under the laws of the state of
Indiana in 1968. We currently maintain our principal executive
offices at 150 N. Radnor Chester Road, Radnor, Pennsylvania. “Lincoln
Financial Group” is the marketing name for LNC and its subsidiary
companies. As of September 30, 2009, LNC had consolidated assets of
$181.5 billion and consolidated stockholders’ equity of $11.7 billion. For the
nine months ended September 30, 2009, LNC had total revenue of $6.1 billion and
net loss of $587 million. For the year ended December 31, 2008, LNC
had total revenue of $9.9 billion and net income of $57 million.
We provide products and services in
two operating businesses and report results through four business segments, as
follows:
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Business
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Corresponding Segments
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Retirement
Solutions
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Annuities
and Defined Contribution
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Insurance
Solutions
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Life
Insurance and Group
Protection
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We also have Other
Operations, which includes financial data for operations that are not
directly related to the business segments. Other Operations also
includes our run-off Institutional Pension business, the results of certain
disability income business due to the rescission of the indemnity reinsurance
agreement with Swiss Re Life & Health America Inc., referred to as “Swiss
Re,” and the results of our remaining media businesses.
As of August 18, 2009, we and our
wholly owned Subsidiary, Lincoln National Investment Companies, entered into a
Purchase and Sale Agreement with Macquarie Bank Limited pursuant to which we
agreed to sell all of the outstanding capital stock of Delaware Management
Holdings, Inc., our subsidiary which provides investment products and services
to individuals and institutions and the results of which comprised the formed
Investment Management segment. The transaction is anticipated to
close on or around December 31, 2009, subject to regulatory approvals and
certain agreed upon and customary closing conditions.
On October 1, 2009, we completed the
sale of the capital stock of Lincoln National (UK) plc, of “Lincoln UK,” to SLF
of Canada UK Limited for proceeds of approximately $305 million, after-tax,
subject to customary post closing adjustments. We retained Lincoln UK’s pension
plan assets and liabilities. The results of Lincoln UK and its
subsidiaries comprised the former Lincoln UK segment.
Accordingly, we reported the results
of these businesses as discontinued operations on our Consolidated Statements of
Income(Loss) for the nine months ended September 30, 2009 and the assets and
liabilities as held for sale on our Consolidated Balance Sheet at September 30,
2009.
The results of Lincoln Financial
Network (“LFN”) and Lincoln Financial Distributors (“LFD”), our retail and
wholesale distributors, are included in the segments for which they distribute
products. LFD distributes our individual, as well as our Defined
Contribution and Executive Benefits products and services. The
distribution occurs primarily through brokers, planners, agents, financial
advisors, third party administrators and other intermediaries. Group
Protection distributes its products and services primarily through employee
benefit brokers, third party administrators and other employee benefit
firms. As of September 30, 2009, LFD had approximately 550 internal
and external wholesalers (including sales managers). As of September
30, 2009, LFN offered LNC and non-proprietary products and advisory services
through a
national network of approximately 7,500 active producers who placed business
with us within the last twelve months.
The following description of the Plan
is a summary of its key terms and provisions. The statements contained in this
prospectus concerning the Plan are qualified in their entirety by reference to
the terms of the Plan itself, which is the legally controlling document.
Eligible participants and their beneficiaries may obtain copies of the Plan upon
request, or review them at our principal executive office.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this
prospectus supplement are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 (“PSLRA”). A
forward-looking statement is a statement that is not a historical fact and,
without limitation, includes any statement that may predict, forecast, indicate
or imply future results, performance or achievements, and may contain words
like: “believe,” “anticipate,” “expect,” “estimate,” “project,” “will,” “shall”
and other words or phrases with similar meaning in connection with a discussion
of future operating or financial performance. In particular, these
include statements relating to future actions, trends in our business,
prospective services or products, future performance or financial results and
the outcome of contingencies, such as legal proceedings. We claim the
protection afforded by the safe harbor for forward-looking statements provided
by the PSLRA.
Forward-looking statements involve
risks and uncertainties that may cause actual results to differ materially from
the results contained in the forward-looking statements. Risks and
uncertainties that may cause actual results to vary materially, some of which
are described within the forward-looking statements, include, among
others:
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Continued
deterioration in general economic and business conditions, both domestic
and foreign, that may affect foreign exchange rates, premium levels,
claims experience, the level of pension benefit costs and funding and
investment results;
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Continued
economic declines and credit market illiquidity could cause us to realize
additional impairments on investments and certain intangible assets
including goodwill and a valuation allowance against deferred tax assets,
which may reduce future earnings and/or affect our financial condition and
ability to raise additional capital or refinance existing debt as it
matures;
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Uncertainty
about the impact of the U.S. Treasury’s Troubled Asset Relief Program
(“TARP”) on the economy;
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The
cost and other consequences of our participation in the Capital Purchase
Program (“CPP”), including the impact of existing and future regulations
to which we may become subject;
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Legislative,
regulatory or tax changes, both domestic and foreign, that affect the cost
of, or demand for, LNC’s products, the required amount of reserves and/or
surplus, or otherwise affect our ability to conduct business, including
changes to statutory reserves and/or risk-based capital (“RBC”)
requirements related to secondary guarantees under universal life and
variable annuity products such as Actuarial Guideline 43 also known as
VACARVM; restrictions on revenue sharing and 12b-1 payments; and the
potential for U.S. Federal tax
reform;
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The
initiation of legal or regulatory proceedings against LNC or its
subsidiaries, and the outcome of any legal or regulatory proceedings, such
as: adverse actions related to present or past business
practices common in businesses in which LNC and its subsidiaries compete;
adverse decisions in significant actions including, but not limited to,
actions brought by federal and state authorities and extra-contractual and
class action damage cases; new decisions that result in changes in law;
and unexpected trial court rulings;
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·
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Changes
in interest rates causing a reduction of investment income, the margins of
LNC’s fixed annuity and life insurance businesses and demand for LNC’s
products;
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A
decline in the equity markets causing a reduction in the sales of LNC’s
products, a reduction of asset-based fees that LNC charges on various
investment and insurance products, an acceleration of amortization of
deferred acquisition costs (“DAC”), value of business acquired (“VOBA”),
deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”)
and an increase in liabilities related to guaranteed benefit features of
LNC’s variable annuity products;
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Ineffectiveness
of LNC’s various hedging strategies used to offset the impact of changes
in the value of liabilities due to changes in the level and volatility of
the equity markets and interest
rates;
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A
deviation in actual experience regarding future persistency, mortality,
morbidity, interest rates or equity market returns from LNC’s assumptions
used in pricing its products, in establishing related insurance reserves
and in the amortization of intangibles that may result in an increase in
reserves and a decrease in net income, including as a result of
stranger-originated life insurance
business;
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·
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Changes
in accounting principles generally accepted in the United States, or
“GAAP”, that may result in unanticipated changes to LNC’s net
income;
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Lowering
of one or more of LNC’s debt ratings issued by nationally recognized
statistical rating organizations and the adverse impact such action may
have on LNC’s ability to raise capital and on its liquidity and financial
condition;
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·
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Lowering
of one or more of the insurer financial strength ratings of LNC’s
insurance subsidiaries and the adverse impact such action may have on the
premium writings, policy retention and profitability of its insurance
subsidiaries;
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·
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Significant
credit, accounting, fraud or corporate governance issues that may
adversely affect the value of certain investments in the portfolios of
LNC’s companies requiring that LNC realize losses on such
investments;
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The
impact of acquisitions and divestitures, restructurings, product
withdrawals and other unusual items, including LNC’s ability to integrate
acquisitions and to obtain the anticipated results and synergies from
acquisitions;
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The
adequacy and collectibility of reinsurance that LNC has
purchased;
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Acts
of terrorism, a pandemic, war or other man-made and natural catastrophes
that may adversely affect LNC’s businesses and the cost and availability
of reinsurance;
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·
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Competitive
conditions, including pricing pressures, new product offerings and the
emergence of new competitors, that may affect the level of premiums and
fees that LNC can charge for its
products;
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The
unknown impact on LNC’s business resulting from changes in the
demographics of LNC’s client base, as aging baby-boomers move from the
asset-accumulation stage to the asset-distribution stage of life;
and
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Loss
of key management, financial planners or
wholesalers.
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The risks included here are not
exhaustive. “Risk Factors” below as well as LNC’s annual report on
Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and other documents
filed with the Securities and Exchange Commission (“SEC”) include additional
factors that could impact LNC’s business and financial performance, which are
incorporated herein by reference. Moreover, we operate in a rapidly
changing and competitive environment. New risk factors emerge from
time to time, and it is not possible for management to predict all such risk
factors.
Further, it is not possible to assess
the impact of all risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. In
addition, we disclaim any obligation to update any forward-looking statements to
reflect events or circumstances that occur after the date of this prospectus
supplement.
RISK
FACTORS
You should carefully consider the
risks described below and those incorporated by reference into this prospectus
supplement before making an investment decision in the Plan generally, or in the
LNC Stock Fund specifically. The risks and uncertainties described
below and incorporated by reference into this prospectus supplement are not the
only ones facing our company. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of these risks actually occur, our
business, financial condition and results of operations could be materially
affected. In that case, the value of our Common Stock could decline
substantially. In addition, there are risks in investing your money
in the investment choices offering under the Plan. These risks are
discussed with the description of each investment option.
Adverse
capital and credit market conditions may affect our ability to meet liquidity
needs, access to capital and cost of capital.
The
capital and credit markets have been experiencing extreme volatility and
disruption for more than twelve months. In some cases, the markets have exerted
downward pressure on availability of liquidity and credit capacity for certain
issuers.
We
maintain an investment portfolio of various holdings, types and maturities.
These investments are subject to general credit, liquidity, market and interest
rate risks. An extended disruption in the credit and capital markets could
adversely affect LNC and its subsidiaries’ ability to access sources of
liquidity, and there can be no assurance that additional financing will be
available to us on favorable terms, or at all, in the current market
environment. In addition, further other-than-temporary-impairments (“OTTI”)
could reduce our statutory surplus, leading to lower RBC ratios and potentially
reducing future dividend capacity from our insurance subsidiaries.
We need
liquidity to pay our operating expenses, interest on our debt and dividends on
our capital stock, to maintain our securities lending activities and to replace
certain maturing liabilities. Without sufficient liquidity, we will be forced to
curtail our operations, and our business will suffer. As a holding company with
no direct operations, our principal asset is the capital stock of our insurance
and investment management subsidiaries. Our ability to meet our obligations for
payment of interest and principal on outstanding debt obligations and to pay
dividends to shareholders and corporate expenses depends significantly upon the
surplus and earnings of our subsidiaries and the ability of our subsidiaries to
pay dividends or to advance or repay funds to us. Payments of dividends and
advances or repayment of funds to us by our insurance subsidiaries are
restricted by the applicable laws and regulations of their respective
jurisdictions, including laws establishing minimum solvency and liquidity
thresholds. Changes in these laws could constrain the ability of our
subsidiaries to pay dividends or to advance or repay funds to us in sufficient
amounts and at times necessary to meet our debt obligations and corporate
expenses. For our insurance and other subsidiaries, the principal sources of our
liquidity are insurance premiums and fees, annuity considerations, investment
advisory fees, and cash flow from our investment portfolio and assets,
consisting mainly of cash or assets that are readily convertible into cash. At
the holding company level, sources of liquidity in normal markets also include a
variety of short- and long-term instruments, including credit facilities,
commercial paper and medium- and long-term debt.
In the
event that current resources do not satisfy our needs, we may have to seek
additional financing. The availability of additional financing will depend on a
variety of factors such as market conditions, the general availability of
credit, the volume of trading activities, the overall availability of credit to
the financial services industry, our credit ratings and credit capacity, as well
as the possibility that customers or lenders could develop a negative perception
of our long- or short-term financial prospects if we incur large investment
losses or if the level of our business activity decreases due to a market
downturn. Similarly, our access to funds may be impaired if regulatory
authorities or rating agencies take negative actions against
us. Please see “see “Part I — Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Executive Summary” in
LNC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 for more
information on our ratings. Our internal sources of liquidity may
prove to be insufficient, and in such case, we may not be able to successfully
obtain additional financing on favorable terms, or at all.
Disruptions,
uncertainty or volatility in the capital and credit markets may also limit our
access to capital required to operate our business, most significantly our
insurance operations. Such market conditions may limit our ability to replace,
in a timely manner, maturing liabilities; satisfy statutory capital
requirements; generate fee income and market-related revenue to meet liquidity
needs; and access the capital necessary to grow our business. As such, we may be
forced to delay raising capital, issue shorter term securities than we prefer,
or bear an unattractive cost of capital which could decrease our profitability
and significantly reduce our financial flexibility. Recently, our credit spreads
have shown considerable volatility. A widening of our credit spreads
could increase the interest rate we must pay on any new debt obligation we may
issue. Our results of operations, financial condition, cash flows and statutory
capital position could be materially adversely affected by disruptions in the
financial markets.
Difficult
conditions in the global capital markets and the economy generally may
materially adversely affect our business and results of operations and we do not
expect these conditions to improve in the near future.
Our
results of operations are materially affected by conditions in the global
capital markets and the economy generally, both in the U.S. and elsewhere around
the world. The stress experienced by global capital markets that began in the
second half of 2007, substantially increased during the second half of 2008 and
continued through the first quarter of 2009. Concerns over unemployment, the
availability and cost of credit, the U.S. mortgage market and a declining real
estate market in the U.S. have contributed to increased volatility and
diminished expectations for the economy and the markets going forward.
Initially, the concerns on the part of market participants were focused on the
subprime segment of the mortgage-backed securities market. However, these
concerns have since expanded to include a broad range of mortgage- and
asset-backed and other fixed income securities, including those rated investment
grade, the U.S. and international credit and interbank money markets generally,
and a wide range of financial institutions and markets, asset classes and
sectors. As a result, the market for fixed income instruments has experienced
decreased liquidity, increased price volatility, credit downgrade events and
increased probability of default. Securities that are less liquid are more
difficult to value and may be hard to sell, if desired. 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. These events and the
reemergence of market upheavals may have an adverse effect on us, in part
because we have a large investment portfolio and are also dependent upon
customer behavior. Our revenues are likely to decline in such circumstances and
our profit margins could erode. In addition, in the event of extreme prolonged
market events, such as the global credit crisis, we could incur significant
losses. Even in the absence of a market downturn, we are exposed to substantial
risk of loss due to market volatility.
Factors
such as consumer spending, business investment, government spending, the
volatility and strength of the capital markets and inflation all affect the
business and economic environment and, ultimately, the amount and profitability
of our business. In an economic downturn characterized by higher unemployment,
lower family income, lower corporate earnings, lower business investment and
lower consumer spending, the demand for our financial and insurance products
could be adversely affected. In addition, we may experience an elevated
incidence of claims and lapses or surrenders of policies. Our policyholders may
choose to defer paying insurance premiums or stop paying insurance premiums
altogether. Adverse changes in the economy could affect earnings negatively and
could have a material adverse effect on our business, results of operations and
financial condition.
Our
participation in the TARP CPP subjects us to additional restrictions, oversight
and costs, and has other potential consequences, that could materially affect
our business, results and prospects.
On July
10, 2009, in connection with the TARP CPP, we issued and sold to the U.S.
Treasury 950,000 shares of Series B preferred stock together with a related
warrant to purchase up to 13,049,451 shares of our common stock at an exercise
price of $10.92 per share, in accordance with the terms of the TARP CPP, for an
aggregate purchase price of $950 million. Access to TARP CPP was an important
component of our strategy to enhance our capital position and financial
flexibility. We believe that the amount of our participation in the TARP CPP
offers us the ability to exit the program, if necessary, to manage the potential
material consequences to our businesses from the potential restrictions,
oversight and costs of participation, which include the following:
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Our
acceptance of the TARP CPP funds could cause us to be perceived as having
greater capital needs and weaker overall financial prospects than those of
our competitors that have stated that they are not participating in the
TARP CPP, which could adversely affect our competitive position and
results;
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Receipt
of the TARP CPP funds subjects us to restrictions, oversight and costs
that may have an adverse impact on our financial condition, results of
operations and the price of our common stock. For example, the American
Recovery and Reinvestment Act of 2009, or “ARRA,” and recently promulgated
regulations thereunder contain significant limitations on the amount and
form of bonus, retention and other incentive compensation that
participants in the TARP CPP may pay to executive officers and senior
management. These provisions may adversely affect our ability to attract
and retain executive officers and other key personnel. Other regulatory
initiatives applicable to participants in federal funding programs may
also be forthcoming as the U.S. government continues to address
dislocations in the financial markets. Compliance with such current and
potential regulation and scrutiny may significantly increase our costs,
impede the efficiency of our internal business processes, require us to
increase our regulatory capital and limit our ability to pursue business
opportunities in an efficient
manner;
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Future
federal statutes may adversely affect the terms of the TARP CPP that are
applicable to us and the Treasury Department may amend the terms of our
agreement with them unilaterally if required by future statutes, including
in a manner materially adverse to
us;
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Our
participation in the TARP CPP imposes additional restrictions on our
ability to increase our common stock dividend. In particular, we would
need to obtain the U.S. Treasury’s consent for any increase in our current
quarterly dividend of $0.01 per share of our common stock, as well as any
stock repurchase, until the third anniversary of such investment unless,
prior to such third anniversary, we redeem all of the shares of Series B
preferred stock issued to the U.S. Treasury or the U.S. Treasury transfers
such preferred stock to third parties. We are also unable to repurchase or
redeem shares of our common stock or any series of preferred stock
outstanding unless all accrued and unpaid dividends for all past dividend
periods on the Series B preferred stock issued to the U.S. Treasury are
fully paid; and
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If
we do not repurchase the warrant from the U.S. Treasury when we repay the
investment, the U.S. Treasury will liquidate the warrant, which will
dilute the ownership interest of our existing holders of common
stock.
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If
our businesses do not perform well and/or the price of our common stock does not
increase, we may be required to recognize an impairment of our goodwill or to
establish a valuation allowance against the deferred income tax asset, which
could have a material adverse effect on our results of operations and financial
condition.
Goodwill
represents the excess of the purchase price incurred to acquire subsidiaries and
other businesses over the fair value of their net assets as of the date of
acquisition. As of September 30, 2009, we had a total of $3.1 billion of
goodwill on our Consolidated Balance Sheets, of which $2.2 billion related to
our Insurance Solutions — Life Insurance segment and $440 million related to our
Retirement Solutions — Annuities segment. We test goodwill at least annually for
indications of value impairment with consideration given to financial
performance and other relevant factors. In addition, certain events,
including a significant and adverse change in legal factors or the business
climate, an adverse action or assessment by a regulator or unanticipated
competition, would cause us to review the carrying amounts of goodwill for
impairment. Impairment testing is performed based upon estimates of the fair
value of the “reporting unit” to which the goodwill relates. The reporting unit
is the operating segment or a business one level below that operating segment if
discrete financial information is prepared and regularly reviewed by management
at that level. If the implied fair value of the reporting unit’s goodwill is
lower that its carrying amount, goodwill is impaired and written down to its
fair value, and a charge is reported in impairment of intangibles on our
Consolidated Statements of Income. For the year ended December 31,
2008, we took total pre-tax impairment charges of $176 million, primarily
related to our media business, and for the quarter ended March 31, 2009, we took
a $603 million pre-tax impairment charge primarily related to our annuities
business.
Subsequent
reviews of goodwill could result in additional impairment of goodwill during
2009, and such write downs could have a material adverse effect on our results
of operations or financial position, but will not affect the statutory capital
of our insurance subsidiaries. For more information on goodwill,
please see “Part II — Item 8. Financial Statements and Supplementary Data — Note
8” and “Part II — Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in LNC’s Annual Report on Form
10-K for the year ended December 31, 2008, and “Part I — Item 1. Financial
Statements — Note 8” and “Part I — Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included in LNC’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009.
Deferred
income tax represents the tax effect of the differences between the book and tax
basis of assets and liabilities. Deferred tax assets are assessed periodically
by management to determine if they are realizable. Factors in management’s
determination include the performance of the business, including the ability to
generate capital gains from a variety of sources and tax planning strategies.
If, based on available information, it is more likely than not that the deferred
income tax asset will not be realized, then a valuation allowance must be
established with a corresponding charge to net income. Such valuation allowance
could have a material adverse effect on our results of operations and financial
position, but will not affect the statutory capital of our insurance
subsidiaries.
Because
we are a holding company with no direct operations, the inability of our
subsidiaries to pay dividends to us in sufficient amounts would harm our ability
to meet our obligations.
We are a
holding company, and we have no direct operations. Our principal
assets are the capital stock of our insurance subsidiaries.
At the
holding company level, sources of liquidity in normal markets include a variety
of short- and long-term instruments, including credit facilities, commercial
paper and medium- and long-term debt. However, our ability to meet
our obligations for payment of interest and principal on outstanding debt
obligations and to pay dividends to shareholders, repurchase our securities and
pay corporate expenses depends primarily on the ability of our subsidiaries to
pay dividends or to advance or repay funds to us. Under Indiana laws
and regulations, our Indiana insurance subsidiaries, including our primary
insurance subsidiary, The Lincoln National Life Insurance Company, or “LNL,” may
pay dividends to us without prior approval of the Indiana Insurance
Commissioner, or the “Commissioner,” up to a certain threshold, or must receive
prior approval of the Commissioner to pay a dividend if such dividend, along
with all other dividends paid within the preceding twelve consecutive months
exceed the statutory limitation. The current Indiana statutory limitation is the
greater of 10% of the insurer’s contract holders’ surplus, as shown on its last
annual statement on file with the Commissioner or the insurer’s statutory net
gain from operations for the prior calendar year.
In
addition, payments of dividends and advances or repayment of funds to us by our
insurance subsidiaries are restricted by the applicable laws of their respective
jurisdictions requiring that our insurance subsidiaries hold a specified amount
of minimum reserves in order to meet future obligations on their outstanding
policies. These regulations specify that the minimum reserves shall be
calculated to be sufficient to meet future obligations, giving consideration for
required future premiums to be received, are based on certain
specified mortality and morbidity tables, interest rates and methods of
valuation, which are subject to change. In order to meet their
claims-paying obligations, our insurance subsidiaries regularly monitor their
reserves to ensure we hold sufficient amounts to cover actual or expected
contract and claims payments. At times, we may determine that
reserves in excess of the minimum may be needed to ensure
sufficiency.
Changes
in these laws can constrain the ability of our subsidiaries to pay dividends or
to advance or repay funds to us in sufficient amounts and at times necessary to
meet our debt obligations and corporate expenses. For example, in September of
2008, the National Association of Insurance Commissioners, or “NAIC,” adopted a
new statutory reserving method known as VACARVM, which will be effective as of
December 31, 2009. VACARVM has the potential to require statutory reserves well
in excess of current levels for certain variable annuity riders sold by
us. Requiring our insurance subsidiaries to hold additional reserves
has the potential to constrain their ability to pay dividends to the holding
company.
Assets in
the investment general accounts of our insurance subsidiaries support their
reserve liabilities. At September 30, 2009, 80% of investment general account
assets were AFS fixed maturity securities of various holdings, types and
maturities. These investments are subject to general credit, liquidity, market
and interest rate risks. Beginning in 2008 and continuing into 2009,
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. These market disruptions have led to increased impairments
of securities in the general accounts of our insurance subsidiaries, thereby
reducing contract holders’ surplus.
The
earnings of our insurance subsidiaries also impact contract holders’ surplus.
Principal sources of earnings are insurance premiums and fees, annuity
considerations, investment advisory fees, and income from our investment
portfolio and assets, consisting mainly of cash or assets that are readily
convertible into cash. Recent economic conditions have resulted in
lower earnings in our insurance subsidiaries. Lower earnings
constrain the growth in the insurance subsidiaries’ capital, and therefore, can
constrain the payment of dividends and advances or repayment of funds to
us.
In
addition, the amount of surplus that our insurance subsidiaries could pay as
dividends is constrained by the amount of surplus they hold to maintain their
financial strength ratings, to provide an additional layer of margin for risk
protection and for future investment in our
businesses. Notwithstanding the foregoing, we believe that our
insurance subsidiaries have sufficient liquidity to meet their policy holder
obligations and maintain their operations.
The
result of the difficult economic and market conditions in reducing the contract
holders’ surplus of our insurance subsidiaries has affected our ability to pay
shareholder dividends and to engage in share repurchases. We have
taken actions to reduce the holding company’s liquidity needs, including
reducing our quarterly common dividend to $0.01 per share, as well as to
increase the capital of our insurance subsidiaries through our $690 million
common stock offering in June 2009 and participation in the TARP
CPP. In the event that current resources do not satisfy our current
needs, we may have to seek additional financing, which may not be available or
only available with unfavorable terms and conditions. For a further
discussion of liquidity, see “Part II — Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Review of Consolidated Financial Condition — Liquidity and Capital Resources” in
LNC’s Annual Report on Form 10-K for the year ended December 31, 2008 and “Part
I — Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Review of Consolidated Financial Condition — Liquidity
and Capital Resources” in LNC’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009.
The
difficulties faced by other financial institutions could adversely affect
us.
We have
exposure to many different industries and counterparties, and routinely execute
transactions with counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment banks and other institutions.
Many of these transactions expose us to credit risk in the event of default of
our counterparty. In addition, with respect to secured transactions, our credit
risk may be exacerbated when the collateral held by us cannot be realized upon
or is liquidated at prices not sufficient to recover the full amount of the loan
or derivative exposure due to it. We also may have exposure to these financial
institutions in the form of unsecured debt instruments, derivative transactions
and/or equity investments. There can be no assurance that any such losses or
impairments to the carrying value of these assets would not materially and
adversely affect our business and results of operations.
Furthermore,
we distribute a significant amount of our insurance, annuity and mutual fund
products through large financial institutions. We believe that the mergers of
several of these entities, as well as the negative impact of the markets on
these entities, has disrupted and may lead to further disruption of their
businesses, which may have a negative effect on our production
levels.
Our
participation in a securities lending program and a reverse repurchase program
subjects us to potential liquidity and other risks.
We
participate in a securities lending program for our general account whereby
fixed income securities are loaned by our agent bank to third parties, primarily
major brokerage firms and commercial banks. The borrowers of our securities
provide us with collateral, typically in cash, which we separately maintain. We
invest such cash collateral in other securities, primarily in commercial paper
and money market or other short term funds. Securities with a fair value of $668
million were on loan under the program as of September 30, 2009. Securities
loaned under such transactions may be sold or repledged by the transferee. We
were liable for cash collateral under our control of $694 million as of
September 30, 2009.
We
participate in a reverse repurchase program for our general account whereby we
sell fixed income securities to third parties, primarily major brokerage firms,
with a concurrent agreement to repurchase those same securities at a determined
future date. The borrowers of our securities provide us with cash collateral
which is typically invested in fixed maturity securities. The fair value of
securities pledged under reverse repurchase agreements was $364 million as of
September 30, 2009.
As of
September 30, 2009, substantially all of the securities on loan under the
program could be returned to us by the borrowers at any
time. Collateral received under the reverse repurchase program cannot
be returned prior to maturity, however, market conditions on the repurchase date
may limit our ability to enter into new agreements. The return of loaned
securities or our inability to enter into new reverse repurchase agreements
would require us to return the cash collateral associated with such securities.
In addition, in some cases, the maturity of the securities held as invested
collateral (i.e. securities that we have purchased with cash received from the
third parties) may exceed the term of the related securities and the market
value may fall below the amount of cash received as collateral and invested. If
we are required to return significant amounts of cash collateral on short notice
and we are forced to sell securities to meet the return obligation, we may have
difficulty selling such collateral that is invested in securities in a timely
manner, and we may be forced to sell securities in a volatile or illiquid market
for less than we otherwise would have been able to realize under normal market
conditions, or both. In addition, under stressful capital market and economic
conditions, such as those conditions we have experienced recently, liquidity
broadly deteriorates, which may further restrict our ability to sell
securities.
Our
reserves for future policy benefits and claims related to our current and future
business as well as businesses we may acquire in the future may prove to be
inadequate.
We
establish and carry, as a liability, reserves based on estimates of how much we
will need to pay for future benefits and claims. For our insurance products, we
calculate these reserves based on many assumptions and estimates, including, but
not limited to, estimated premiums we will receive over the assumed life of the
policy, the timing of the event covered by the insurance policy, the lapse rate
of the policies, the amount of benefits or claims to be paid and the investment
returns on the assets we purchase with the premiums we receive.
As part
of our transition plan related to the rescission of a reinsurance treaty
covering our disability income business, we are conducting a reserve study to
determine the adequacy of the reserves to cover contract holder
obligations. This study, which we expect will be complete by the
fourth quarter of 2009, could result in an increase to the reserves that we have
assumed from Swiss Re pursuant to the rescission agreement. Any resulting
increase may have a material impact on our results for the quarter in which the
adjustment is recorded.
The
sensitivity of our statutory reserves and surplus established for our variable
annuity base contracts and riders to changes in the equity markets will vary
depending on the magnitude of the decline. The sensitivity will be affected by
the level of account values relative to the level of guaranteed amounts, product
design and reinsurance. Statutory reserves for variable annuities depend upon
the cumulative equity market impacts on the business in force, and therefore,
result in non-linear relationships with respect to the level of equity market
performance within any reporting period.
The
assumptions and estimates we use in connection with establishing and carrying
our reserves are inherently uncertain. Accordingly, we cannot
determine with precision the ultimate amount or the timing of the payment of
actual benefits and claims or whether the assets supporting the policy
liabilities will grow to the level we assume prior to payment of benefits or
claims. If our actual experience is different from our assumptions or estimates,
our reserves may prove to be inadequate in relation to our estimated future
benefits and claims.
Because
the equity markets and other factors impact the profitability and expected
profitability of many of our products, changes in equity markets and other
factors may significantly affect our business and profitability.
The fee
revenue that we earn on equity-based variable annuities, unit-linked accounts,
VUL insurance policies and investment advisory business is based upon account
values. Because strong equity markets result in higher account values, strong
equity markets positively affect our net income through increased fee revenue.
Conversely, a weakening of the equity markets results in lower fee income and
may have a material adverse effect on our results of operations and capital
resources.
The
increased fee revenue resulting from strong equity markets increases the
expected gross profits, or “EGPs,” from variable insurance products as do better
than expected lapses, mortality rates and expenses. As a result, higher EGPs may
result in lower net amortized costs related to DAC, DSI, VOBA, DFEL and changes
in future contract benefits. However, a decrease in the equity markets, as well
as worse than expected increases in lapses, mortality rates and expenses,
depending upon their significance, may result in higher net amortized costs
associated with DAC, DSI, VOBA, DFEL and changes in future contract benefits and
may have a material adverse effect on our results of operations and capital
resources. For example, in the fourth quarter of 2008, we reset our
baseline of account values from which EPGs are projected. As a result
of this and the impact of the volatile capital market conditions on our annuity
reserves, we had a cumulative unfavorable prospective unlocking of $223 million,
after tax.
Changes
in the equity markets, interest rates and/or volatility affect the profitability
of our products with guaranteed benefits; therefore, such changes may have a
material adverse effect on our business and profitability.
Certain
of our variable annuity products include guaranteed benefit riders. These
include guaranteed death benefit, or “GDB,” guaranteed withdrawal benefit, or
“GWB,” and guaranteed income benefit, or “GIB,” riders. Our GWB, GIB and 4LATER®
(a form of GIB rider) features have elements of both insurance benefits
accounted for under the Financial Services – Insurance – Claim Costs and
Liabilities for Future Policy Benefits Subtopic of the Financial Accounting
Standards Board (“FASB”) Accounting Standards
CodificationTM
(“ASC”) (“benefit reserves”) and embedded derivatives accounted for under the
Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics
of the FASB ASC (“embedded derivative reserves”). The reserves accounted for
under the Financial Services – Insurance – Claim Costs and Liabilities for
Future Policy Benefits Subtopic of the FASB ASC resulting from a benefit ratio
unlocking component are calculated in a manner consistent with our GDB, as
described below. We calculate the value of the embedded derivative reserve and
the benefit reserve based on the specific characteristics of each GLB
feature. The amount of reserves related to GDB for variable annuities
is tied to the difference between the value of the underlying accounts and the
GDB, calculated using a benefit ratio approach. The GDB reserves take into
account the present value of total expected GDB payments, the present value of
total expected GDB assessments over the life of the contract, claims paid to
date and assessments to date. Reserves for our GIB and certain GWB with lifetime
benefits are based on a combination of fair value of the underlying benefit and
a benefit ratio approach that is based on the projected future payments in
excess of projected future account values. The benefit ratio approach takes into
account the present value of total expected GIB payments, the present value of
total expected GIB assessments over the life of the contract, claims paid to
date and assessments to date. The amount of reserves related to those GWB that
do not have lifetime benefits is based on the fair value of the underlying
benefit.
Both the
level of expected payments and expected total assessments used in calculating
the benefit ratio are affected by the equity markets. The liabilities related to
fair value are impacted by changes in equity markets, interest rates and
volatility. Accordingly, strong equity markets will decrease the amount of
reserves that we must carry, and strong equity markets, increases in interest
rates and decreases in volatility will generally decrease the reserves
calculated using fair value. Conversely, a decrease in the equity markets will
increase the expected future payments used in the benefit ratio approach, which
has the effect of increasing the amount of reserves. Also, a decrease in the
equity market along with a decrease in interest rates and an increase in
volatility will generally result in an increase in the reserves calculated using
fair value, which are the conditions we have experienced recently.
Increases
in reserves would result in a charge to our earnings in the quarter in which the
increase occurs. Therefore, we maintain a customized dynamic hedge program that
is designed to mitigate the risks associated with income volatility around the
change in reserves on guaranteed benefits. However, the hedge positions may not
be effective to exactly offset the changes in the carrying value of the
guarantees due to, among other things, the time lag between changes in their
values and corresponding changes in the hedge positions, high levels of
volatility in the equity markets and derivatives markets, extreme swings in
interest rates, contract holder behavior different than expected and divergence
between the performance of the underlying funds and hedging
indices. For example, for the quarters ended September 30, 2009 and
2008, we experienced a breakage on our guaranteed living benefits net
derivatives results of $57 million and $252 million, pre-DAC,
pre-tax. Breakage is defined as the difference between the change in
the value of the liabilities, excluding the amount related to the
non-performance risk component, and the change in the fair value of the
derivatives. The non-performance risk factor is required under the Fair Value
Measurements and Disclosures Topic of the FASB ASC, which requires us to
consider our own credit standing, which is not hedged, in the valuation of
certain of these liabilities. A decrease in our own credit spread could cause
the value of these liabilities to increase, resulting in a reduction to net
income. Conversely, an increase in our own credit spread could cause the value
of these liabilities to decrease, resulting in an increase to net
income.
In
addition, we remain liable for the guaranteed benefits in the event that
derivative counterparties are unable or unwilling to pay, and we are also
subject to the risk that the cost of hedging these guaranteed benefits
increases, resulting in a reduction to net income. These, individually or
collectively, may have a material adverse effect on net income, financial
condition or liquidity.
Changes
in interest rates may cause interest rate spreads to decrease and may result in
increased contract withdrawals.
Because
the profitability of our fixed annuity and interest-sensitive whole life, UL and
fixed portion of VUL insurance business depends in part on interest rate
spreads, interest rate fluctuations could negatively affect our profitability.
Changes in interest rates may reduce both our profitability from spread
businesses and our return on invested capital. Some of our products, principally
fixed annuities, interest-sensitive whole life, UL and the fixed portion of VUL
insurance, have interest rate guarantees that expose us to the risk that changes
in interest rates will reduce our “spread,” or the difference between the
amounts that we are required to pay under the contracts and the amounts we are
able to earn on our general account investments intended to support our
obligations under the contracts. Declines in our spread or instances where the
returns on our general account investments are not enough to support the
interest rate guarantees on these products could have a material adverse effect
on our businesses or results of operations.
In
periods of increasing interest rates, we may not be able to replace the assets
in our general account with higher yielding assets needed to fund the higher
crediting rates necessary to keep our interest-sensitive products competitive.
We therefore may have to accept a lower spread and thus lower profitability or
face a decline in sales and greater loss of existing contracts and related
assets. In periods of declining interest rates, we have to reinvest the cash we
receive as interest or return of principal on our investments in lower yielding
instruments then available. Moreover, borrowers may prepay fixed-income
securities, commercial mortgages and mortgage-backed securities in our general
account in order to borrow at lower market rates, which exacerbates this risk.
Because we are entitled to reset the interest rates on our fixed rate annuities
only at limited, pre-established intervals, and since many of our contracts have
guaranteed minimum interest or crediting rates, our spreads could decrease and
potentially become negative. Increases in interest rates may cause increased
surrenders and withdrawals of insurance products. In periods of increasing
interest rates, policy loans and surrenders and withdrawals of life insurance
policies and annuity contracts may increase as contract holders seek to buy
products with perceived higher returns. This process may lead to a flow of cash
out of our businesses. These outflows may require investment assets to be sold
at a time when the prices of those assets are lower because of the increase in
market interest rates, which may result in realized investment losses. A sudden
demand among consumers to change product types or withdraw funds could lead us
to sell assets at a loss to meet the demand for funds.
Our
requirements to post collateral or make payments related to declines in market
value of specified assets may adversely affect our liquidity and expose us to
counterparty credit risk.
Many of
our transactions with financial and other institutions, including settling
futures positions, specify the circumstances under which the parties are
required to post collateral. The amount of collateral we may be required to post
under these agreements may increase under certain circumstances, which could
adversely affect our liquidity. In addition, under the terms of some of our
transactions, we may be required to make payments to our counterparties related
to any decline in the market value of the specified assets.
Losses
due to defaults by others could reduce our profitability or negatively affect
the value of our investments.
Third
parties that owe us money, securities or other assets may not pay or perform
their obligations. These parties include the issuers whose securities we hold,
borrowers under the mortgage loans we make, customers, trading counterparties,
counterparties under swaps and other derivative contracts, reinsurers and other
financial intermediaries. These parties may default on their obligations to us
due to bankruptcy, lack of liquidity, downturns in the economy or real estate
values, operational failure, corporate governance issues or other reasons. A
further downturn in the U.S. and other economies could result in increased
impairments.
Defaults
on our mortgage loans and volatility in performance may adversely affect our
profitability.
Our
mortgage loans face default risk and are principally collateralized by
commercial properties. Mortgage loans are stated on our balance sheet at unpaid
principal balance, adjusted for any unamortized premium or discount, deferred
fees or expenses, and are net of valuation allowances. We establish valuation
allowances for estimated impairments as of the balance sheet date based on
information, such as the market value of the underlying real estate securing the
loan, any third party guarantees on the loan balance or any cross collateral
agreements and their impact on expected recovery rates. As of September 30,
2009, there were nine impaired mortgage loans, or less than 1% of total mortgage
loans, and seven mortgage loans that were two or more payments delinquent. The
performance of our mortgage loan investments, however, may fluctuate in the
future. In addition, some of our mortgage loan investments have balloon payment
maturities. An increase in the default rate of our mortgage loan investments
could have a material adverse effect on our business, results of operations and
financial condition.
Further,
any geographic or sector exposure in our mortgage loans may have adverse effects
on our investment portfolios and consequently on our consolidated results of
operations or financial condition. While we seek to mitigate this risk by having
a broadly diversified portfolio, events or developments that have a negative
effect on any particular geographic region or sector may have a greater adverse
effect on the investment portfolios to the extent that the portfolios are
exposed.
Our
investments are reflected within our consolidated financial statements utilizing
different accounting bases, and, accordingly, we may not have recognized
differences, which may be significant, between cost and fair value in our
consolidated financial statements.
Our
principal investments are in fixed maturity and equity securities, mortgage
loans on real estate, policy loans, short-term investments, derivative
instruments, limited partnerships and other invested assets. The carrying value
of such investments is as follows:
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Fixed
maturity and equity securities are classified as AFS, except for those
designated as trading securities, and are reported at their estimated fair
value. The difference between the estimated fair value and amortized cost
of such securities (i.e. unrealized investment gains and losses) is
recorded as a separate component of other comprehensive income or loss,
net of adjustments to DAC, policyholder related amounts and deferred
income taxes;
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Fixed
maturity and equity securities designated as trading securities, which
support certain reinsurance arrangements, are recorded at fair value with
subsequent changes in fair value recognized in realized gain (loss).
However, offsetting the changes to fair value of the trading securities
are corresponding changes in the fair value of the embedded derivative
liability associated with the underlying reinsurance
arrangement. In other words, the investment results for the
trading securities, including gains and losses from sales, are passed
directly to the reinsurers through the contractual terms of the
reinsurance arrangements. However, there are trading securities
associated with the disability income business for which the reinsurance
agreement with Swiss Re was rescinded, and therefore, we now retain the
gains and losses on those
securities;
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Short-term
investments include investments with remaining maturities of one year or
less, but greater than three months, at the time of acquisition and are
stated at amortized cost, which approximates fair
value;
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Mortgage
loans are stated at unpaid principal balance, adjusted for any unamortized
premium or discount, deferred fees or expenses, net of valuation
allowances;
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Policy
loans are stated at unpaid principal
balances;
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Real
estate joint ventures and other limited partnership interests are carried
using the equity method of accounting;
and
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Other
invested assets consist principally of derivatives with positive fair
values. Derivatives are carried at fair value with changes in fair value
reflected in income from non-qualifying derivatives and derivatives in
fair value hedging relationships. Derivatives in cash flow hedging
relationships are reflected as a separate component of other comprehensive
income or loss.
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Investments
not carried at fair value in our consolidated financial statements —
principally, mortgage loans, policy loans and real estate — may have fair values
which are substantially higher or lower than the carrying value reflected in our
consolidated financial statements. In addition, unrealized losses are not
reflected in net income unless we realize the losses by either selling the
security at below amortized cost or determine that the decline in fair value is
deemed to be other-than-temporary (i.e. impaired). Each of such asset classes is
regularly evaluated for impairment under the accounting guidance appropriate to
the respective asset class.
Our
valuation of fixed maturity, equity and trading securities may include
methodologies, estimations and assumptions which are subject to differing
interpretations and could result in changes to investment valuations that may
materially adversely affect our results of operations or financial
condition.
Fixed
maturity, equity and trading securities and short-term investments, which are
reported at fair value on our Consolidated Balance Sheets, represented the
majority of our total cash and invested assets. Pursuant to the Fair Value
Measurements and Disclosures Topics of the FASB ASC, we have categorized these
securities into a three-level hierarchy, based on the priority of the inputs to
the respective valuation technique. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).
The
determination of fair values in the absence of quoted market prices is based on:
valuation methodologies; securities we deem to be comparable; and assumptions
deemed appropriate given the circumstances. The fair value estimates are made at
a specific point in time, based on available market information and judgments
about financial instruments, including estimates of the timing and amounts of
expected future cash flows and the credit standing of the issuer or
counterparty. Factors considered in estimating fair value include coupon rate,
maturity, estimated duration, call provisions, sinking fund requirements, credit
rating, industry sector of the issuer and quoted market prices of comparable
securities. The use of different methodologies and assumptions may have a
material effect on the estimated fair value amounts.
During
periods of market disruption, including periods of significantly
increasing/decreasing or high/low interest rates, rapidly widening credit
spreads or illiquidity, it may be difficult to value certain of our securities,
if trading becomes less frequent and/or market data becomes less observable.
There may be certain asset classes that were in active markets with significant
observable data that become illiquid due to the current financial environment.
In such cases, more securities may fall to Level 3 and thus require more
subjectivity and management judgment. As such, valuations may include inputs and
assumptions that are less observable or require greater estimation, as well as
valuation methods which are more sophisticated or require greater estimation,
thereby resulting in values which may be less than the value at which the
investments may be ultimately sold. Further, rapidly changing and unprecedented
credit and equity market conditions could materially impact the valuation of
securities as reported within our consolidated financial statements and the
period-to-period changes in value could vary significantly. Decreases in value
may have a material adverse effect on our results of operations or financial
condition.
Some
of our investments are relatively illiquid and are in asset classes that have
been experiencing significant market valuation fluctuations.
We hold
certain investments that may lack liquidity, such as privately placed fixed
maturity securities, mortgage loans, policy loans and other limited partnership
interests. These asset classes represented 24% of the carrying value of our
total cash and invested assets as of September 30, 2009. Even some of our very
high quality assets have been more illiquid as a result of the recent
challenging market conditions.
If we
require significant amounts of cash on short notice in excess of normal cash
requirements or are required to post or return collateral in connection with our
investment portfolio, derivatives transactions or securities lending activities,
we may have difficulty selling these investments in a timely manner, be forced
to sell them for less than we otherwise would have been able to realize, or
both.
The
reported value of our relatively illiquid types of investments, our investments
in the asset classes described in the paragraph above and, at times, our high
quality, generally liquid asset classes, do not necessarily reflect the lowest
current market price for the asset. If we were forced to sell certain of our
assets in the current market, there can be no assurance that we would be able to
sell them for the prices at which we have recorded them and we might be forced
to sell them at significantly lower prices.
We invest
a portion of our invested assets in investment funds, many of which make private
equity investments. The amount and timing of income from such investment funds
tends to be uneven as a result of the performance of the underlying investments,
including private equity investments. The timing of distributions from the
funds, which depends on particular events relating to the underlying
investments, as well as the funds’ schedules for making distributions and their
needs for cash, can be difficult to predict. As a result, the amount of income
that we record from these investments can vary substantially from quarter to
quarter. Recent equity and credit market volatility may reduce investment income
for these types of investments.
In
addition, other external factors may cause a drop in value of investments, such
as ratings downgrades on asset classes. For example, Congress has proposed
legislation to amend the U.S. Bankruptcy Code to permit bankruptcy courts to
modify mortgages on primary residences, including an ability to reduce
outstanding mortgage balances. Such actions by bankruptcy courts may impact the
ratings and valuation of our residential mortgage-backed investment
securities.
The
determination of the amount of allowances and impairments taken on our
investments is highly subjective and could materially impact our results of
operations or financial position.
The
determination of the amount of allowances and impairments varies by investment
type and is based upon our periodic evaluation and assessment of known and
inherent risks associated with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information becomes
available. Management updates its evaluations regularly and reflects changes in
allowances and impairments in operations as such evaluations are revised. There
can be no assurance that our management has accurately assessed the level of
impairments taken and allowances reflected in our financial statements.
Furthermore, additional impairments may need to be taken or allowances provided
for in the future. Historical trends may not be indicative of future impairments
or allowances.
We
adopted updates to the Investments – Debt and Equity Securities Topic of the
FASB ASC for our debt securities effective January 1, 2009. This
adoption required that an OTTI loss be separated into the amount representing
the decrease in cash flows expected to be collected, or “credit loss,” which is
recognized in earnings, and the amount related to all other factors, or
“noncredit loss,” which is recognized in other comprehensive income, or
“OCI.” In addition, the requirement for management to assert that it
has the intent and ability to hold an impaired security until recovery was
replaced with the requirement that management assert that it does not have the
intent to sell the security and that it is more likely than not that it will not
have to sell the security before recovery of its cost basis.
We
regularly review our AFS securities for declines in fair value that we determine
to be other-than-temporary. For an equity security, if we do not have
the ability and intent to hold the security for a sufficient period of time to
allow for a recovery in value, we conclude that an OTTI has occurred, and the
amortized cost of the equity security is written down to the current fair value,
with a corresponding change to realized gain (loss) on our Consolidated
Statements of Income. When assessing our ability and intent to hold
the equity security to recovery, we consider, among other things, the severity
and duration of the decline in fair value of the equity security as well as the
cause of decline, a fundamental analysis of the liquidity, business prospects
and overall financial condition of the issuer.
For a
debt security, if we intend to sell a security or it is more likely than not we
will be required to sell a debt security before recovery of its amortized cost
basis and the fair value of the debt security is below amortized cost, we
conclude than an OTTI has occurred and the amortized cost is written down to
current fair value, with a corresponding charge to realized gain (loss) on our
Consolidated Statements of Income. If we do not intend to sell a debt
security or it is not more likely than not we will be required to sell a debt
security before recovery of its amortized cost basis but the present value of
the cash flows expected to be collected is less than the amortized cost of the
debt security (referred to as the credit loss), we conclude that an OTTI has
occurred and the amortized cost is written down to the estimated recovery value
with a corresponding charge to realized gain (loss) on our Consolidated
Statements of Income, as this is also deemed the credit portion of the
OTTI. The remainder of the decline to fair value is recorded to OCI
to unrealized OTTI loss on AFS securities on our Consolidated Statements of
Stockholders’ Equity, as this is considered a noncredit (i.e., recoverable)
impairment. We had total OTTI of $148 million for the quarter ended
September 30, 2009, compared to $237 million for the quarter ended September 30,
2008.
Related
to our unrealized losses, we establish deferred tax assets for the tax benefit
we may receive in the event that losses are realized. The realization
of significant realized losses could result in an inability to recover the tax
benefits and may result in the establishment of valuation allowances against our
deferred tax assets. Realized losses or impairments may have a material adverse
impact on our results of operations and financial position.
We
will be required to pay interest on our capital securities with proceeds from
the issuance of qualifying securities if we fail to achieve capital adequacy or
net income and stockholders’ equity levels.
As of
September 30, 2009, we had approximately $1.5 billion in principal amount of
capital securities outstanding. All of the capital securities contain covenants
that require us to make interest payments in accordance with an alternative
coupon satisfaction mechanism, or “ACSM,” if we determine that one of the
following triggers exists as of the 30th day prior to an interest payment date,
or the “determination date”:
1. LNL’s
RBC ratio is less than 175% (based on the most recent annual financial statement
filed with the State of Indiana); or
2. (i)
The sum of our consolidated net income for the four trailing fiscal quarters
ending on the quarter that is two quarters prior to the most recently completed
quarter prior to the determination date is zero or negative, and (ii) our
consolidated stockholders’ equity (excluding accumulated other comprehensive
income and any increase in stockholders’ equity resulting from the issuance of
preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x)
the most recently completed quarter and (y) the end of the quarter that is two
quarters before the most recently completed quarter, has declined by 10% or more
as compared to the quarter that is ten fiscal quarters prior to the last
completed quarter, or the “benchmark quarter.”
The ACSM
would generally require us to use commercially reasonable efforts to satisfy our
obligation to pay interest in full on the capital securities with the net
proceeds from sales of our common stock and warrants to purchase our common
stock with an exercise price greater than the market price. We would have to
utilize the ACSM until the trigger events above no longer existed, and, in the
case of test 2 above, our adjusted stockholders’ equity amount increased or
declined by less than 10% as compared to the adjusted stockholders’ equity at
the end of the benchmark quarter for each interest payment date as to which
interest payment restrictions were imposed by test 2 above.
If we
were required to utilize the ACSM and were successful in selling sufficient
shares of common stock or warrants to satisfy the interest payment, we would
dilute the current holders of our common stock. Furthermore, while a trigger
event is occurring and if we do not pay accrued interest in full, we may not,
among other things, pay dividends on or repurchase our capital stock. Our
failure to pay interest pursuant to the ACSM will not result in an event of
default with respect to the capital securities, nor will a nonpayment of
interest, unless it lasts for ten consecutive years, although such breaches may
result in monetary damages to the holders of the capital
securities.
In recent
quarters, we have triggered the net income test as a result of quarterly
consolidated net losses, and we may continue to trigger the net income test
looking forward to future quarters. However, our efforts to raise
capital in the form of equity in the second and third quarters of 2009 resulted
in no trigger of the overall shareholders’ equity test looking forward to the
quarters ending December 31, 2009, and March 31, 2010.
The
calculations of RBC, net income (loss) and adjusted stockholders’ equity are
subject to adjustments and the capital securities are subject to additional
terms and conditions as further described in supplemental indentures filed as
exhibits to our Forms 8-K filed on March 13, 2007, May 17, 2006, and April 20,
2006.
A
decrease in the capital and surplus of our insurance subsidiaries may result in
a downgrade to our credit and insurer financial strength ratings.
In any
particular year, statutory surplus amounts and RBC ratios may increase or
decrease depending on a variety of factors — the amount of statutory income or
losses generated by our insurance subsidiaries (which itself is sensitive to
equity market and credit market conditions), the amount of additional capital
our insurance subsidiaries must hold to support business growth, changes in
reserving requirements, such as VACARVM and principles based reserving, 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, the value of certain derivative instruments that do
not get hedge accounting, changes in interest rates and foreign currency
exchange rates, as well as changes to the NAIC RBC formulas. The RBC ratio is
also affected by the product mix of the in-force book of business (i.e. the
amount of business without guarantees is not subject to the same level of
reserves as the business with guarantees). Most of these factors are outside of
our control. Our credit and insurer financial strength ratings are significantly
influenced by the statutory surplus amounts and RBC ratios of our insurance
company subsidiaries. The RBC ratio of LNL is an important factor in the
determination of the credit and financial strength ratings of LNC and its
subsidiaries. In addition, rating agencies may implement changes to their
internal models that have the effect of increasing or decreasing the amount of
statutory capital we must hold in order to maintain our current ratings. In
addition, in extreme scenarios of equity market declines, the amount of
additional statutory reserves that we are required to hold for our variable
annuity guarantees may increase at a rate greater than the rate of change of the
markets. Increases in reserves reduce the statutory surplus used in calculating
our RBC ratios. To the extent that our statutory capital resources are deemed to
be insufficient to maintain a particular rating by one or more rating agencies,
we may seek to raise additional capital through public or private equity or debt
financing, which may be on terms not as favorable as in the past. Alternatively,
if we were not to raise additional capital in such a scenario, either at our
discretion or because we were unable to do so, our financial strength and credit
ratings might be downgraded by one or more rating agencies. For more information
on risks regarding our ratings, see “— A downgrade in our financial strength or
credit ratings could limit our ability to market products, increase the number
or value of policies being surrendered and/or hurt our relationships with
creditors” below.
A
downgrade in our financial strength or credit ratings could limit our ability to
market products, increase the number or value of policies being surrendered
and/or hurt our relationships with creditors.
Nationally
recognized rating agencies rate the financial strength of our principal
insurance subsidiaries and rate our debt. Ratings are not recommendations to buy
our securities. Each of the rating agencies reviews its ratings periodically,
and our current ratings may not be maintained in the future. In late September
and early October of 2008, A.M. Best, Fitch, Moody’s and S&P each revised
their outlook for the U.S. life insurance sector from stable to
negative. We believe that the rating agencies continue to have the
insurance industry on negative watch, and therefore, the industry and individual
insurance companies remain under heightened scrutiny with the possibility of
future downgrades if the companies or markets weaken.
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
the financial strength rating of one of our principal insurance subsidiaries
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.
This
could lead to a decrease in fees as net outflows of assets increase, and
therefore, result in lower fee income. Furthermore, sales of assets to meet
customer withdrawal demands could also result in losses, depending on market
conditions. The interest rates we pay on our borrowings are largely dependent on
our credit ratings. The recent downgrades and future downgrades of our debt
ratings could affect our ability to raise additional debt, including bank lines
of credit, with terms and conditions similar to our current debt, and
accordingly, likely increase our cost of capital. In addition, the recent
downgrades and future downgrades of these ratings could make it more difficult
to raise capital to refinance any maturing debt obligations, to support business
growth at our insurance subsidiaries and to maintain or improve the current
financial strength ratings of our principal insurance subsidiaries. Additional
future downgrades of one or more of our ratings have become more likely as
several of the ratings agencies have negative outlooks on our credit and insurer
financial strength ratings.
As a
result of approximately $2.1 billion in capital raising in the second and third
quarters of 2009, Moody’s, S&P, Fitch and A.M. Best affirmed our debt
ratings and the financial strength ratings of LNL, LLANY and FPP. Our
ratings outlook remains negative, with the exception of S&P, which revised
its outlook to stable from negative. All of our ratings and ratings
of our principal insurance subsidiaries are subject to revision or withdrawal at
any time by the rating agencies, and therefore, no assurance can be given that
we or our principal insurance subsidiaries can maintain these
ratings. Please see “Part I — Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Executive Summary” in
LNC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 for more
information on our ratings.
Certain
blocks of our insurance business purchased from third-party insurers under
indemnity reinsurance agreements may require us to place assets in trust, secure
letters of credit or return the business, if the financial strength ratings
and/or capital ratios of certain insurance subsidiaries are not maintained at
specified levels.
Under
certain indemnity reinsurance agreements, one of our insurance subsidiaries,
LLANY, provides 100% indemnity reinsurance for the business assumed, however,
the third-party insurer, or the “cedent,” remains primarily liable on the
underlying insurance business. Under these types of agreements, at September 30,
2009, we held statutory reserves of approximately $3.4 billion. These indemnity
reinsurance arrangements require that our subsidiary, as the reinsurer, maintain
certain insurer financial strength ratings and capital ratios. If these ratings
or capital ratios are not maintained, depending upon the reinsurance agreement,
the cedent may recapture the business, or require us to place assets in trust or
provide letters of credit at least equal to the relevant statutory reserves.
Under the largest indemnity reinsurance arrangement, we held approximately $2.4
billion of statutory reserves at September 30, 2009. LLANY must maintain an A.M.
Best financial strength rating of at least B+, an S&P financial strength
rating of at least BB+ and a Moody’s financial strength rating of at least Ba1,
as well as maintain a RBC ratio of at least 160% or an S&P capital adequacy
ratio of 100%, or the cedent may recapture the business. Under two other
arrangements, by which we established approximately $1 billion of statutory
reserves, LLANY must maintain an A.M. Best financial strength rating of at least
B++, an S&P financial strength rating of at least BBB- and a Moody’s
financial strength rating of at least Baa3. One of these arrangements also
requires LLANY to maintain an RBC ratio of at least 185% or an S&P capital
adequacy ratio of 115%. Each of these arrangements may require LLANY to place
assets in trust equal to the relevant statutory reserves. As of December 31,
2008, LLANY’s RBC ratio exceeded 500%. Please see “Part I — Item2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Executive Summary” in LNC’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009 for more information on our ratings.
If the
cedent recaptured the business, LLANY would be required to release reserves and
transfer assets to the cedent. Such a recapture could adversely impact our
future profits. Alternatively, if LLANY established a security trust for the
cedent, the ability to transfer assets out of the trust could be severely
restricted, thus negatively impacting our liquidity.
Our
businesses are heavily regulated and changes in regulation may reduce our
profitability.
Our
insurance subsidiaries are subject to extensive supervision and regulation in
the states in which we do business. The supervision and regulation relate to
numerous aspects of our business and financial condition. The primary purpose of
the supervision and regulation is the protection of our insurance contract
holders, and not our investors. The extent of regulation varies, but generally
is governed by state statutes. These statutes delegate regulatory, supervisory
and administrative authority to state insurance departments. This system of
supervision and regulation covers, among other things:
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Standards
of minimum capital requirements and solvency, including RBC
measurements;
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Restrictions
of certain transactions between our insurance subsidiaries and their
affiliates;
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Restrictions
on the nature, quality and concentration of
investments;
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Restrictions
on the types of terms and conditions that we can include in the insurance
policies offered by our primary insurance
operations;
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Limitations
on the amount of dividends that insurance subsidiaries can
pay;
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The
existence and licensing status of the company under circumstances where it
is not writing new or renewal
business;
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Certain
required methods of accounting;
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Reserves
for unearned premiums, losses and other purposes;
and
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Assignment
of residual market business and potential assessments for the provision of
funds necessary for the settlement of covered claims under certain
policies provided by impaired, insolvent or failed insurance
companies.
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We may be
unable to maintain all required licenses and approvals and our business may not
fully comply with the wide variety of applicable laws and regulations or the
relevant authority’s interpretation of the laws and regulations, which may
change from time to time. Also, regulatory authorities have relatively broad
discretion to grant, renew or revoke licenses and approvals. If we do not have
the requisite licenses and approvals or do not comply with applicable regulatory
requirements, the insurance regulatory authorities could preclude or temporarily
suspend us from carrying on some or all of our activities or impose substantial
fines. Further, insurance regulatory authorities have relatively broad
discretion to issue orders of supervision, which permit such authorities to
supervise the business and operations of an insurance company. As of
September 30, 2009, no state insurance regulatory authority had imposed on us
any substantial fines or revoked or suspended any of our licenses to conduct
insurance business in any state or issued an order of supervision with respect
to our insurance subsidiaries, which would have a material adverse effect on our
results of operations or financial condition.
In
addition, Lincoln Financial Network and Lincoln Financial Distributors, as well
as our variable annuities and variable life insurance products, are subject to
regulation and supervision by the SEC and the Financial Industry Regulatory
Authority, or “FINRA.” Our Investment Management segment is subject to
regulation and supervision by the SEC, the FINRA, the Municipal Securities
Rulemaking Board, the Pennsylvania Department of Banking and jurisdictions of
the states, territories and foreign countries in which they are licensed to do
business. Lincoln UK is subject to regulation by the FSA in the U.K. LNC, as a
savings and loan holding company and Newton County Loan and Savings, FSB, are
subject to regulation and supervision by the Office of Thrift Supervision. As a
savings and loan holding company, we would also be subject to the requirement
that our activities be financially-related activities as defined by federal law
(which includes insurance activities). These laws and regulations
generally grant supervisory agencies and self-regulatory organizations broad
administrative powers, including the power to limit or restrict the subsidiaries
from carrying on their businesses in the event that they fail to comply with
such laws and regulations. Finally, our radio operations require a license,
subject to periodic renewal, from the Federal Communications Commission to
operate. While management considers the likelihood of a failure to renew remote,
any station that fails to receive renewal would be forced to cease
operations.
Many of
the foregoing regulatory or governmental bodies have the authority to review our
products and business practices and those of our agents and employees. In recent
years, there has been increased scrutiny of our businesses by these bodies,
which has included more extensive examinations, regular “sweep” inquiries and
more detailed review of disclosure documents. These regulatory or governmental
bodies may bring regulatory or other legal actions against us if, in their view,
our practices, or those of our agents or employees, are improper. These actions
can result in substantial fines, penalties or prohibitions or restrictions on
our business activities and could have a material adverse effect on our
business, results of operations or financial condition.
Attempts
to mitigate the impact of Regulation XXX and Actuarial Guideline 38 may fail in
whole or in part resulting in an adverse effect on our financial condition and
results of operations.
The Model
Regulation entitled “Valuation of Life Insurance Policies,” commonly known as
“Regulation XXX” or “XXX,” requires insurers to establish additional statutory
reserves for term life insurance policies with long-term premium guarantees and
UL policies with secondary guarantees. In addition, Actuarial Guideline 38, or
“AG38,” clarifies the application of XXX with respect to certain UL insurance
policies with secondary guarantees. Virtually all of our newly issued term and
the great majority of our newly issued UL insurance products are now affected by
XXX and AG38.
As a
result of this regulation, we have established higher statutory reserves for
term and UL insurance products and changed our premium rates for term life
insurance products. We also have implemented reinsurance and capital management
actions to mitigate the capital impact of XXX and AG38, including the use of
letters of credit to support the reinsurance provided by a captive reinsurance
subsidiary. However, we cannot provide assurance that there will not be
regulatory, rating agency or other challenges to the actions we have taken to
date. The result of those potential challenges could require us to increase
statutory reserves or incur higher operating and/or tax costs. Any change to or
repeal of XXX or AG38 could reduce the competitive advantage of our reinsurance
and capital management actions and could adversely affect our market position in
the life insurance market. In addition, as a result of current capital market
conditions and disruption in the credit markets, our ability to secure
additional letters of credit or to secure them at current costs may impact the
profitability of term and UL insurance products. Please see “Part II
— Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Liquidity and Capital Resources — Sources of Liquidity
and Cash Flow — Subsidiaries” in LNC’s Annual Report on Form 10-K for the year
ended December 31, 2008, and “Part I — Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Review of
Consolidated Financial Condition — Liquidity and Capital Resources — Sources of
Liquidity and Cash Flow” in LNC’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009 for a further discussion of our capital management in
connection with XXX.
In light
of the current downturn in the credit markets and the increased spreads on
asset-backed debt securities, we also cannot provide assurance that we will be
able to continue to implement actions to mitigate the impact of XXX or AG38 on
future sales of term and UL insurance products. If we are unable to continue to
implement those actions, we may be required to increase statutory reserves,
incur higher operating costs and lower returns on products sold than we
currently anticipate or reduce our sales of these products. We also may have to
implement measures that may be disruptive to our business. For example, because
term and UL insurance are particularly price-sensitive products, any increase in
premiums charged on these products in order to compensate us for the increased
statutory reserve requirements or higher costs of reinsurance may result in a
significant loss of volume and adversely affect our life insurance
operations.
Changes
in accounting standards issued by the Financial Accounting Standards Board or
other standard-setting bodies may adversely affect our financial
statements.
Our
financial statements are subject to the application of GAAP, which is
periodically revised and/or expanded. Accordingly, from time to time we are
required to adopt new or revised accounting standards or guidance that are
incorporated into the FASB ASC. It is possible that future accounting standards
we are required to adopt could change the current accounting treatment that we
apply to our consolidated financial statements and that such changes could have
a material adverse effect on our financial condition and results of
operations.
Legal
and regulatory actions are inherent in our businesses and could result in
financial losses or harm our businesses.
We are,
and in the future may be, subject to legal actions in the ordinary course of our
insurance and investment management operations, both domestically and
internationally. Pending legal actions include proceedings relating to aspects
of our businesses and operations that are specific to us and proceedings that
are typical of the businesses in which we operate. Some of these proceedings
have been brought on behalf of various alleged classes of complainants. In
certain of these matters, the plaintiffs are seeking large and/or indeterminate
amounts, including punitive or exemplary damages. Substantial legal liability in
these or future legal or regulatory actions could have a material financial
effect or cause significant harm to our reputation, which in turn could
materially harm our business prospects. For more information on
pending material legal proceedings, please see “Part II — Item 8. Financial
Statements and Supplementary Data — Note 14” in our Annual Report on Form 10-K
for the year ended December 31, 2008, and “Part I — Item 1. Financial Statements
— Note 11” in our Quarterly Report on Form 10-Q for the quarter ended September
30, 2009.
Changes
in U.S. federal income tax law could increase our tax costs and make the
products that we sell less desirable.
Changes
to the Internal Revenue Code, administrative rulings or court decisions could
increase our effective tax rate and lower our net income. In this regard, on May
11, 2009, the Treasury Department released the “General Explanations of the
Administration’s Fiscal Year 2010 Revenue Proposals” including proposals which,
if enacted, would affect the taxation of life insurance companies and certain
life insurance products. The statutory language to be enacted on the
basis of these proposals would change the method used to determine the amount of
dividend income received by a life insurance company on assets held in separate
accounts used to support products, including variable life insurance and
variable annuity contracts, that are eligible for the dividend received
deduction. The dividend received deduction reduces the amount of dividend income
subject to tax and is a significant component of the difference between our
actual tax expense and expected amount determined using the federal statutory
tax rate of 35%. Our income tax provision for the year ended December
31, 2008 included a separate account dividend received deduction benefit of $81
million. In addition, the proposals would affect the treatment of
corporate owned life insurance policies, or “COLI,” by limiting the availability
of certain interest deductions for companies that purchase those policies. If
proposals of this type were enacted, our sale of COLI, variable annuities, and
variable life products could be adversely affected and our actual tax expense
could increase, reducing earnings.
Our
risk management policies and procedures may leave us exposed to unidentified or
unanticipated risk, which could negatively affect our businesses or result in
losses.
We have
devoted significant resources to develop our risk management policies and
procedures and expect to continue to do so in the future. Nonetheless, our
policies and procedures to identify, monitor and manage risks may not be fully
effective. Many of our methods of managing risk and exposures are based upon our
use of observed historical market behavior or statistics based on historical
models. As a result, these methods may not predict future exposures, which could
be significantly greater than the historical measures indicate, such as the risk
of pandemics causing a large number of deaths. Other risk management methods
depend upon the evaluation of information regarding markets, clients,
catastrophe occurrence or other matters that is publicly available or otherwise
accessible to us, which may not always be accurate, complete, up-to-date or
properly evaluated. Management of operational, legal and regulatory risks
requires, among other things, policies and procedures to record properly and
verify a large number of transactions and events, and these policies and
procedures may not be fully effective.
We
face a risk of non-collectibility of reinsurance, which could materially affect
our results of operations.
We follow
the insurance practice of reinsuring with other insurance and reinsurance
companies a portion of the risks under the policies written by our insurance
subsidiaries (known as ceding). As of December 31, 2008, we ceded approximately
$347 billion of life insurance in force to reinsurers for reinsurance
protection. Although reinsurance does not discharge our subsidiaries
from their primary obligation to pay contract holders for losses insured under
the policies we issue, reinsurance does make the assuming reinsurer liable to
the insurance subsidiaries for the reinsured portion of the risk. As of
September 30, 2009, we had $7.7 billion of reinsurance receivables from
reinsurers for paid and unpaid losses, for which they are obligated to reimburse
us under our reinsurance contracts. Of this amount, $3.2 billion related to the
sale of our reinsurance business to Swiss Re in 2001 through an indemnity
reinsurance agreement. Swiss Re has funded a trust to support this business. The
balance in the trust changes as a result of ongoing reinsurance activity and was
$2.0 billion as of September 30, 2009. As a result of Swiss Re’s
S&P financial strength rating dropping below AA-, Swiss Re was required to
fund an additional trust of approximately $1.8 billion as of September 30, 2009,
to support this business. Swiss Re funded the new trust in October of 2009.
Furthermore, approximately $1.2 billion of the Swiss Re treaties are funds
withheld structures where we have a right of offset on assets backing the
reinsurance receivables.
The
balance of the reinsurance is due from a diverse group of reinsurers. The
collectibility of reinsurance is largely a function of the solvency of the
individual reinsurers. We perform annual credit reviews on our reinsurers,
focusing on, among other things, financial capacity, stability, trends and
commitment to the reinsurance business. We also require assets in trust, letters
of credit or other acceptable collateral to support balances due from reinsurers
not authorized to transact business in the applicable jurisdictions. Despite
these measures, a reinsurer’s insolvency, inability or unwillingness to make
payments under the terms of a reinsurance contract, especially Swiss Re, could
have a material adverse effect on our results of operations and financial
condition.
Significant
adverse mortality experience may result in the loss of, or higher prices for,
reinsurance.
We
reinsure a significant amount of the mortality risk on fully underwritten, newly
issued, individual life insurance contracts. We regularly review retention
limits for continued appropriateness and they may be changed in the future. If
we were to experience adverse mortality or morbidity experience, a significant
portion of that would be reimbursed by our reinsurers. Prolonged or severe
adverse mortality or morbidity experience could result in increased reinsurance
costs, and ultimately, reinsurers not willing to offer coverage. If we are
unable to maintain our current level of reinsurance or purchase new reinsurance
protection in amounts that we consider sufficient, we would either have to be
willing to accept an increase in our net exposures or revise our pricing to
reflect higher reinsurance premiums. If this were to occur, we may be exposed to
reduced profitability and cash flow strain or we may not be able to price new
business at competitive rates.
Catastrophes
may adversely impact liabilities for contract holder claims and the availability
of reinsurance.
Our
insurance operations are exposed to the risk of catastrophic mortality, such as
a pandemic, an act of terrorism or other event that causes a large number of
deaths or injuries. Significant influenza pandemics have occurred three times in
the last century, but the likelihood, timing or severity of a future pandemic
cannot be predicted. In our group insurance operations, a localized event that
affects the workplace of one or more of our group insurance customers could
cause a significant loss due to mortality or morbidity claims. These events
could cause a material adverse effect on our results of operations in any period
and, depending on their severity, could also materially and adversely affect our
financial condition.
The
extent of losses from a catastrophe is a function of both the total amount of
insured exposure in the area affected by the event and the severity of the
event. Pandemics, hurricanes, earthquakes and man-made catastrophes, including
terrorism, may produce significant damage in larger areas, especially those that
are heavily populated. Claims resulting from natural or man-made catastrophic
events could cause substantial volatility in our financial results for any
fiscal quarter or year and could materially reduce our profitability or harm our
financial condition. Also, catastrophic events could harm the financial
condition of our reinsurers and thereby increase the probability of default on
reinsurance recoveries. Accordingly, our ability to write new business could
also be affected.
Consistent
with industry practice and accounting standards, we establish liabilities for
claims arising from a catastrophe only after assessing the probable losses
arising from the event. We cannot be certain that the liabilities we have
established or applicable reinsurance will be adequate to cover actual claim
liabilities, and a catastrophic event or multiple catastrophic events could have
a material adverse effect on our business, results of operations and financial
condition.
Competition
for our employees is intense, and we may not be able to attract and retain the
highly skilled people we need to support our business.
Our
success depends, in large part, on our ability to attract and retain key
people. Intense competition exists for the key employees with
demonstrated ability, and we may be unable to hire or retain such employees,
particularly in light of compensation restrictions that will be applicable to us
in connection with our planned participation in the TARP CPP. The
unexpected loss of services of one or more of our key personnel could have a
material adverse effect on our operations due to their skills, knowledge of our
business, their years of industry experience and the potential difficulty of
promptly finding qualified replacement employees. We compete with
other financial institutions primarily on the basis of our products,
compensation, support services and financial position. Sales in our businesses
and our results of operations and financial condition could be materially
adversely affected if we are unsuccessful in attracting and retaining key
employees, including financial advisors, wholesalers, and other employees, as
well as independent distributors of our products.
Our
sales representatives are not captive and may sell products of our
competitors.
We sell
our annuity and life insurance products through independent sales
representatives. These representatives are not captive, which means they may
also sell our competitors’ products. If our competitors offer products that are
more attractive than ours, or pay higher commission rates to the sales
representatives than we do, these representatives may concentrate their efforts
in selling our competitors’ products instead of ours.
We
may not be able to protect our intellectual property and may be subject to
infringement claims.
We rely
on a combination of contractual rights and copyright, trademark, patent and
trade secret laws to establish and protect our intellectual property. Although
we use a broad range of measures to protect our intellectual property rights,
third parties may infringe or misappropriate our intellectual property. We may
have to litigate to enforce and protect our copyrights, trademarks, patents,
trade secrets and know-how or to determine their scope, validity or
enforceability, which represents a diversion of resources that may be
significant in amount and may not prove successful. The loss of intellectual
property protection or the inability to secure or enforce the protection of our
intellectual property assets could have a material adverse effect on our
business and our ability to compete.
We also
may be subject to costly litigation in the event that another party alleges our
operations or activities infringe upon another party’s intellectual property
rights. Third parties may have, or may eventually be issued, patents that could
be infringed by our products, methods, processes or services. Any party that
holds such a patent could make a claim of infringement against us. We may also
be subject to claims by third parties for breach of copyright, trademark, trade
secret or license usage rights. Any such claims and any resulting litigation
could result in significant liability for damages. If we were found to have
infringed a third-party patent or other intellectual property rights, we could
incur substantial liability, and in some circumstances could be enjoined from
providing certain products or services to our customers or utilizing and
benefiting from certain methods, processes, copyrights, trademarks, trade
secrets or licenses, or alternatively could be required to enter into costly
licensing arrangements with third parties, all of which could have a material
adverse effect on our business, results of operations and financial
condition.
Intense
competition could negatively affect our ability to maintain or increase our
profitability.
Our
businesses are intensely competitive. We compete based on a number of factors,
including name recognition, service, the quality of investment advice,
investment performance, product features, price, perceived financial strength
and claims-paying and credit ratings. Our competitors include insurers,
broker-dealers, financial advisors, asset managers and other financial
institutions. A number of our business units face competitors that have greater
market share, offer a broader range of products or have higher financial
strength or credit ratings than we do.
In recent
years, there has been substantial consolidation and convergence among companies
in the financial services industry resulting in increased competition from
large, well-capitalized financial services firms. Many of these firms also have
been able to increase their distribution systems through mergers or contractual
arrangements. Furthermore, larger competitors may have lower operating costs and
an ability to absorb greater risk while maintaining their financial strength
ratings, thereby allowing them to price their products more competitively. We
expect consolidation to continue and perhaps accelerate in the future, thereby
increasing competitive pressure on us.
Anti-takeover
provisions could delay, deter or prevent our change in control, even if the
change in control would be beneficial to LNC shareholders.
We are an
Indiana corporation subject to Indiana state law. Certain provisions of Indiana
law could interfere with or restrict takeover bids or other change in control
events affecting us. Also, provisions in our articles of incorporation, bylaws
and other agreements to which we are a party could delay, deter or prevent our
change in control, even if a change in control would be beneficial to
shareholders. In addition, under Indiana law, directors may, in considering the
best interests of a corporation, consider the effects of any action on
shareholders, employees, suppliers and customers of the corporation and the
communities in which offices and other facilities are located, and other factors
the directors consider pertinent. One statutory provision prohibits, except
under specified circumstances, LNC from engaging in any business combination
with any shareholder who owns 10% or more of our common stock (which
shareholder, under the statute, would be considered an “interested shareholder”)
for a period of five years following the time that such shareholder became an
interested shareholder, unless such business combination is approved by the
board of directors prior to such person becoming an interested shareholder. In
addition, our articles of incorporation contain a provision requiring holders of
at least three-fourths of our voting shares then outstanding and entitled to
vote at an election of directors, voting together, to approve a transaction with
an interested shareholder rather than the simple majority required under Indiana
law.
In
addition to the anti-takeover provisions of Indiana law, there are other factors
that may delay, deter or prevent our change in control. As an insurance holding
company, we are regulated as an insurance holding company and are subject to the
insurance holding company acts of the states in which our insurance company
subsidiaries are domiciled. The insurance holding company acts and regulations
restrict the ability of any person to obtain control of an insurance company
without prior regulatory approval. Under those statutes and regulations, without
such approval (or an exemption), no person may acquire any voting security of a
domestic insurance company, or an insurance holding company which controls an
insurance company, or merge with such a holding company, if as a result of such
transaction such person would “control” the insurance holding company or
insurance company. “Control” is generally defined as the direct or indirect
power to direct or cause the direction of the management and policies of a
person and is presumed to exist if a person directly or indirectly owns or
controls 10% or more of the voting securities of another person. Similarly, as a
result of its ownership of Newton County Loan & Savings, FSB, LNC is
considered to be a savings and loan holding company. Federal banking laws
generally provide that no person may acquire control of LNC, and gain indirect
control of Newton County Loan & Savings, FSB, without prior regulatory
approval. Generally, beneficial ownership of 10% or more of the voting
securities of LNC would be presumed to constitute control.
SUMMARY OF THE PLAN
The
purpose of the Plan is to encourage and assist you and other participants in
adopting a regular savings and investment program, and to help you to build a
secure retirement.
Effective
October 1, 2008, the Lincoln
Alliance®
program (“Lincoln Alliance”) became the administrator and recordkeeper of the
Plan. You may transact your account activity or obtain the current
value of your account at any time via the Lincoln Alliance web site at www.LincolnAlliance.com, or
via the Lincoln Alliance Customer Service Center at
1-800-234-3500. Customer service representatives are available from 8
a.m. to 8 p.m. Eastern Time, Monday through Friday.
Eligibility
And Participation
An Agent
who meets the following criteria is eligible to participate in the
Plan:
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The
agent is a citizen or resident of the United
States;
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The
agent is classified as a full-time life insurance salesperson under the
Federal Insurance Contributions Act;
and
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The
agent has entered into an AG2K contract or benefits eligible BJ-02300
contract with LNL or a NYAG contract with Lincoln Life & Annuity
Company of New York (“LNY”).
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Agents
who meet all three of the above requirements are eligible to participate in the
Plan (“Agents”).
Beginning
on the first pay period in June 2006, or as soon as practicable thereafter,
certain participants in the former Jefferson Pilot Corporation TeamShare Plan
became eligible to participate in this Plan: the Agency Building General Agency
(ABGA) agents and the District Agency Network (DAN) agents.
Any Agent
may become a Participant in the Plan by calling the Lincoln Alliance®
Customer Service Center at 1-800-234-3500, or accessing the Lincoln Alliance®
Web site at: http://www.LincolnAlliance.com and using their assigned
personal identification number to complete the enrollment process.
In order
to participate:
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you
must designate a rate of Pre-Tax Contributions to the Plan between 1% and
50%; Pre-Tax Contributions are voluntary deferrals from your “Pensionable
Earnings” (as defined below); however if you are considered a “highly
compensated participant” as described below on page 29, your rate of
Pre-Tax Contributions will be limited to the percentage
determined by the Committee annually. The Pre-Tax limit for
2009 Pensionable Earnings is 10%.
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effective
January 1, 2009, you may also designate a rate of Roth 401(k)
Contributions to the Plan. Roth 401(k) Contributions are
after-tax voluntary deferrals from your “Pensionable
Earnings. Your Pre-Tax and Roth 401(k) Contributions will be
combined in determining the maximum contribution
limit.
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you
must provide Lincoln
Alliance®
with investment directions specifying how you want your Pre-Tax or Roth
401(k) Contributions, your Company Contributions, and your Rollover
Contributions*, if any, invested among the Investment Options available
under the Plan; and
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you
must designate a beneficiary to receive benefits under the Plan in the
event of your death.
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*For a
description of Pre-Tax, Roth 401(k) (effective 1/1/2009), Company, and Rollover
Contributions, please see the Section entitled “Participant Contributions”
below.
Your
participation in this Plan is effective on the date you complete the enrollment
process, as determined by the Plan Administrator. Enrollment is
complete and effective only when you have made the required designations and
elections, and you have received a confirmation number. Deductions begin, where
administratively practicable, with your first commission statement after
enrollment is complete.
Your
enrollment and election forms authorize us to deduct the amount you elected to
contribute from your Pensionable Earnings on a pre-tax basis or post-tax basis
if you make Roth 401(k) contributions after January 1, 2009.
Pensionable
Earnings
Pensionable
Earnings are defined as all first year and renewal commissions paid to you
during the Plan Year for life insurance and annuity products while you have a
contract with us. Pensionable Earnings also include the following
items*:
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agent
or sales manager subsidies;
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♦
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amounts
not included in gross income under a cafeteria plan as described under IRC
section 125 and elective deferrals under a cash or deferred arrangement
under IRC section 402(e)(3);
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Pensionable
Earnings exclude the
following items*:
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commissions
or fees from the sale of non-proprietary
products;
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compensation
paid under a broker contract;
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amounts
deferred under a non-qualified deferred compensation plan under IRC
section 409A;
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company
contributions or credits (including matches) made under other
plans;
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agency
expense allowances;
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commissions
or fees paid by Jefferson Pilot Financial Insurance Company (the “Group
Protection” business) or any of its
affiliates;
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commissions
or fees paid by Jefferson Pilot Securities Corporation (“JPSC”) or any of
its affiliates;
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commissions
or fees paid with respect to policies issued by Kentucky Central Life
Insurance Company, or any other insurance company where we assumed
insurance obligations;
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expenses
charged, paid, or reimbursed relating to conventions, sales meetings, or
similar events.
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*
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Not
all of the items of compensation enumerated above (either included or
excluded from Pensionable Earnings) are applicable to every
Agent.
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Your participation in the Plan is
voluntary and we make no recommendations as to whether you or any other eligible
agent should or should not participate.
Participant
Contributions
Pre-Tax
Contributions
You may
contribute your Pensionable Earnings to the Plan on a pre-tax basis (“Pre-Tax
Contributions”). You may elect to contribute between 1% and 50% of
your Pensionable Earnings, but no more than the maximum allowed annually by the
Internal Revenue Service (“IRS”) ($16,500 in 2009, adjusted periodically by the
IRS).
However,
if you are a highly compensated participant (currently, anyone who made at least
$105,000 in 2008) your rate of Pre-Tax Contributions will be limited to the
percentage determined by the Committee annually. This limit will be
communicated to you. The Pre-Tax limit for highly compensated
participants for 2009 is 10% Pensionable Earnings. You may change the
rate of your contributions to the Plan at any time, with the change effective in
most cases on the next payday. You may suspend contributions to the
Plan, or begin contributing to the Plan, at any time. Your Pre-Tax
Contributions will be credited to a separate Pre-Tax Contribution account
established in your name.
In
addition, if you are age 50 or older, you may make additional pre-tax “catch-up”
contributions to the Plan. The catch-up amount for 2009 is
$5,500.
To be
eligible to make a catch-up contribution for any Plan Year, you
must:
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be
age 50 or older by the end of such Plan
Year;
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have
contributed the maximum annual Pre-Tax Contribution amount allowable under
various IRS and Plan limits (described above);
and
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have
contributed at the maximum rate allowed by the Plan for the entire Plan
Year without exceeding the maximum annual Pre-Tax Contribution amount
allowable. (50%, or 10% for 2009 if you are a highly compensated
participant).
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If, under
the rules outlined above, you are eligible to make catch-up contributions; your
catch-up contributions will not be subject to the 10% limit for highly
compensated participants or the $16,500 IRS limit referred to
above.
The
Plan’s recordkeeper will review participant accounts to ensure these eligibility
requirements were met. If their review shows that you contributed
less than the maximum allowed under the various limits, or at less than the
maximum rate at any time during the Plan Year, your catch-up contributions will
be reclassified as regular Pre-Tax Contributions. Please note that
Company Contributions (as described below) will not be made with respect to
catch-up contributions. In addition, Company Contributions will not be
credited with respect to catch-up contributions that are re-classified as
regular contributions.
After-Tax
Contributions
Prior to
January 1, 1989, you were permitted to make contributions to the Plan from your
after-tax earnings (“After-Tax Contributions”). A separate After-Tax
Contribution account will be maintained for each participant who made After-Tax
Contributions to the Plan before January 1, 1989.
Roth
401(k) Contributions
The Roth
401(k) feature of the Plan is effective January 1, 2009. This feature
allows you to save money in your account through payroll deductions on an
after-tax basis. Even if you are already making Pre-Tax
Contributions, you can also make Roth 401(k) contributions. However,
a combination of both Pre-Tax and Roth 401(k) contributions cannot exceed the
annual deferral limit. For 2009, the deferral limit is $16,500 (or
$22,000 including before-tax catch-up contributions). The benefit of making Roth
401(k) contributions is that earnings on contributions can be withdrawn tax-free
if certain criteria are met.
Factors
to consider:
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You
have the flexibility to make Pre-Tax Contributions, Roth 401(k)
Contributions, or a combination of
both.
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Roth
401(k) Contributions and Pre-Tax Contributions will be accounted for
separately in your account.
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You
cannot transfer balances between your Pre-Tax Contribution account and
your Roth 401(k) Contribution
account.
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Your
Roth 401(k) and Pre-Tax Contributions will be eligible for the basic
company matching contribution, up to 6% of your Pensionable Earnings that
you contribute, as described earlier. For example, if you
contribute 6% Roth 401(k) or 6% Pre-Tax, or a combination of 3% Roth and
3% Pre-Tax, you will receive company matching contributions on your
contributions up to 6% of your Pensionable Earnings that you
contribute. Company matching contributions are pre-tax
contributions, subject to taxation when distributed to
you.
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Roth
401(k) Contributions and earnings will not be subject to federal taxes at
retirement if your withdrawals are considered “qualified
distributions.”
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A
withdrawal from a Roth 401(k) is considered a “qualified distribution” and not
taxed if:
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1.
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The
withdrawal is taken after death, disability or upon reaching age 59½;
and
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2.
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The
withdrawal occurs at least five years after you make your first Roth
401(k) Contribution.
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In
addition, if your contract terminates, you may have the option to roll over your
Roth 401(k) Contributions to a Roth IRA or to a new employer’s plan if it allows
Roth 401(k) Contributions.
Rollover
Contributions
You may
transfer or “rollover” amounts from the taxable amount of your distributions
from a traditional or conduit IRA; plans qualified under 401(a) of the Internal
Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit
plan, stock bonus plan; a Section 403(b) plan; and an eligible Section 457(b)
plan maintained by a governmental employer (“Rollover
Contributions”).
Any loan
you may have outstanding from such other plan may not be rolled over into this
Plan.
The
rollover may be made directly from another plan to this Plan, or you may elect
within 60 days following the date you receive payment from a plan to roll over
the distribution. There are certain tax consequences related to
having the distribution made payable directly to you and then electing the
rollover option.
Any
Rollover Contributions accepted by the Plan Administrator will be credited to a
separate Rollover Contribution account established in your name.
To get a
rollover contribution form, visit the Lincoln Alliance Web site at
www.LincolnAlliance.com, or speak with a representative at the Lincoln Alliance
Customer Service Center at 1-800-234-3500. Customer service
representatives are available from 8 a.m. to 8 p.m. Eastern Time, Monday through
Friday.
Company
Contributions
We may
make two types of contributions to the Plan on your behalf: a company basic
matching contribution and a company discretionary matching contribution, if
applicable. Unless we distinguish between these two types of
contributions, the term “Company Contributions” refers to both
kinds.
Each pay
period, we will credit your account with a basic company matching contribution
of $0.50 for every $1.00 you invest in the Plan, for up to 6% of your
Pensionable Earnings.
If you
are an ABGA or DAN Agent who completed at least one year of service commencing
on the effective date of your full time agent’s contract, during the period
beginning June 1, 2006 and ending on December 31, 2006 you were credited with
$0.10 for every $1.00 you invested in the Plan for up to 6% of your Pensionable
Earnings. Beginning on January 1, 2007 and thereafter, you are
credited with $0.50 for every $1.00 you invest in the Plan, for up to 6% of your
Pensionable Earnings.
In
addition, each Plan year we may make an additional discretionary matching
contribution of up to $1.00 for every $1.00 you contributed up to 6% of your
Pensionable Earnings each pay period. We reserve the right to
discontinue the practice of making discretionary matching contributions at any
time. ABGA and DAN agents are not eligible for any discretionary
matching contribution made by the Company. You must be an agent in
good standing on the last day of the Plan Year in order to be eligible for the
additional discretionary matching contribution. However, if you are
absent on the last day of the Plan Year because you retired during the Plan
Year, or due to your death or disability, you will still be eligible for this
discretionary matching contribution. The discretionary match
must be authorized and approved by our Board of
Directors. Discretionary contributions, if approved, will be credited
to your Company Contribution account after the close of the Plan Year to which
the contribution relates.
The
maximum amount possible for us to contribute in any Plan Year to your Plan
account is $1.50 for every $1.00 you contributed, up to 6% of your Pensionable
Earnings. Any Company Contributions will be credited to a separate
Company Contribution account established in your name. Please note that any
catch-up contributions you may have made are not eligible to be matched (no
Company Contribution will be made with respect to such amounts).
Upon
reaching the IRS annual compensation limit or another limit, as described in the
“Limitations on Contributions” section on page 32, your contributions will be
stopped for the remainder of the year. This means that the Company
matching contributions will also stop.
Any
Company Contribution made with respect to a Plan Year will begin to vest two
years after being credited to you. Company Contributions that have
been credited to your Company Contribution account for over two years are
referred to as “matured contributions.” This concept of matured vs.
non-matured contributions is not to be confused with the concept of “vesting,”
which is described in more detail in the section entitled “Vesting,”
below.
Account
Statements
Shortly
after the end of each calendar quarter, the Plan Trustee will furnish you with a
current statement of your Plan accounts. This statement will include
the following information for the preceding calendar quarter: (a) the amount of
any contributions to your Plan account (After-Tax Contributions (made prior to
January 1, 1989), Pre-Tax Contributions, Roth 401(k) Contributions,
Company Contributions, Rollover Contributions, loan repayments, etc.) and how
they are invested in the Plan, (b) the amount, if any, of investment earnings
credited to your Plan accounts, and (c) a statement of the assets currently held
for you by the Plan Trustee. Stock dividends, stock splits and
similar changes will be reflected through the appropriate adjustments to your
LNC Stock Fund. You can also review your accounts at any time by
accessing the Lincoln
Alliance®
Web site at: http://www.LincolnAlliance.com.
Limitations
on Contributions
As stated
earlier, “highly compensated” participants (for 2009, those earning at least
$105,000 in 2008), may contribute no more than the maximum amount equal to the
lesser of 10% of Pensionable Earnings or $16,500.
The Plan,
along with other similar plans maintained by us, must meet certain
nondiscrimination rules set forth in the Code. These rules ensure
that the Plan does not discriminate in favor of highly compensated
participants. If the Plan does not meet these non-discrimination
rules, adjustments to contributions may be necessary and may require the Plan
Administrator to revoke or modify your elections, or to reduce the amount of
your Pre-Tax Contributions, Roth 401(k) Contributions, as well as Company
Contributions, to the extent necessary to eliminate the amounts the IRS
considers an “excess” contribution. Alternatively, the Plan Administrator may
refund excess Pre-Tax Contributions or Roth 401(k) Contributions to
you. Such refunded amounts would be immediately
taxable. The Plan Administrator may also hold excess Company
Contributions in a suspense account to be used to reduce the amount of Plan
expenses (including our obligations to make Company Contributions to other
participants). If the Plan Administrator were to terminate the Plan,
it would allocate amounts in this suspense account pro rata to the participants
participating in the Plan as of the date of the Plan termination, pursuant to
the relevant provisions of the Code.
Finally,
during any calendar year, the sum of your Pre-Tax Contributions, Roth 401(k)
Contributions and Company Contributions may not exceed limits set under Code
section 415. For 2009, the maximum is the lesser of 100% of your
Pensionable Earnings, or $49,000. In addition, the maximum amount of
Pensionable Earnings considered in determining your benefits under the Plan may
not exceed $245,000 for 2009. As stated above, your combined Pre-Tax
and Roth 401(k) Contributions may not exceed the lesser of $16,500 or 10% of
your Pensionable Earnings for 2009 if you are a highly compensated
participant. Again, these limits are subject to change due to
cost-of-living adjustments.
Expenses of the Plan
Certain
expenses relating to the Plan are charged against the investments in your
account. Auditing fees and certain trustee fees are charged to each
participant’s account. Most trustee fees are paid by the Company,
such as the costs of maintaining the LNC Stock Fund which includes brokerage
fees and commissions to buy or sell shares off the open market.
In
addition, a quarterly maintenance fee will be deducted for investments in your
Self-Directed Broker Account (“SDBA”) (when available). Investment
management fees are charged to each of the other funds. Expenses per participant
vary, based on the investment fund selected. Expense ratios are found
below in the performance chart or on-line by accessing the Lincoln Alliance Web
site and selecting Fund Performance and selecting the appropriate plan
type. You may also send a written request to Lincoln Financial Group,
c/o Kim Miner, Interim Chair, Corporate Benefits, 150 N. Radnor Chester Road,
Building B, 2nd
Floor, Radnor, PA 19087-5238.
Vesting
You are
fully vested in any of your Pre-Tax, Roth 401(k), After-Tax and Rollover
Contributions under the Plan at all times.
Company
Contributions vest based upon your years of service:
|
Years of Service
|
Percent Vested
|
|
|
|
|
1
|
0%
|
|
2
|
50%
|
|
3
or more
|
100%
|
|
|
|
Once your
Company Contribution is vested, it is no longer subject to forfeiture once you
cease being an agent for us. A “year of service” means any calendar
year in which you are, on the last day of the Plan year (December 31st), a
full-time life insurance salesperson for us.
In
addition, you will become 100% vested in your Company Contribution account,
regardless of your years of vesting service, if your service terminates for any
of the following reasons:
|
·
|
retirement
(termination after age 60 or older with at least five years of service);
or
|
You will
also become 100% vested in your Company Contribution account if this Plan
terminates.
For
purposes of this Plan: “disability” means the complete inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in your death, or
which has lasted or is expected to last for at least 12 months.
Should
you become an employee of one of our affiliates which has not adopted the Plan
prior to the date on which you would be fully vested, any non-vested Company
Contributions and earnings thereon will remain in the Plan and will vest as if
you had remained an eligible agent, as long as you continue to be an employee of
such affiliate through the applicable date of vesting. If you become
an employee of Delaware Management Holdings, Inc., Lincoln National Corporation
or one of its affiliates which has adopted either the Delaware Management
Holdings, Inc. Employees’ Savings and 401(k) Plan (the “DMHI Plan”) or the
Lincoln National Corporation Employees’ Savings and Retirement Plan (the “LNC
Plan”), you can enroll in the DMHI Plan or the LNC Plan as appropriate and your
account balance will be transferred to the applicable plan. In either
case, a portion of your account may need to be accounted for separately because
the Plan to which your account balance is being transferred does not recordkeep
or maintain “similar” accounts.
In
addition to being subject to the vesting schedule described above, Company
Contributions “mature” after having been in your Company Contribution account
for at least two years after the contribution was credited for the applicable
Plan Year. Non-matured Company Contributions are those that have been
credited for less than two years. If you have been a participant in
the Plan for less than
five years, you are only permitted to withdraw matured Company Contributions—you
may not withdraw non-matured Company Contributions. If you have been
in the Plan for five or more years, however, you may withdraw matured or
non-matured Company Contributions. All non-matured Company
Contributions automatically mature on the first to occur of:
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·
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the
date you complete five (5) years of service for
us;
|
|
·
|
the
date of your death; or
|
|
·
|
the
date you become disabled.
|
Distributions from the Plan
Under
certain circumstances, you may be permitted to withdraw money from one or more
of your Plan accounts. However, depending on your age or
circumstances, we may be required to withhold 20% of the distribution to pay
federal income taxes, and certain excise or “penalty” taxes may apply to amounts
withdrawn from a qualified Plan. The rules regarding each
distribution may be different, and will also depend on which Plan account your
distribution is taken from. To initiate a withdrawal, access the
Lincoln Alliance Web site at www.LincolnAlliance.com and select “Withdrawal
Information” or call the Customer Service Center at 1-800-234-3500.
Under
no circumstances will amounts withdrawn from your account reduce your account
balance below the outstanding balance of any loans from your
account.
See the
section entitled “Federal Income Tax Consequences” below for more information
about the tax treatment of Plan distributions.
After-Tax
Contribution Account
You may
withdraw all or any portion of your After-Tax Contribution account, subject to
any limitation applicable to the Investment Options in which your account
balance is invested, as well as the following limitations:
|
·
|
the
minimum amount you can withdraw at any time is
$500;
|
|
·
|
if
the amount in your After-Tax Contribution account is less than $500, you
must withdraw the entire amount;
|
|
·
|
you
may not be able to take an immediate distribution from your After-Tax
Contribution account if the Plan is terminated or if a notice of Plan
termination has been issued.
|
Please
see the section entitled “Federal Income Tax Consequences” below for more
information about the tax treatment of Plan distributions.
Company
Contribution Account
You may
withdraw all or any portion of the vested balance credited to your Company
Contribution account only after amounts credited to your After-Tax Contribution
account (if any) have been withdrawn. If you have been a participant
in this Plan for less than five years, however, you will be permitted to
withdraw only matured Company Contributions (please see the discussion of
“matured” versus “non-matured” Company Contributions in the section entitled
“Vesting,” above). In addition, any distribution from your Company
Contribution account is subject to any limitation, or restrictions applicable to
the Investment Options in which your Company Contributions are invested, as well
as the following limitations:
|
·
|
the
minimum amount you can withdraw at any time is
$500;
|
|
·
|
if
the amount in your Company Contribution account is less than $500, you
must withdraw the entire amount;
and
|
|
·
|
you
may not be able to take an immediate distribution from your Company
Contribution account if the Plan has been terminated or if a notice of
Plan termination has been issued.
|
Please
see the section entitled “Federal Income Tax Consequences” below for more
information about the tax treatment of Plan distributions.
Rollover
Contributions
You may
withdraw all or a portion of your Rollover account in the Plan, subject to any
limitations or restrictions applicable to the Investment Options in which your
Rollover account is invested, as well as the following limitations:
|
·
|
the
minimum amount you can withdraw at any time is
$500;
|
|
·
|
amounts
attributable to employer contributions that were rolled over to the Plan
may not be withdrawn for two years from the date of the rollover (if the
rollover was from a plan sponsored by one of our affiliates, the Committee
may determine that the two-year restriction period is measured from the
date the contribution was made by the employer);
and
|
|
·
|
you
may not be able to take an immediate distribution from your Rollover
account if the Plan has been terminated or if a notice of Plan termination
has been issued.
|
Please
see the section entitled “Federal Income Tax Consequences” below for more
information about the tax treatment of Plan distributions.
Pre-Tax
Contributions and Roth 401(k) Contributions
If you
have no After-Tax Contribution account, or amounts credited to such account have
already been distributed to you, and you have already taken all amounts
available to you from your Company Contribution accounts (vested and/or matured
amounts), and
you have attained age 59½, you may withdraw all or any portion of your Pre-Tax
Contribution account and Roth 401(k) Contribution Account, subject to any
limitations which may apply to the Investment Options in which your Pre-Tax
Contribution or Roth 401(k) Contribution account is invested. The
minimum amount you can withdraw at any time is $500.
Please
see the section entitled “Federal Income Tax Consequences” below for more
information about the tax treatment of Plan distributions.
Hardship
Withdrawals
If you
have no balance in your After-Tax Contribution account, Company Contribution
account (or if not available for distribution because of “vesting” or “maturing”
rules), or your Rollover account, and you have not yet attained age 59½, you may
be able to withdraw amounts attributable to Pre-Tax Contributions and Roth
401(k) Contributions (not including earnings) if you are experiencing a
financial hardship. The Internal Revenue Service defines a financial
hardship as:
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·
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medical
expenses for you, your spouse or eligible dependents, that are not
reimbursed by any medical insurance
plan;
|
|
·
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tuition
and related educational fees (including room and board) for post-secondary
education for you, your spouse or your dependents for the next 12
months;
|
|
·
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the
purchase (excluding mortgage payments) of a primary
residence;
|
|
·
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the
imminent foreclosure of, or your eviction from, your primary
residence;
|
|
·
|
burial
or funeral expenses for your deceased parents, spouse, children or
dependents;
|
|
·
|
expenses
for the repair of damage to your principal residence that would qualify
for the casualty deduction under Code section 165, determined without
regard to whether the loss exceeds 10% of adjusted gross income;
and
|
|
·
|
the
withdrawal must be demonstrably necessary due to your immediate and heavy
financial need, and the withdrawal cannot exceed the exact amount required
to meet the hardship. However, the hardship withdrawal may include an
amount necessary to pay any taxes and penalties associated with the
withdrawal.
|
|
·
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In
order to be deemed to meet the immediate and heavy financial need
requirement, the following conditions must be
met:
|
|
Ø
|
you
must have taken all distributions other than hardship distributions first,
and all non-taxable loans currently available under all plans that we and
our affiliates maintain; and
|
|
Ø
|
you
may not make any Pre-Tax Contributions or Roth 401(k) Contributions to the
Plan, or to any other pension, profit-sharing or deferred compensation
plan sponsored by us, for 6 months from the date of receipt of the
hardship withdrawal.
|
To
request a withdrawal, access the Lincoln Alliance Web site at
www.LincolnAlliance.com and select “Withdrawal Information” or call the Customer
Service Center at 1-800-234-3500. At your election, the Plan Trustee
will deliver securities and cash from the applicable Plan account(s), or a total
cash distribution, based upon the current market value or any applicable current
redemption value of the securities in your Plan accounts as of the date of
withdrawal. See the section below entitled “Fractional Shares” for
information regarding the settlement of fractional share interests in the LNC
Stock Fund.
Participant Loans
You may
obtain a loan from the Plan, in accordance with the terms of the Plan and the
various procedures as determined by the Plan Administrator. The amount that you
may borrow is determined as follows:
|
·
|
You
may borrow up to fifty percent (50%) of your vested Plan account balance,
not to exceed $50,000. You may have up to two outstanding loans
at any one time, as long as the combined amounts do not exceed the
maximums stated above.
|
|
·
|
If
you had any loans during the prior 12 months from any qualified plan
maintained by us, the $50,000 maximum loan referred to in (1) above will
be further reduced by the total of the highest outstanding loan balances
for the previous 12-month period.
|
|
·
|
Your
requested loan amount will first be taken out of your Pre-Tax Contribution
account. If there is not a sufficient amount in your Pre-Tax Contribution
account, the remaining amount will be taken out of your Roth 401(k)
Account, After-Tax account, Rollover account, matured Company Contribution
account, and non-matured Company Contribution account, in that
order. The loan amount will be taken out of each Investment
Option in which such balances are invested, on a pro-rata
basis.
|
|
·
|
In
general, a loan must be repaid through payroll deduction over a period of
no more than 60 months and for interest at the then prevailing rate for
loans of a similar nature. For loans used to acquire a primary
residence, as defined by Section 267(c)(4) of the Code, the term of the
loan may be up to 240 months.
|
|
·
|
The
loan is subject to withdrawal and any other restrictions applicable to the
Investment Options in which your Pre-Tax Contribution account, your Roth
401(k) account, your matured Company Contribution account, your
non-matured Company Contribution account, and your Rollover account is
invested.
|
|
·
|
In
the event that you have an outstanding loan balance when your Pre-Tax
Contribution or Roth 401(k) account is paid to you or your beneficiary
because of your termination due to disability, or after attainment of age
59½, the loan balance (including accrued interest) will be deducted from
the amount otherwise payable. For purposes of this Plan,
“disability” is defined in the section entitled “Lump Sum Distributions”
directly below. If you or your beneficiary defers this
distribution to a later date, you must pay the outstanding loan balance
within 90 days of termination or
retirement.
|
|
·
|
Contributions
used to repay the loan will be invested in the same manner as your current
investment allocations. If you are not currently contributing
to the Plan, you must separately indicate the investment allocation for
the repayment of the loan.
|
|
·
|
The
Committee may adopt written loan procedures, which may impose other terms
and conditions. These loan procedures are available upon
request from our Human Resources
department.
|
To
initiate a loan access the Lincoln Alliance Web site at www.LincolnAlliance.com,
select “Initiate a Request” and then select “Initiate Loan” or call the Customer
Service Center at 1-800-234-3500.
Lump Sum Distributions
You, or
your beneficiary or legal representative in the event of your death, will be
entitled to the full value of your Pre-Tax Contribution, Roth 401(k)
Contribution and Company Contribution accounts, as well as any amounts credited
to your Rollover and/or After-tax Contribution accounts upon the date of your
termination of service by reason of death, disability or retirement (as defined
below). Part or all of these accounts may be forfeited if your
termination occurs under other circumstances.
Your Plan
account will be paid to you in a lump sum distribution, unless you are eligible
to have your Plan account distributed to you in the form of periodic payments,
or installments (see the section entitled “Periodic Payments”
below). Alternatively, you may elect to use your entire Plan account
to purchase a group deferred annuity, in accordance with rules established by
the Committee.
Tax
penalties may apply for distributions beginning before termination at age
55. For a more detailed discussion of the tax consequences associated
with taking distributions from the Plan, please see the Section below entitled
“Federal Income Tax Consequences.”
|
·
|
At
the time of your termination, Lincoln Alliance®
will send you an election form. If your balance is under
$1,000, it will automatically be distributed to you in a lump sum, and you
will not be permitted to defer the receipt of your
benefit.
|
|
·
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If,
at the time of your termination, your balance is over $1,000, you may
elect to defer your distribution to no later than the April 1st
following your attaining age 70½.
|
|
·
|
If
you make no election and your balance is over $1,000, distribution of your
account balance will be automatically deferred until the April 1st
following your attaining age 70½.
|
Distribution
at Retirement
You are
entitled to the full value of all amounts credited to your Plan accounts
(including any non-vested Company Contributions) upon retirement. For
purposes of this Plan, “retirement” is the date on which you terminate your
full-time contract with us (and you are not employed by us or any of our
affiliates) at age 60 or older with at least five years of
service. If you retire before reaching age 70½, you may elect to
defer distribution of your Plan accounts to no later than the April 1st
following attainment of age 70½.
Distribution
at Disability
If you
terminate as the result of a disability - you are entitled to the full value of
all amounts credited to your account. You may request that your distribution
under the Plan begin at any time. In most cases, early distribution
of your Plan account because of disability will not result in the 10% excise or
penalty tax described in the section entitled “Federal Income Tax Consequences”
below. For purposes of this Plan, “disability” means the complete
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in your death, or is expected to last for at least 12
months. Proof of your disability, including evidence as to the
permanence and degree of your impairment, must be supported by medical evidence
and provided to the Plan Administrator upon request.
Distribution
at Death
Upon your
death, your spouse, if you were married at the time or your death, or your
beneficiary, if single, will be entitled to the full value of all amounts
credited to your Plan accounts established for you under the Plan, including any
unvested amounts.
Distribution
at Termination
If your
contract as a full-time life insurance agent is terminated (other than by reason
of retirement, disability or death), or you become ineligible to participate in
this Plan and you are not employed with any of our affiliates, or you do not
take a corporate contract, you will be entitled to the value of your Pre-Tax
Contributions, Roth 401(k) Contributions, any After-Tax Contributions, any
Rollover Contributions and any vested Company
Contributions. Non-vested Company Contributions and any earnings
thereon will be forfeited.
Form
of Distribution
If you
have invested in Investment Options other than the LNC Stock Fund, you will
generally not receive a pro-rata share of the underlying securities or other
assets in which each Investment Option is invested at the time of your
distribution. Although the Plan Administrator may have the discretion
to direct the Plan Trustee to make an in-kind distribution from an Investment
Option, usually the Plan Trustee will distribute in cash the value of your
proportionate share of any Investment Option in which you are
invested. Distributions from the LNC Stock Fund will be made in whole
shares unless you elect that it be paid in cash. (See the Section entitled
“Fractional Shares” below for treatment of fractional share interests in LNC
Common Stock.)
Periodic Payments of Distributions
At
Retirement
As an
alternative to taking a lump sum distribution from the Plan, you may elect to
begin taking periodic withdrawals from your Plan account(s). These
periodic withdrawals are limited to one per calendar year and must be at least
equal to the greater of $5,000, or 20% of the value of your Plan account(s), or
you may elect to have all of your Account assets used to purchase a deferred
annuity contract. LNC or an Affiliate can provide you with
information on their deferred annuity contracts. If you have a
balance in your Plan account when you reach age 70½, this balance will be
automatically distributed to you on the April 1st following your attainment of
age 70½. (NOTE: If there is an outstanding loan balance at the time of
retirement, you must repay the entire amount before making periodic withdrawals
from the distribution amount).
At
Disability
If you
become eligible for a distribution from the Plan as the result of disability,
you may, as an alternative to taking a lump sum distribution, take periodic
withdrawals. These withdrawals are limited to one per calendar year and must be
equal to the greater of $5,000, or 20% of the value of your Plan account(s), or
you may elect to have all of your Account assets used to purchase a deferred
annuity contract. LNC or an Affiliate can provide you with
information on their deferred annuity contracts. (NOTE: If there is an
outstanding loan balance at the time of termination following disability, you
must repay the entire amount before making periodic withdrawals from the
distribution amount.) Disability is defined in the Section entitled
“Lump Sum Distributions” above.
At
Death
As an
alternative to taking a lump sum distribution of the entire balance of your Plan
account(s) at the time of your death, your beneficiary may elect to take
periodic annual withdrawals from the Plan during a period not to exceed (5)
years. These withdrawals are limited to one per calendar year and
must be at least equal to the greater of $5,000, or 20% of the value of your
Plan account(s). For example, if your Plan account value is $10,000 on the date
of your death, and you have designated two beneficiaries, each must take an
immediate distribution. (NOTE: If there is an outstanding loan
balance at the time of your death, your Account balance will be reduced by any
outstanding loan balance plus accrued interest before
distribution.)
Forfeitures
of Accounts
Breaks-In-Service. A
“break-in-service” occurs on the first month of the Plan Year following your
termination. For purposes of this Plan, “termination” means the
termination of your contract as a full-time life insurance agent with LNL (other
than by reason of retirement, disability—as defined in the section entitled
“Lump Sum Distributions” above—or death). A 5-year-break-in-service
is a period of five consecutive Plan Years, beginning with the Plan Year in
which you cease being a full-time life insurance salesman, a general agent, or
an employee of one of our affiliates on the last day of each Plan
Year. In the event that you forfeit amounts in your Company
Contribution account due to a break-in-service, and you do not incur a
5-year-break-in-service, such forfeited amount shall be re-credited to your
Company Contribution account upon your return to service as a full-time life
insurance salesman, a general agent, or our employee, and such accounts shall
continue to vest in accordance with the Plan’s vesting
schedule. For the purposes of determining a
break-in-service, any Plan Year in which you are absent from work on the last
day of the Plan Year on account of your pregnancy; the birth of your child; the
placement of a child in connection with your adoption of that child; or the care
of a child for a period beginning immediately after a child’s birth or placement
because of the preceding three reasons, and you are a full-time life insurance
salesman under the Federal Income Contributions Act, a general agent, or an
employee of one of our affiliates, on the last day of the Plan Year following
the Plan Year in which your absence occurs, shall not be counted in determining
the break-in-service. If you are no longer a full-time life insurance
salesperson, but not eligible to participate in the Plan and you become our
employee, but are ineligible to participate in any other plan, no further
contributions will be made on your behalf. You will, however,
continue to earn vesting service.
Fractional Shares
Interests
in fractional shares of our Common Stock will not be distributed in kind.
Rather, fractional share interests in Common Stock will be paid in cash based on
the market value of LNC Common Stock on the valuation date immediately preceding
the date of distribution or termination of service, as applicable.
Beneficiary Designation
You may
designate a beneficiary or beneficiaries to receive any securities and cash to
which you are entitled under the Plan in the case of your death. This
may be done through the Lincoln Alliance’s Web site at: www.LincolnAlliance.com,
or through the Customer Service Center: 800-234-3500. Your
beneficiary designation may also be changed or cancelled by you at any time
through the Web site or through the Customer Service
Center. Regardless of what you may have elected, if you are married
on the date of your death, your surviving spouse will be deemed to be your
beneficiary unless your surviving spouse has consented (in the manner required
by the Code) to another individual(s) being your beneficiary. To name
someone other than your spouse as beneficiary, you must submit a spousal consent
and waiver form to Lincoln Alliance. This can be obtained on the Web
site. Periodically and whenever you have a significant
life event, such as a divorce, you should review your beneficiary designation
carefully and contact Lincoln Alliance to change your beneficiary designation if
desired. If your designated beneficiary has predeceased you, then
payment shall be made to your surviving spouse, if any, or, if none, to your
estate.
Assignment and Qualified Domestic Relations Orders
No right
or interest of any Participant or beneficiary in the Plan is assignable or
transferable in whole or in part, either directly or by operation of law or
otherwise, including, without limitation, execution, levy, garnishment,
attachment, pledge, or bankruptcy, except in connection with a loan from the
Plan to a participant, or as provided under the terms of a qualified domestic
relations order (“QDRO”) (as defined in 414(p) of the Code) as determined by the
Plan Administrator.
The one
exception to the anti-assignment provision described above is distribution
pursuant to a QDRO. Upon our receipt of written notice from you or
your spouse of a pending domestic relations order, a domestic relations
restriction (“DRR”) will be placed on your Plan accounts. The DRR
will be removed only upon notice that no QDRO is forthcoming, or upon final
approval and disposition under a QDRO.
The Plan
Administrator has established a sample form, special rules, and procedures
relating to QDROs. You may request a copy of these procedures and the sample
form by contacting the Law Department directly at 260-455-2804. This
number is restricted to QDRO related requests only.
Amendment or Termination of Plan
By action
of our Board of Directors or its delegates, we may terminate or amend the Plan
or suspend the operation of any provision of the Plan, at any time, provided,
however, that:
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·
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no
amendment shall be made that will result in the recovery by us of any part
of a Company Contribution to the Plan, except under limited circumstances
as may be provided under the trust agreement and permitted under the
Code;
|
|
·
|
any
amendment that affects the rights and duties of the Plan Trustee may be
made only with the consent of the Plan
Trustee;
|
|
·
|
no
amendment of the Plan shall affect your rights with respect to the
continuance of vesting of such securities and cash attributable to Company
Contributions or earnings thereon;
and
|
|
·
|
upon
the termination or suspension of the Plan, your rights to the amounts
credited to your Plan account(s) as of the date of such termination or
suspension shall not be
forfeitable.
|
Administration
of the Plan
Plan
Trustee
The
Lincoln National Corporation Benefits Committee has the authority to appoint one
or more individuals or corporations to act as Plan Trustee. The Plan Trustee is
responsible for the custody, investment, and distribution of Plan
assets.
The Plan
Trustee, Wilmington Trust Company, Wilmington, Delaware, is a major banking
facility used in processing all contributions and distributions from the Plan.
Wilmington Trust is also the principal bank through which Lincoln National
Corporation (the “Corporation”) and Lincoln National Life (“LNL”) and their
affiliates make payments to participants and beneficiaries. The Plan
Trustee, in its capacity as trustee for various corporations and individuals,
may own shares of LNC Common Stock for and on behalf of its
beneficiaries.
The Plan
Trustee serves pursuant to the terms of a written trust agreement. This
agreement is available from the Corporation’s Human Resources Department or from
the Plan Administrator for inspection on request by Plan
participants. We may discharge or remove the Plan Trustee and appoint
a successor Plan Trustee upon 30 days written notice to the Plan Trustee;
provided, however, that such successor is a banking institution legally
qualified to serve as a Plan Trustee. In case of discharge or removal, the Plan
Trustee agrees to transfer the Trust assets to its named successor, and upon
such transfer, the Plan Trustee will be discharged and relieved of its
duties. In the event of discontinuance of the Plan, the Trust
Agreement may be discontinued by action of the Corporation’s Board of Directors
or the Committee; provided, however, that until all Plan assets in the Trust
have been distributed, the Plan Trustee will retain all the rights and powers
given to it by the Trust Agreement.
Plan
Administrator
The LNC
Benefits Committee (the “Committee”) is the Plan Administrator and Named
Fiduciary for the Plan. Our Chief Executive Officer appoints
Committee members. A listing of current members appears
below. Each member of the Committee is a named fiduciary, as that
term is defined by the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”). Each Committee member, as a fiduciary, has the
authority to control and manage the operation and administration of the
Plan. Members of the Committee receive no compensation from the
Plan. The Committee’s responsibilities include operating the Plan in
accordance with its terms; enforcing its provisions in an equitable and
non-discriminatory manner; determining all questions arising under the Plan
(including determinations of eligibility and of benefits payable); and directing
payments of benefits. In aid of its responsibilities, the Committee is empowered
to adopt rules and procedures necessary for the proper and efficient
administration of the Plan.
A
Committee member may resign by giving us and the other Committee members 10 days
written notice. In addition, we may remove a Committee member at any
time by giving advanced written notice to the member and to the other Committee
members.
MEMBERS
OF THE LINCOLN NATIONAL CORPORATION BENEFITS COMMITTEE
|
Name
|
Committee Title
|
|
|
|
|
Kim
Miner
|
Interim
Chairman
|
|
Audrey
Im
|
Secretary
|
|
John
Arko
|
Member
|
|
Matt
Geis
|
Member
|
|
Patricia
A. Insley
|
Member
|
|
Ania
Mixson
|
Member
|
|
Timothy
Sexton
|
Member
|
|
Rebecca
Silva
|
Member
|
The
business address of the Committee is: LNC Benefits Committee; c/o Kim
Miner, Interim Chair; 150 N. Radnor Chester Road, Building B, 2nd
Floor, Radnor, PA 19087-5238, Telephone (484) 583-1400.
Voting
of Shares
Voting
rights with respect to all securities held by the Plan will be exercised by the
Plan Trustee or by a proxy solicited by the Plan Trustee. You have
the right to direct the Plan Trustee in a voting of share equivalents in your
Common Stock account. If the Plan Trustee does not receive voting
instructions from all participants, the shares for which the Plan Trustee did
not receive instructions will be voted in the same proportion as the shares for
which the Plan Trustee receives instructions.
FEDERAL INCOME TAX CONSEQUENCES
The
following is a general discussion of the federal income tax consequences of
participation in the Plan, and on distributions from the Plan, based on the
current provisions of the Code and applicable regulations in effect as of the
date of this Prospectus. The actual tax consequences for any individual will
depend on his or her circumstances. Detailed information about how
taxes may affect your benefits and distributions under this Plan can be found in
IRS Publication 575, Pension and Annuity Income, which is available on the
public website of the Internal Revenue Service. YOU SHOULD CONSULT A QUALIFIED
TAX ADVISER TO DETERMINE THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO YOUR
INDIVIDUAL CIRCUMSTANCES.
Contributions. The
Plan is a qualified employee benefit plan under Section 401(a) of the Code.
Company Contributions to the Plan, as well as dividends paid on shares of our
Common Stock held in the Plan, are deductible, subject to certain restrictions,
by LNL for corporate federal income tax purposes under Section 404(a) of the
Code. Although your Pre-Tax contributions will not be subject to
federal income tax - social security taxes and federal unemployment taxes will
be withheld. In addition, depending on where you live and the tax
rules in effect in that jurisdiction, state and local taxes may be withheld from
your Pre-Tax Contributions.
Earnings. In
general, you will not be subject to federal income taxes on any earnings
accruing with respect to Company Contributions, your Pre-Tax contributions, and
any After-Tax Contributions or Rollover Contributions until such amounts are
distributed to you.
Loans. You
will not be taxed on loans from the Plan if the loans are repaid in accordance
with their terms.
Distributions. Amounts
distributed to you will be taxable as ordinary income to the extent that the
amounts received exceed the amount of your After-Tax Contributions, if
any. Until withdrawn, such After-Tax Contributions are referred to as
“Net Unrecovered Contributions.”
Stock
Distributions. With respect to the LNC Stock Fund, should you
receive all or part of a lump sum Plan payment in the form of shares of LNC
Common Stock (“in-kind delivery”), the excess of the fair market value on the
date of a total distribution over its cost basis (the “net unrealized
appreciation”) will not be taxed at the time of distribution. If
stock is received other than in a total distribution, only the net unrealized
appreciation attributable to nondeductible after-tax contributions will not be
taxed at the time of distribution. However, if you receive a lump sum
distribution of stock, you may elect to be taxed at the time of distribution
under procedures prescribed by the IRS in accordance with Internal Revenue Code
section 402(e)(4).
When you
are eligible to make a withdrawal or receive a distribution from the Plan, you
may elect to have the value of the LNC Stock Fund paid to you in:
|
2.
|
Shares
of LNC common stock (also referred to as “in-kind delivery”),
or
|
|
3.
|
A
combination of cash and shares of LNC
stock.
|
The
election can be specified on the Distribution Request form available from
Lincoln Alliance.
Should
you elect to receive any shares of LNC stock “in-kind”, you’ll receive
notification from Lincoln National Corporation’s transfer agent, BNY-Mellon when
the shares have been re-registered in your name. BNY-Mellon will then
hold the shares until receiving direction from you.
Should
you elect to receive any shares of LNC stock “in-kind”, but paid instead to a
“rollover institution”,
BNY-Mellon will send a credit notification statement to the rollover
institution. The credit notification statement provides instructions
to the rollover institution on how to transfer the shares to your
account.
The
process of receiving shares of LNC stock generally takes 10-17 business days
following receipt of a Distribution Form in good order.
You
should contact Lincoln Alliance Customer Service Center at 800-234-3500 with any
questions.
Dividends
on your LNC Common Stock that you elect to receive in cash are taxable income
and are not subject to the 10% excise penalty described below. You will receive
a Form 1099 DIV at year-end from Lincoln Alliance®,
reported with your W-2 information.
The Plan
is required to withhold 20% of any lump sum distribution to pay applicable
federal income taxes (excluding amounts attributable to After-Tax
Contributions), unless you rollover the distribution to an IRA or another
qualified employer plan, as described below. If you receive payment
of your benefit in the form of an annuity, however, you may elect whether or not
to have federal taxes withheld from each payment.
In
addition, you may be required to pay a 10% excise or penalty tax on the
distributed amounts that are taxable. The 10% penalty will not apply in certain
situations, including the following:
|
·
|
Your
account is paid to you after age
59½;
|
|
·
|
Your
account is paid to you after you leave LNL on or after the date you reach
age 55;
|
|
·
|
Your
account is paid to you or your beneficiary(ies) because of your death or
in most cases of disability (as defined in the Section entitled “Lump Sum
Distributions” above);
|
|
·
|
You
incur certain tax-deductible medical expenses for the
year;
|
|
·
|
Payment
is directed to another person pursuant to a qualified domestic relations
order;
|
|
·
|
Payment
is made in substantially equal installments over your life expectancy or
the joint life expectancy of you and your spouse/beneficiary (however, the
Plan does not currently offer a lifetime annuity option);
or
|
|
·
|
You
roll over or directly transfer the taxable amount of your account to an
IRA or another qualified employer-sponsored plan as defined by the Code
(e.g., an IRA or individual retirement account or annuity, or other
qualified plan (a “rollover”).
|
Roth 401(k)
Contributions. Your Roth 401(k) Contributions are after-tax contributions
and, as such, your contributions and earnings can be distributed to you tax-free
if considered a “qualified distribution”. In order for a distribution
from your Roth 401(k) Account to be considered a “qualified distribution” it
must be taken after death, disability or upon reaching age 59½; and
must occur at least five years after you make your first Roth 401(k)
contribution. You can roll your Roth 401(k) account into a Roth IRA
or to a new employer’s plan if it allows Roth 401(k) Contributions.
Rollovers. You
can also delay paying applicable taxes if you rollover all or part of your
distribution to another qualified employer-sponsored plan or individual
retirement account (IRA). A rollover defers taxation of the taxable
portion that is rolled over. The rollover can be “direct” or
“indirect.” Indirect Rollovers must be made within 60 days of receipt
of the distribution and are subject to rules that differ from the direct
rollover rules. If you do not elect a direct transfer of the
entire lump-sum distribution, the Plan is required to withhold 20% of the
taxable portion of the distribution to pay federal income taxes.
Generally, in cases where the
participant has died, the same tax rules apply to distributions taken by the
participant’s beneficiary as would have applied to the participant. A
beneficiary who is the surviving spouse of the participant may be eligible to
rollover the distribution. Effective on or after January 1, 2008, a
non-spouse beneficiary of a deceased Participant may rollover any amount
inherited as beneficiary to an “inherited IRA” in accordance with IRS rules and
regulations.
YOUR RIGHTS AND PROTECTIONS UNDER ERISA
The Plan
is subject to many of the provisions of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”). ERISA requires certain kinds of
reporting and disclosure of information regarding the Plan and its investments
to government agencies and participants. ERISA also imposes stringent
standards of fiduciary responsibility, and prohibits transactions with
parties-in-interest for which there is no available
exemption. Because the Plan is an individual account and
profit-sharing plan it is not subject to the funding standards of Title I of
ERISA, or covered by the Plan termination insurance program of Title IV of
ERISA, which is administered by the Pension Benefit Guaranty
Corporation.
The Plan
is intended to comply with Section 404(c) of ERISA. If the Plan meets
the various requirements of Section 404(c), you are responsible for investing
the assets in your Plan account(s) among the investment options offered, and
neither we nor the Plan fiduciaries are liable for any investment losses you may
experience as a direct result of your investments in the Plan. Among
the requirements of Section 404(c) is that you must be provided with meaningful
investment information periodically, so that you are provided with the
opportunity to exercise meaningful, independent control over the assets in your
Plan account(s).
You can
obtain more information about the Plan, including a description of the annual
operating expenses of each Investment Option offered through the Plan, copies of
financial reports for each Investment Option, and copies of the Plan’s
confidentiality procedures. These materials may be made available at
a nominal charge. Please contact Ann Madden, Benefits Analyst,
Pension and Savings Plan Administration (260) 455-3025, or Human Resources,
1C-07, 1300 S. Clinton Street, Fort Wayne, Indiana 46802, for more
information.
As a
participant in the Plan, you are entitled to certain rights and protections
under ERISA.
The
Right to Receive Information About the Plan
ERISA
provides that all Plan participants are entitled to:
|
·
|
Examine,
without charge, at the Plan Administrator’s office and at other locations,
all Plan documents, including insurance contracts and a copy of the latest
annual report (Form 5500 Series) filed by the Plan Administrator with the
U.S. Department of Labor and available at the Public Disclosure Room of
the Pension and Welfare Benefit
Administration.
|
|
·
|
Obtain,
upon written request to the Plan Administrator, copies of all Plan
documents, including insurance contracts, copies of the latest annual
report (Form 5500 Series) filed by the Plan Administrator with the U.S.
Department of Labor, and updated summary plan description. The
Plan Administrator may make a reasonable charge for the
copies.
|
|
·
|
Receive
a summary of the Plan’s annual financial report. The Plan Administrator is
required by law to furnish each Participant with a copy of this summary
annual report when requested.
|
The
Right to Prudent Action by Fiduciaries
In
addition to creating rights for Plan participants, ERISA imposes duties upon the
persons who are responsible for the operation of the Plan. The
persons who operate the Plan, called fiduciaries, have a duty to do so prudently
and in the interest of Plan participants, and
beneficiaries. Fiduciaries who violate ERISA may be removed and
required to repay losses they have caused to the Plan.
Enforce
Your Rights
No one,
including a company, a union, or any other person, may fire or otherwise
discriminate against you in any way to prevent you from obtaining a Plan benefit
or exercising any of your rights under ERISA. If your claim for Plan
benefits is denied in whole or in part, a written explanation of the reason for
the denial must be provided to you or to your designated
representative. You have the right to have the Plan Administrator
review and reconsider your claim. Under ERISA, there are steps that
you can take to enforce the above rights.
For
instance, if you request materials from the Plan Administrator and you do not
receive them within 30 days, you may file suit in a federal court to obtain the
information. In such a case, the court may require the Plan
Administrator to provide the materials and pay up to $110 a day until the
materials are provided, unless the materials were not sent because of reasons
beyond the control of the Plan Administrator.
If you
have a claim for benefits that is denied or ignored, in whole or in part, you
may sue for those benefits in a state or federal court (you should first check
with the Plan Administrator on your claim and also use the Plan’s appeal
process, as applicable). If you believe that the Plan’s fiduciaries
are misusing the Plan’s money, or if you believe that you are being
discriminated against for asserting any of your rights, you may seek assistance
from the U.S. Department of Labor, or you may sue in a federal
court. The court will decide who should pay court costs and legal
fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, however, the court may
order you to pay these costs and fees, for example, if it finds your claim was
frivolous. If you have any questions about the Plan, you should
contact the Plan Administrator.
If you
have any questions about this statement, or about your rights under ERISA, or if
you need assistance in obtaining documents from the Plan Administrator, you
should contact the nearest office of the Employee Benefits Security
Administration, U.S. Department of Labor, listed in your telephone directory or
the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications
hotline of the Employee Benefits Security Administration.
ERISA CLAIMS PROCEDURES
If we
determine that you or your beneficiary is entitled to benefits under this Plan,
you will be notified in writing or electronically of your entitlement to such
benefits, and we will provide you with the proper forms to apply for and elect
such benefits.
If you or
your beneficiary feels that you are not receiving a Plan benefit that you
should, you may file a written claim for that benefit with the Claims
Administrator. Please address any such claims to the Claims
Administrator for this Plan (see section entitled “Important Information about
the Plan”, below). The Claims Administrator will decide whether to grant or deny
your claim. If your claim is denied, within 90 days after filing your
claim you will receive a written notice explaining the specific reason(s) for
denial, the Plan provisions that support the decision to deny the benefit, a
description of any additional information needed to review your claim request,
instructions for requesting a review of your denied claim and a description of
those review, or “appeal” procedures and the time limits applicable to such
procedures, including a statement of your right to bring a civil action under
ERISA section 502(a). If special circumstances require an extension
of time for processing the claim, you will receive written notice of the
extension prior to the end of the 90-day period.
You will
have a chance, within 60 days after you receive this written notice, to ask for
a review by the Claims Administrator of your claim and its
denial. Upon your request, you may also receive, at no cost to you,
copies of all documents, records and other information relevant to your
claim. You and/or your beneficiary may submit written issues comments
to the Claims Administrator. Your claim will then be reviewed by the Claims
Administrator. Generally, you will receive written notice of the
final decision of the Claims Administrator within 60 days after your request for
a review. If special circumstances require a 60-day extension of time
to review the decision, you will receive notice of the extension within the
60-day period (with extension, this review must be concluded within 120
days).
If your
claim is denied, the Claims Administrator will notify you either in writing or
electronically within the applicable day period specified above and will explain
the specific reason(s) for denying your appeal, the Plan provisions that support
the decision to deny your appeal, and a statement of your right to bring a civil
action under ERISA section 502(a). Under such circumstances, you have
the right to bring a legal action within 90 days of the date you are informed
that your appeal has been denied. If you fail to bring a timely court
action, your claim will be permanently denied.
IMPORTANT INFORMATION ABOUT THE PLAN
The
Plan Sponsor:
The Plan
Sponsor is The Lincoln National Life Insurance Company. As Plan
Sponsor, The Lincoln National Life Insurance Company reserves the right to
terminate or amend this Plan at any time, by action of its Boards of
Directors.
The
Plan Administrator and Named Fiduciary:
The
Lincoln National Corporation Benefits Committee
150 N.
Radnor Chester Road
Radnor,
PA 19087-5238
Telephone:
(484) 583-1400
The
Plan Trustee:
Wilmington
Trust Company
1100
North Market Street
Wilmington,
DE 19890-0455
Recordkeeper
and Claims Administrator:
Lincoln
Retirement Services Company, L.L.C.
3800
North Wilke Road, Suite 250
Arlington
Heights, IL 60004
Participating
Employers:
The
Lincoln National Life Insurance Company
Lincoln
Life & Annuity Company of New York
Lincoln
Financial Advisors Corporation
Plan
Year:
January
1st
through December 31st
Agent
for Service of Legal Process:
Dennis L.
Schoff, General Counsel
Lincoln
National Corporation
150 N.
Radnor Chester Road
Radnor,
PA 19087
Identification
Numbers:
The
Employer Identification Number assigned to The Lincoln National Life Insurance
Company by the Internal Revenue Service is: 35-0472300.
The
Employer Identification Number assigned to the Lincoln National Corporation
Benefits Committee by the Internal Revenue Service is: 35-1620788.
The Plan
number is 006.
Top
Heavy Rules:
The
Internal Revenue Code provides a complicated set of rules for determining
whether the Plan is “top heavy”. Stated simply, the Plan is top heavy
if the value of aggregated account balances belonging to “key employees” exceeds
the aggregated account balances belonging to the non-key
employees. Key employees are generally officers and other highly
compensated individuals.
If the
Plan became “top heavy”, the Plan’s benefits and vesting schedule would be
enhanced. We would notify you in the unlikely event that the Plan ever became
top heavy.
General Legal
Note: The summary of the Plan contained in this Prospectus is
not intended to be the legally controlling Plan document. Where there
is a discrepancy between the summary of the Plan and the terms and provisions of
the Plan document, the terms and provisions of the Plan document
control. Neither the Plan document, the summary of the Plan document
contained in this Prospectus, or your rights to any benefits provided under the
Plan constitutes a contract of employment.
VALUATION OF INVESTMENTS
Securities
authorized for investment under the Plan will be valued each day the New York
Stock Exchange is open for business. Depending on the type of
security being valued, a determination of value is based on: the closing price
of the security on an exchange on which such securities are listed; the average
bid quotations for such securities; quotations from other sources deemed by the
Plan Administrator to be reliable as fairly reflecting the market price or
redemption price of the securities; the value as reported by an insurance
company with respect to a segregated investment account in which the Plan
invests; or the average sale or purchase price of the securities when the Plan
Trustee is required to sell or purchase securities on the open market to comply
with the requests of participants.
All of the Investment Options,
including the LNC Stock Fund (discussed in more detail below), are
unitized. That means that if you invest in any Plan Investment
Option, you and other investors own a pro-rata portion of all of the securities
that may be in the Investment Option (e.g., stocks, bonds, shares of mutual
funds, or units of variable insurance trust funds other investment options –
whatever the manager of the investment account has chosen to invest in to meet
its investment objectives), as well as a pro-rata portion of the cash held by
the Investment Option for liquidity purposes.
The value
of a unit of any Investment Option is determined by adding the value of all
securities in the Investment Option, plus the cash or value of the money market
units, then dividing the total value of the Account by the total number of
outstanding units issued by the Investment Option. For the LNC Stock
Fund, the value of a unit is calculated each day by dividing the current value
of all LNC Common Stock in the Account, plus any cash, by the total number of
units allocated to participant Plan accounts. Some accounts, such as
the LNC Stock Fund, hold units of a money market account rather than actual cash
to satisfy liquidity needs. The cash or money market units are used
to execute daily transactions, thus avoiding the need for the manager to sell
shares of stock on the open market and wait to receive the cash proceeds from
the sale to satisfy a participants’ transfer or redemption
transaction.
The
valuation date for loans, withdrawals and transfers is the date your request,
via the Lincoln Alliance Customer Service Center or via the Web site at
www.LincolnAlliance.com, is received and confirmed, as long as your call is
received prior to 3 p.m. (Central Time) on a business day (otherwise the next
business day). The valuation date for all other distributions will be
no later than the second business day after receipt of your correctly completed
distribution form. The valuation date for new agent contributions, LNL
contributions and loan repayments is the date on or following a payday on which
such payments are received by the Plan Trustee for investment.
YOUR INVESTMENT OPTIONS
Investment
Supplement – Effective October 1, 2008
Last
updated for Investment Performance – October 31, 2009
Depending
on your investment needs and objectives you may decide to concentrate or
diversify the assets currently credited to your Plan accounts, among the various
Investment Options described below. You may also wish to allocate any
future contributions made to your Plan account--your Pre-Tax Contributions, Roth
401(k) Contributions, Company Basic Matching Contributions, any Company
Discretionary Matching Contributions, and any other Company contributions that
you may be eligible to receive (collectively, “Contributions”)--among these
Investment Options.
Lincoln
Retirement Solutions Company, through the Lincoln
Alliance® program (“Lincoln Alliance”), is the Plan’s recordkeeper and
administrator. Lincoln Alliance will deem any investment direction(s)
you give them to be continuing directions until you affirmatively change
them. If you have not provided Lincoln Alliance with specific
investment directions for your Plan accounts, Lincoln Alliance will
automatically invest your Pre-Tax Contributions and/or Roth 401(k) Contributions
into the Plan’s current default investment option, the Delaware Moderate
Allocation I Fund (a mutual fund). Your Company Basic Matching
Contributions and any Company Discretionary Matching Contributions will be
invested in the same Investment Options that you have elected for your Pre-Tax
Contributions, or the Plan’s current default investment option if you have not
provided Lincoln Retirement Solutions with specific investment
directions. The Delaware Moderate Allocation I Fund is considered a
Qualified Default Investment Alternative under Department of Labor
regulations. Contributions that are invested in the Delaware Moderate
Allocation I Fund in the absence of your investment direction will remain in
this Fund, unless and until you affirmatively elect to transfer such assets to
another Investment Option.
Trading Restriction &
Other Limitations.
Unless
prohibited by trading restrictions imposed by the Plan, the various Investment
Options, or the rules and regulations pertaining to insider trading in LFG
securities, you may change your investment directions with respect to future
Contributions at any time. You may also transfer part or all of your
current Plan account balances from one Investment Option to another Investment
Option, again subject to any trading restrictions imposed by the Plan, the
Investment Options involved, and our rules against insider
trading. Any changes to your current investment directions, or
transfers permitted among Investment Options, will be effective on the date the
transaction is processed via Lincoln Alliance’s Web site at: www.LincolnAlliance.com,
or through the Customer Service Center: 800-234-3500.
If you
are a Section 16 Insider, any reallocation of current investments from other
Investment Options into the LNC Stock Fund, changes to your investment
directions involving future contributions into the LNC Stock Fund (increasing or
decreasing investment), and certain other transactions, will not be permitted at
any time without pre-clearance through our Law Department. For
officers and certain other employees in the company, reallocations and changes
to investment directions involving the LNC Stock Fund will be restricted to
“open window” periods during which the individual is not restricted from
trading. For more information about the trading restrictions relating
to the LNC Stock Fund and whether they apply to you, please refer to the LFG
Insider Trading & Confidentiality Policy, which is posted at: http://inside.lfg.com/lfg/DOCS/pdf/coc/plc/InsiderTradingPolicy.pdf.
Transfers
out of the Lincoln Stable Value Account are subject to a “90-Day Equity Wash”
requirement. This means that if you wish to move money out of
the Lincoln Stable Value Option into a competing option, you must first "wash
it" by moving the money into a (non-competing) equity investment option for a
minimum of 90 days. After the 90 days are up, the money can be moved into
a competing fund without penalty or further restriction. With one
exception, none of the other current Investment Options offered by the Plan are
considered funds that "compete" with the Lincoln Stable
Value. However, because funds that are considered “competing funds”
will be available through the Self-Directed Brokerage Account (the “SDBA”), when
available, the SDBA may become considered a competing fund. In the
unlikely event the SDBA is considered a competing fund and you wish to move
money from the Lincoln Stable Value Account into the SDBA, you would need to
move the money into one of the other Plan Investment Options first, leave it
there for at least 90 days, and then move it into the SDBA.
Transfers out of the Lincoln Stable
Value Account may also be limited or delayed during calendar quarters when
current interest rates are higher than the five-year historical
average.
In order
to prevent market timing, excessive trading, and similar abuses, the managers of
the various Investment Options may impose additional trading restrictions or
redemption fees triggered by certain kinds of trades or trading
activities. For mutual fund investment options, please see the
relevant prospectus for information on trading restrictions or applicable
redemption fees. For collective investment trust options, please
consult the relevant disclosure statements for such
information. These documents are available on Lincoln Alliance’s web
site at: www.LincolnAlliance.com,
or by requesting them through the Customer Service Center:
800-234-3500. Other than the 90-day Equity Wash requirement described
above, the Lincoln Stable Value Account investment option is not subject to any
market timing or excessive trading restrictions or redemption
fees. The LNC Stock Fund is not subject to any market timing or
excessive trading restrictions or redemption fees.
Investments in the
Plan.
The Plan
Trustee, Wilmington Trust Company, will invest your Contributions as soon as
reasonably possible after receipt, in accordance with your investment directions
and the provisions of the Plan. In addition to purchasing shares of
our Common Stock on the open market, the Plan Trustee may from time to time
purchase authorized and unissued shares directly from us, or purchase
outstanding shares directly from our shareholders. Under the terms of the Plan,
certain fees, commissions, and other expenses for these transactions will be
charged to the Plan.
In
deciding how to invest your Plan account, you should carefully consider which
Investment Options are right for you. You should read the following
information carefully when making Plan investment decisions about these
Investment Options. You can find additional information about the
various Investment Options, including performance data, by visiting Lincoln
Alliance’s Web site: www.LincolnAlliance.com
and viewing and/or downloading the various mutual fund prospectuses and
collective investment trust disclosure statements. This
information will help you to understand the differences between the various
Investment Options and choose among them knowledgeably. The
information provided to you in the following description of Investment Options
should not be construed as an investment recommendation for any particular
Investment Option.
Comparative
Performance of Investment Options
In
general, the following table sets forth the annualized yield earned on the
Investment Options currently offered by the Plan over certain periods of
time—assuming the reinvestment of dividends and interest. All rates
of return represent past performance and are not necessarily indicative of
future performance. Many conditions affecting performance--such as
inflation, business growth and interest rates--may be different in the
future. Investment return and principal value may fluctuate with
changes in market conditions so that when you withdraw your investment it may be
worth more or less than the original amount invested. The table below
has been prepared to assist you in making your investment directions under the
Plan. However, the value of this information is limited, and we
recommend that you consult a qualified investment adviser before making any
investment decisions.
The
performance figures have been reduced to reflect some, but not all, of the fees
and expenses affecting the Investment Option. Except as otherwise
stated in the description of “Expense” for each Investment Option, the “Net
Expense Ratio” of an Investment Option reflects reductions in the performance
figures due to investment management fees, contract fees and other operating
expenses. Please see the description of “Expense” for each Investment
Option for more detail about these fees and expenses, as well as for any
additional fees and expenses, which, if shown, would have the effect of further
reducing the performance figures. In cases where the charges were not
included, please note that the performance figures would be reduced if such
expenses were deducted from performance data.
|
Fund
Performance – Average Annual Total Return*
|
|
|
|
Performance
as of
10/31/2009
|
Performance
as of
Quarter
Ending
9/30/2009
|
Expense
Ratio %
|
|
Ticker
|
3
Months
|
1
Year
|
3
Years
|
5
Years
|
Inception
Date
|
1
Year
|
5
Years
|
*
10
Yrs.
Or
Since
Inception
|
Gross
Expense
Ratio
|
±
Net
Expense
Ratio
%
|
|
Stock-Based Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
American
Funds Grth Fund of Amer R5
|
RGAFX
|
4.09%
|
16.09%
|
-4.60%
|
2.99%
|
May-02
|
-1.99%
|
3.89%
|
4.28%
|
0.40
|
0.40
|
|
Columbia
Acorn Z
|
ACRNX
|
5.46%
|
19.42%
|
-4.74%
|
3.54%
|
Jun-70
|
-1.09%
|
4.93%
|
9.48%
|
0.76
|
0.76
|
|
Delaware
Intl Equity Trust
|
---
|
7.67%
|
31.69%
|
---
|
---
|
Oct-08
|
---
|
---
|
14.37%
|
0.90
|
0.90
|
|
Delaware
Large Cap Growth Trust
|
---
|
5.48%
|
18.34%
|
---
|
---
|
Oct-08
|
1.04%
|
---
|
1.04%
|
0.70
|
0.70
|
|
Delaware
Lg Cap Value Trust
|
---
|
5.44%
|
11.88%
|
---
|
---
|
Oct-08
|
-3.01%
|
---
|
-3.01%
|
0.70
|
0.70
|
|
Delaware
Mid Cap Value I
|
DLMIX
|
5.12%
|
15.34%
|
---
|
---
|
Feb-08
|
-4.72%
|
---
|
-10.42%
|
3.50
|
1.00
|
|
Delaware
Small Cap Growth Trust
|
---
|
4.77%
|
19.97%
|
---
|
---
|
Oct-08
|
---
|
---
|
-3.26%
|
0.80
|
0.80
|
|
Dodge
& Cox International Stock
|
DODFX
|
7.74%
|
36.90%
|
-3.65%
|
6.98%
|
May-01
|
6.77%
|
8.34%
|
8.73%
|
0.64
|
0.64
|
|
Harbor
International Growth Instl
|
HAIGX
|
4.15%
|
29.90%
|
-4.98%
|
5.39%
|
Nov-93
|
-0.18%
|
6.91%
|
-2.77%
|
0.92
|
0.92
|
|
Vanguard
Extended Market Idx Instl
|
VIEIX
|
3.64%
|
15.41%
|
-6.37%
|
2.24%
|
Jul-97
|
-3.80%
|
3.94%
|
4.05%
|
0.09
|
0.09
|
|
Vanguard
Institutional Index
|
VINIX
|
5.47%
|
9.95%
|
-6.97%
|
0.36%
|
Jul-90
|
-6.76%
|
1.05%
|
-0.11%
|
0.05
|
0.05
|
|
Allocation Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware
Foundation® Conservative Allocation Fund
|
DFIIX
|
5.39%
|
25.89%
|
3.31%
|
5.07%
|
Dec-97
|
15.93%
|
5.29%
|
4.41%
|
1.32
|
0.90
|
|
Delaware
Foundation® Moderate Allocation Fund
|
DFFIX
|
5.54%
|
24.80%
|
0.54%
|
4.25%
|
Dec-97
|
11.76%
|
4.61%
|
3.70%
|
1.31
|
0.90
|
|
Delaware
Foundation® Growth Allocation Fund
|
DFGIX
|
5.62%
|
24.50%
|
-2.48%
|
3.21%
|
Dec-97
|
8.07%
|
3.71%
|
2.54%
|
1.42
|
0.90
|
|
Bond-Based Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware
Diversified Income Trust
|
---
|
6.16%
|
28.89%
|
---
|
---
|
Oct-08
|
---
|
---
|
24.66%
|
0.70
|
0.70
|
|
Cash and Stable Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Lincoln
Stable Value Account
|
---
|
1.13%
|
4.79%
|
4.78%
|
4.42%
|
May-83
|
4.83%
|
4.41%
|
5.06%
|
0.09
|
0.09
|
|
Employer Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
LNC
Stock Fund
|
LNC
|
12.09%
|
38.48%
|
-26.71%
|
-10.85%
|
---
|
-31.61%
|
-10.62%
|
-3.41%
|
---
|
---
|
*Average
annual total return for period specified or since inception if the fund's age is
less than the number of years shown.
± Expense
ratios are net of any temporary fee waiver currently in
effect. Please see the description of “Expense” for each option for
more detail.
Types
of Investment Options
Collective Investment
Trusts. A collective investment trust or “CIT” is an
investment fund that is similar to a mutual fund in that it invests in stocks,
bonds, and other investments. However, CITs are exempt from
registration with the Securities and Exchange Commission (“SEC”) as an
investment company under the Investment Company Act of 1940 (the “1940 Act”) and
are therefore not subject to the same fees, expenses and regulatory
requirements—or regulatory protections—as mutual funds. Collective
investment trusts may only hold the assets of qualified retirement and
government plans, including 401(k) plans, Taft-Hartley plans, profit sharing and
cash balance plans, and governmental 457 plans. An investor in a CIT
holds a “unit” of the trust. This investment is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, or entitled to the protections of the 1940 Act.
In
addition to the quoted net expense ratios, other expenses, including legal,
auditing, custody service and tax form preparation, investment and reinvestment
expenses may apply with respect to your CIT investment. The CITs
offered by the Plan are maintained by Wilmington Trust Retirement and
Institutional Services Company (“WTRIS”) formerly known as AST Capital Trust
Company of Delaware, a Delaware state chartered trust company. WTRIS
is an independent trust company and is not an affiliate of Lincoln National
Corporation. WTRIS is a wholly owned subsidiary of Wilmington Trust
Company FSB.
Participation
or investment in a CIT is governed by the terms of the trust and participation
materials. An investor should carefully consider the investment
objectives, risks, and charges and expenses of the CIT before
investing. The disclosure statement for each CIT contains this and
other important information and should be read carefully before investing or
sending money. For disclosure statements, please contact Lincoln Alliance’s
Customer Service Center at: 800-234-3500, or visit its web site at: www.LincolnAlliance.com.
Mutual
Funds. Mutual funds invest in stocks and bonds and other
investments and are registered with the SEC as an investment company under the
1940 Act. Investors in a mutual fund are “shareholders” in a fund
with all of the rights and protections provided by the 1940 Act. With
respect to a mutual fund investment option, an investor should carefully
consider the investment objectives, risks, charges and expenses of the
investment company before investing. The prospectus for the mutual
fund contains this and other important information and should be read carefully
before investing or sending money. For prospectuses, please contact
Lincoln Alliance’s Customer Service Center at: 800-234-3500, or visit its web
site at: www.LincolnAlliance.com.
Insurance
Products. The Lincoln Stable Value Fund is a fixed annuity
issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, 46802, on
Form 28866-SV and state variations thereof. Guarantees are based upon the
claims-paying ability of the issuer. Contributions received in any
quarter will earn interest at the portfolio rate in effect for the quarter, with
a minimum guaranteed interest rate.
Employer
Securities. The primary purpose of the LNC Stock Fund is to
allow you to invest in the securities of your employer, Lincoln National
Corporation. For a description of the risks associated with
investment in Lincoln National Corporation, please refer to the Risk Factors
beginning on page 5 and Lincoln National Corporation’s filings with the SEC
incorporated by reference herein (see “Documents Incorporated by Reference” on
page 73).
Self-Directed Brokerage
Account. A Self-Directed Brokerage Account or “SDBA” allows
you to invest in certain securities offered by a brokerage company selected by
the Plan Administrator. In order to have access to the Plan’s SDBA,
you must complete an application with TDAmeritrade to open a brokerage account
with them. You must also complete a consent and waiver form to be
used by our legal and compliance departments acknowledging the risks associated
with investing through a SDBA, providing certain information about yourself, and
agreeing that information about your SDBA transactions will be periodically
provided to the Company’s law and compliance departments. The SDBA is not open yet but will be
available at the discretion of the Plan Administrator.
Risks
Associated with the Investment Options
It is
important to keep in mind one of the main axioms of investing: the higher the
risk of losing money, the higher the potential reward. The reverse,
also, is generally true: the lower the risk, the lower the potential
reward. As you consider investing in the Plan’s Investment Options,
you should take into account your personal risk
tolerance. Diversification within your investment portfolio can
reduce risk. Recent events in the financial sector and the
corresponding market volatility reinforces the importance of a well-diversified
portfolio, which is one of the most effective ways to ride out short-term market
fluctuations. When you diversify your portfolio – whether by
investing in a ready-mixed fund with exposure to a number of investment sectors,
or by investing in a number of funds representing different asset classes or
styles – you can potentially reduce risk and increase your exposure to various
market opportunities.
The
Investment Options are subject to one or more risks which are described in
summary fashion in the section entitled “Primary Risks” for each Option, and in
greater detail in the prospectus materials (for mutual funds), disclosure
statements (for collective investment trusts), and miscellaneous disclosure
materials referenced in this document. Please remember that this
Investment Supplement is only a summary of those primary disclosure materials,
and is not intended to replace or supersede those materials. Before
investing, you should review the full explanation of risks associated with each
investment before making a decision to invest. Copies of the
prospectuses and disclosure statements for mutual funds and collective
investment trusts are available by contacting Lincoln Alliance’s Customer
Service Center at: 800-234-3500, or visiting its web site at: www.LincolnAlliance.com.
The
following are summaries of the Prospectuses and Disclosure Statements related to
the various options available. You should read the full Prospectuses
and Disclosure Statements for an explanation of the Funds and risks involved in
investing in any one of the funds.
Stock-Based Investments
American
Funds Growth Fund of Amer R5 (Mutual Fund)
|
·
|
Investment
Objectives: The
Fund seeks to provide growth of capital. The benchmark for this
Fund is the S&P 500/Citigroup Growth Index. The S&P/Citigroup
Growth Index is a capitalization-weighted index that measures the
performance of S&P 500 companies that exhibit strong growth
characteristics, including higher earnings growth
rates.
|
|
·
|
Investment
Strategies: The
Fund invests primarily in common stocks of companies that appear to offer
superior opportunities for growth of capital. The Fund may also
hold cash or money market instruments. The Fund may invest up
to 15% of its assets in securities of issuers domiciled outside the United
States and Canada and not included in Standard & Poor’s 500 Composite
Index. The Fund may invest up to 10% of its assets in lower
quality nonconvertible debt
securities.
|
|
·
|
Primary
Risks: This Fund is designed for investors with a
long-term perspective who are able to tolerate potentially wide price
fluctuations as the growth-oriented equity-type securities generally
purchased by the Fund may involve large price swings and potential for
loss. In general, investment in the
Fund is subject to risks, including the possibility that the value of the
Fund's portfolio holdings may fluctuate in response to events specific to
the companies or markets in which the Fund invests, as well as economic,
political or social events in the United States or abroad.For
specific definitions/explanations of the risks associated with investments
in this Fund, please see the prospectus for this
Fund.
|
|
·
|
Manager: Capital
Research and Management Company is the investment
advisor.
|
Columbia
Acorn Fund (Mutual Fund)
|
·
|
Investment
Objectives: The
Fund seeks long-term capital appreciation. The long-term
investment objective is compared to those of the Russell 2500 Index, the
fund’s primary benchmark, the S&P 500®
Index and the Russell 2000
Index.
|
Investment
Strategies: Under normal
circumstances, the Fund invests a majority of its net assets in small-
and mid-sized companies with market capitalizations under $5 billion at the time
of investment. The Fund may also invest up to 33% of its assets in
foreign companies in developed markets such as Japan, Canada and the United
Kingdom and in emerging markets such as China, India and Brazil.
|
·
|
Primary
Risks: Emerging Markets Securities
Risk, Foreign Securities Risk, Industry Sector Risk, Investment Strategy
Risk, Market Risk, Small Company Securities Risk. For
specific definitions/explanations of these types of risks, please see the
prospectus for this Fund. In general, investments in small- and
mid-cap companies may be subject to greater volatility and price
fluctuation because they may be thinly traded and less liquid, and may be
affected by stock market fluctuations due to economic and business
development. This Fund may invest in foreign securities, which
may be subject to greater volatility than domestic
investments.
|
|
·
|
Manager: Columbia
Wanger Asset Management, L.P.
|
Delaware
International Equity Trust (Collective Investment Trust)
|
·
|
Investment
Objectives: The
Trust seeks long-term capital appreciation without undue risk to
principal. The benchmark for the Trust is the MSCI®
EAFE Index.
|
|
·
|
Investment
Strategies: The
Trust is invested primarily in equity securities of issuers from foreign
countries. The sub-advisor for the Trust, Delaware Investment
Advisors (“DIA”), believes that the potential for strong returns can be
realized by assembling an international portfolio of fundamentally strong
companies that have superior business prospects and that are priced below
DIA’s estimate of their intrinsic value. In selecting foreign
stocks, DIA’s philosophy is based on the concept that adversity creates
opportunity and that transitory problems can be overcome by well-managed
companies. DIA focuses on out-of-favor stocks that have the
potential to realize their intrinsic value within a three to five year
time horizon. The Trust may purchase securities in any foreign
country, developed or emerging; however, it is currently anticipated to
invest in Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Italy, Japan, Korea, Mexico, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Taiwan, and the United
Kingdom.
|
|
·
|
Primary
Risks: Call Risk, Credit Risk,
Currency Risk, Derivatives Risk, Emerging Market Risk, Foreign Government
and Supranational Securities Risk, High-Yield, High Risk Foreign
Fixed-Income Securities Risk Industry and Security Risk Inefficient Market
Risk, Information Risk Interest Rate Risk, International Risk, Liquidity
Risk, Manager Risk, Market Risk, Political Risk, Small Company Risk,
Transactions Costs Risk, Turnover Risk. For specific
definitions/explanations of these types of risks, please see the
disclosure statement for this Trust. In general, foreign investments
are subject to risks not ordinarily associated with domestic investments,
such as currency, economic and political risks, and different accounting
standards. Securities of issuers from emerging market countries may be
more volatile, less liquid, and generally more risky than investments in
issuers from more developed foreign countries.
|
|
·
|
Manager: Wilmington
Trust Retirement and Institutional Services Company (the “Trustee”),
formerly known as AST Capital Trust Company, serves as the Trustee of the
Trust and maintains ultimate fiduciary authority over the management of,
and investments made, in the Trust. The Trustee is a wholly
owned subsidiary of Wilmington Trust FSB and a Delaware State chartered
trust company. The Trustee has engaged Delaware Investment
Advisers, a series of Delaware Management Business Trust, to act as the
investment sub-advisor to the
Trust.
|
|
·
|
Expense:
0.90%. The Trust will be charged with certain operating
expenses, including, without limitation, audit expenses, custody services
fees, tax form preparation expenses, legal and other
fees.
|
Delaware
Large Cap Growth Trust (Collective Investment Trust)
|
·
|
Investment
Objectives: The
Trust seeks long-term capital appreciation. The benchmark for
this Trust is the Russell 1000®
Growth Index.
|
|
·
|
Investment
Strategies: The
Trust is invested primarily in equity securities of large-capitalization
companies that the Trust’s sub-advisor, Delaware Investment Advisors
(“DIA”), believes have the potential for sustainable free cash flow
growth. The Trust currently considers a “large-capitalization
company” to be a company within the range of market capitalization of
companies in the Russell 1000 Growth Index at the time of
purchase.
|
|
·
|
Primary
Risk: Credit
Risk, Futures and Options Risks, Industry and Security Risk, International
Risk, Liquidity Risk. For
specific definitions/explanations of these types of risks, please see the
disclosure statement for this Trust. In general, because
this Trust expects to hold a more concentrated portfolio of a limited
number of securities, a decline in the value of these investments would
cause the Trust’s overall value to decline to a greater degree than a less
concentrated portfolio. Foreign investments are subject to risks not
ordinarily associated with domestic investments, such as currency,
economic and political risks, and different accounting
standards.
|
|
·
|
Manager: Wilmington
Trust Retirement and Institutional Services Company (the “Trustee”),
formerly known as AST Capital Trust Company, serves as the Trustee of the
Trust and maintains ultimate fiduciary authority over the management of,
and investments made, in the Trust. The Trustee is a wholly
owned subsidiary of Wilmington Trust FSB and a Delaware State chartered
trust company. The Trustee has engaged Delaware Investment
Advisers, a series of Delaware Management Business Trust, to act as the
investment sub-advisor to the
Trust.
|
|
·
|
Expense:
0.70%. The Trust will be changed with certain operating
expenses, including, without limitation, audit expenses, custody service
fees, tax form preparation expenses, retirement plan platform fees, legal
and other fees.
|
Delaware
Large Cap Value Trust (Collective Investment Trust)
|
·
|
Investment
Objectives: The
Trust seeks long-term capital appreciation. The benchmark for
this Trust is the Russell 1000®
Value Index.
|
|
·
|
Investment
Strategies: The
Trust is invested primarily in securities of large-capitalization
companies (with market capitalizations of $5 billion or greater at the
time of purchase) that the sub-advisor believes to have long-term capital
appreciation potential and are undervalued in relation to their intrinsic
value as indicated by multiple factors including earnings and cash flow
potential. The sub-advisor follows a value-oriented investment
philosophy in selecting stocks for the Trust using a research intensive
approach.
|
|
·
|
Primary
Risks:
Call Risk, Currency Risk, Derivatives Risk, Emerging Markets Risk,
Industry and Security Risk, Interest Rate Risk, International (Country)
Risk, Liquidity Risk, Manager Risk, Market Risk, Turnover
Risk. For specific
definitions/explanations of these types of risks, please see the
disclosure statement for this Trust. In general, because
this Trust expects to hold a more concentrated portfolio of a limited
number of securities, a decline in the value of these investments would
cause the Trust’s overall value to decline to a greater degree than a less
concentrated portfolio. Foreign investments are subject to
risks not ordinarily associated with domestic investments, such as
currency, economic and political risks, and different accounting
standards.
|
|
·
|
Manager: Wilmington
Trust Retirement and Institutional Services Company (the “Trustee”),
formerly known as AST Capital Trust Company, serves as the Trustee of the
Trust and maintains ultimate fiduciary authority over the management of,
and investments made, in the Trust. The Trustee is a wholly
owned subsidiary of Wilmington Trust FSB and a Delaware State chartered
trust company. The Trustee has engaged Delaware Investment
Advisers, a series of Delaware Management Business Trust, to act as the
investment sub-advisor to the
Trust.
|
|
·
|
Expense:
0.70%. The Trust will be charged with certain operating
expenses, including, without limitation, audit expenses, custody services
fees, tax form preparation expenses, legal and other
fees.
|
Delaware
Mid Cap Value Fund (Mutual Fund)
|
·
|
Investment
Objectives: The
Fund seeks capital appreciation.
|
|
·
|
Investment
Strategies: The
Fund is invested primarily in medium-sized companies whose stock prices
appear low relative to their underlying value or future
potential. Under normal circumstances, at least 80% of the
Funds’ net assets will be in investments of medium-sized companies (the
80% policy). Mid-sized companies would be those companies whose
market capitalizations fall within the range represented in the Russell
Midcap®
Value Index at the time of the fund’s investment. The
Fund’s 80% policy can be changed without shareholder approval provided
shareholders are given notice at least 60 days prior to any
change.
|
|
·
|
Primary
Risks: Industry Risk, Interest Rate
Risk, Liquidity Risk, Market Risk, Security Risk, Small Company
Risk. For specific definitions/explanations of these
types of risks, please see the prospectus for this Fund. In
general,
investing in small- and/or medium-sized company stocks typically involve
greater risk, particularly in the short-term, than those investing in
larger, more established
companies.
|
|
·
|
Manager: Delaware
Management Company.
|
|
·
|
Expense:
1.00%. The Fund’s investment manager has voluntary agreed to
waive all or a portion of its investment management fees and pay/or
reimburse expenses, in order to prevent the total annual fund operating
expenses from exceeding 1.00% of the Fund’s average daily net assets. The
waiver may be discontinued at any time. The estimated total
annual fund operating expenses without the waiver is
3.50%.
|
Delaware
Small Cap Growth Trust (Collective Investment Trust)
|
·
|
Investment
Objectives: The
Trust seeks capital appreciation by investing primarily in securities of
emerging or other growth-oriented companies. The Trust’s
benchmark is the Russell 2000®
Growth Index.
|
|
·
|
Investment
Strategies: The Trust invests primarily in small
companies that the sub-advisor believes offer above-average opportunities
for long-term price appreciation because they are poised to benefit from
changing and dominant trends within society or the political
arena. The sub-advisor uses a bottom-up approach to stock
selection that seeks market leaders, strong product cycles, innovative
concepts, and industry trends. The sub-advisor relies on its
own research in choosing securities for the Trust portfolio, reviewing
price-to-earnings ratios, estimated growth rates, market capitalization,
and cash flows, ultimately investing in: common stocks, American
Depository Receipts (ADRs), repurchase agreements, restricted securities,
illiquid securities, convertible securities, warrants, preferred stocks,
bonds, and lending securities. The Trust may buy or sell
securities on a “when issued” or “delayed delivery” basis, borrow money
from banks as a temporary measure for extraordinary or emergency purposes,
or to facilitate redemptions, or take temporary defensive
positions.
|
|
·
|
Primary
Risks: Company
Size Risk, Industry and Security Risk, Interest Rate Risk,
International Risk, Liquidity Risk, Market Risk. For
specific definitions/explanations of these types of risks, please see the
disclosure statement for this Trust. In general, because
this Trust expects to invest in the stocks of small and/or medium-sized
companies typically involve greater risk, particularly in the short term,
than those investing in larger, more established
companies. Foreign investments are subject to risks and not
ordinarily associated with domestic investments, such as currency,
economic and political risks, and different accounting
standards.
|
|
·
|
Manager: Wilmington
Trust Retirement and Institutional Services Company (the “Trustee”),
formerly known as AST Capital Trust Company, serves as the Trustee of the
Trust and maintains ultimate fiduciary authority over the management of,
and investments made, in the Trust. The Trustee is a wholly
owned subsidiary of Wilmington Trust FSB and a Delaware State chartered
trust company. The Trustee has engaged Delaware Investment
Advisers, a series of Delaware Management Business Trust, to act as the
investment sub-advisor to the
Trust.
|
Dodge
& Cox International Stock Fund (Mutual Fund)
|
·
|
Investment
Objectives: The
Fund seeks long-term growth of principal and income. A
secondary objective is to achieve a reasonable current
income. The Fund’s benchmark is the Morgan Stanley Capital®
International, Europe, Australasia, Far East Index (MSCI®EAFE®). The
MSCI®EAFE®
is an unmanaged index of the world’s stock markets, excluding the
United States.
|
|
·
|
Investment
Strategies: The
Fund invests primarily in a diversified portfolio of equity securities
issued by non-U.S. companies from at least three different foreign
countries, including emerging markets. The Fund focuses on
countries whose economic and political systems appear more stable and are
believed to provide some protection to foreign
shareholders. The Fund invests primarily in medium-to-large
well established companies based on standards of the applicable
market.
|
|
·
|
Primary
Risks: Emerging
Markets Risk, Equity Securities Risk, Fixed Income Securities Risk.
For
specific definitions/explanations of these types of risks, please see the
prospectus for this Fund. In general, foreign investing,
especially in developing countries, has special risks such as currency and
market volatility and political and social instability. These and other
risk considerations are discussed in the Fund’s
prospectus.
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Harbor
International Growth Fund (Mutual Fund)
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Investment
Objectives: The
Fund seeks long-term growth of capital. The benchmark for the
Fund is the MSCI®
EAFE Growth
Index.
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Investment
Strategies: The
Fund is invested primarily (no less than 65% of its total assets) in
common stocks of foreign companies that are selected for their long-term
growth potential. The Fund may invest in companies of any size
throughout the world. The Fund normally invests in the
securities or issuers that are economically tied to at least four
different foreign countries. The Fund may invest up to 35% of
its total assets, determined at the tine of purchase, in securities of
companies operating in or economically tied to emerging
markets. Some issuers or securities in the Fund’s portfolio may
be based in or economically tied to the United
States.
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Primary
Risk: Growth Style Risk, Emerging
Markets Risk, Foreign Securities Risk, Market Risk, Portfolio Turnover
Risk, Selection Risk. For specific
definitions/explanations of these types of risks, please see the
prospectus for this Fund. The Fund’s policy of investing in a narrowly
focused selection of stocks may expose the Fund the risk that a
substantial decrease in the value of a stock may cause the net asset value
of the Fund to fluctuate more than if the Fund were invested in a greater
number of stocks. The Fund may also be subject to greater risks
and higher brokerage and custodian expenses than funds invested only in
the U.S. Investing in international and emerging markets poses
special risks, including potentially greater price volatility due to
social, political and economic factors, as well as currency exchange rate
fluctuations. These risks are more severe for securities of
issuers in emerging market regions.
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Manager: Harbor
Capital Advisors, Inc. maintains ultimate fiduciary authority over the
management of, and investments made, in the Fund, and have engaged Marsico
Capital Management LLC to act as the investment sub-advisor to the
Fund.
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Vanguard®
Extended Market Index Fund (Mutual Fund)
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Investment
Objectives: The
Fund seeks to track the performance of a benchmark index that measures the
investment return of small- and mid-capitalization stocks. The
benchmark for this Fund is the Dow Jones Wilshire 4500 Completion Index,
Spliced Extended Market Index and the S&P Completion
Index.
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Investment
Strategies: The
Fund employs a “passive management” –-or indexing—investment approach
designed to track the performance of the Standard & Poor’s Completion
Index, a broadly diversified index of stocks of small and medium-size U.S.
companies. The S&P Completion Index contains all of the
U.S. common stocks regularly traded on the New York and American Stock
Exchanges and the Nasdaq over-the- counter market, except those stocks
included in the S&P 500 Index. The Fund invests all, or
substantially all, of its assets in stocks of its target index, with
nearly 80% of its assets invested in 1,200 stocks in its target index
(covering nearly 80% of the Index’s total market capitalization), and the
rest of its assets in a representative sample of the remaining
stocks. The Fund holds a broadly diversified collection of
securities that, in the aggregate, approximates the full Index in terms of
key characteristics. These key characteristics include industry
weightings and market capitalization, as well as certain financial
measures, such as price/earnings ratio and dividend
yield.
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Primary
Risks: Investment Style Risk, Stock
Market Risk. For specific definitions/explanations of these types
of risks, please see the prospectus for this Fund. The Fund is subject to
stock market risk, which is the chance that stock prices overall will
decline. Stock markets tend to move in cycles, with periods of
rising or falling prices. The fund is also subject to
investment style risk, which is the chance that returns from small- and
mid-capitalization stocks will trail returns from the overall stock
market. Historically, these stocks have been more volatile in
price than the large-cap stocks that dominate the overall market, and they
often perform quite
differently.
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Manager: The
Vanguard Group, Inc. is the registered investment
advisor.
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Vanguard®
Institutional Index Fund (Mutual Fund)
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Investment
Objectives: The
Fund seeks to track the performance of a benchmark index that measures the
investment return of large-capitalization
stocks.
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Investment
Strategies: The
Fund employs a “passive management” –-or indexing—investment approach
designed to track the performance of the Standard & Poor’s 500 Index,
a widely recognized benchmark of U.S. stock market performance that is
dominated by the stocks of large U.S. Companies. The Fund tends
to replicate the target index by investing all, or substantially all, of
its assets in the stocks that make up the Standard & Poor’s 500 Index,
holding each stock in approximately the same proportion as its weighting
in the Index.
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Primary
Risks: Investment
Style, Stock Market Risk. For
specific definitions/explanations of these types of risks, please see the
prospectus for this Fund. In general, Vanguard funds classified as
moderate to aggressive are broadly diversified but are subject to wide
fluctuations in share price because they hold virtually all of their
assets in common stocks. In general, such funds are appropriate for
investors who have a long-term investment horizon (ten years or longer),
who are seeking growth in capital as a primary objective, and who are
prepared to endure the sharp and sometimes prolonged declines in share
prices that occur from time to time in the stock market. This price
volatility is the trade-off for the potentially high returns that common
stocks can provide. The level of current income produced by funds in this
category ranges from moderate to very
low.
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Manager: The
Vanguard Group, Inc. is the registered investment
advisor.
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Asset Allocation Options
Each of
the three Asset Allocation Options summarized below relies on active asset
allocation and invests in a diversified portfolio of securities of different
investment classes and styles as it strives to obtain its
objectives. The Asset Allocation Options offer varying levels of
income and growth potential and corresponding variations in risk:
“conservative,” “moderate,” or “aggressive.”
Delaware
Foundation® Conservative Allocation Fund (Mutual Fund)
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Investment
Objectives: The
Fund seeks a combination of current income and preservation of capital
with capital appreciation. The
benchmark for the Fund is the Barclays Capital U.S. Aggregate
Index.
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Investment Strategies: The
Fund invests in a combination of underlying securities representing a variety of
asset classes and investment styles, using an active allocation
approach. The Fund typically targets about 40% of its net assets in
equity securities (with a range of 20% to 50%), and 60% of its net assets in
fixed income securities (with a range from 50% to 80%). The following
provides the target percentages of the Fund’s net assets in each style of
underlying equity securities: U.S. equity, such as U.S. large cap core, U.S.
large cap growth, U.S. large cap value, U.S. small cap core (target 20%, with a
range of 5% to 30%); international equity, such as international
value and international growth (target 15%, with a range of 5% to 30%); global
real estate (target 0%, with a range from 0% to 15%); emerging markets (target
5%, with a range from 0% to 10%). The fixed income portion includes
bonds (target 58%, with a range of 30% to 70%) and cash equivalents (target 2%,
with a range of 0% to 20%).
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Primary
Risks: The Fund has
significant exposure to Interest
Rate Risk, Credit Risk and Pre-payment Risk, due to its
greater focus in the fixed income asset class and moderate exposure to
Currency Risk due
to its international holdings. Additional risks
include Derivatives
Risk, Emerging Markets Risk, Foreign Government and Supranational
Securities Risks, Foreign Risk, Futures and Option Risk, High-Yield,
High-Risk Foreign Income Securities Risk, Industry and Security Risk,
Inefficient Market Risk, Information Risk, International Risk, Legislative
and Regulatory Risks, Liquidity Risk, Loans and Other Direct Indebtedness
Risks, Market Risk, Political Risk ,Real Estate Industry Risk, Small
Company Risk, Transaction Cost Risk, Zero Coupon and Pay-in-Kind Bonds
Risk, and Valuation Risk. For specific definitions/explanations of
these types of risks, please see the prospectus for this
Fund. In general, the Fund may invest
in international mutual funds, which are exposed to certain risks not
ordinarily associated with domestic investments, such as currency,
economic and political risks, and different accounting standards. The
Fund’s investments are subject to the risk that the portfolio,
particularly with longer maturities, will decrease in value if the
interest rates rise. High-yielding, non-investment grade bonds (“junk
bonds”) involve higher risk than investment grade bonds. Adverse
conditions may affect the issuer’s ability to pay interest and principal
on these securities.
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Manager: Delaware
Management Company, a series of Delaware Management Business Trust, which
is a subsidiary of Delaware Management Holdings,
Inc.
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Expense:
0.90%. The Fund’s investment manager has contracted to waive
all or a portion of its investment advisory fees and or/reimburse expenses
from February 1, 2009 through January 31, 2010 in order to prevent total
annual fund operating expenses from exceeding, in an aggregate amount,
0.90% of the Fund’s average daily net assets. The estimated
total annual fund operating expenses without the waiver is
1.32%.
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Delaware
Foundation® Moderate Allocation Fund (Mutual Fund)
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Investment
Objectives: The
Fund seeks capital appreciation as the primary objective with current
income as a secondary objective. The Fund’s benchmark is the
S&P 500 Index and the Barclays Capital U.S. Aggregate
Index.
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Investment
Strategies: The
Fund invests in a combination of underlying securities representing a
variety of asset classes and investment styles, using an active allocation
approach. The Fund typically targets about 60% of its net
assets in equity securities (with a range of 40% to 70%), and 40% of its
net assets in fixed income securities (with a range from 30% to
60%). The following provides the target percentages of the
Fund’s net assets in each style of underlying equity securities: U.S.
equity, such as U.S. large cap core, U.S. large cap growth, U.S. large cap
value, U.S. small cap core (target 30%, with a range of 10% to 40%);
international equity, such as international value and international growth
(target 22.5%, with a range of 10% to 40%); global real estate (target 0%,
with a range from 0% to 15%); emerging markets (target 7.5%, with a range
from 0% to 15%). The fixed income portion includes bonds
(target 38%, with a range of 20% to 50%) and cash equivalents (target 2%,
with a range of 0% to 15%).
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Primary
Risks: The Fund has significant exposure to Foreign Risk and Currency Risk, due to
its international holdings and moderate exposure to Small Company Risk, Interest
Rate Risk, Credit Risk and Emerging Markets
Risk. Additional risks include Derivatives
Risk, Foreign Government and Supranational Securities Risks, Futures and
Option Risk; High-Yield, High-Risk Foreign Income Securities Risk,
Industry and Security Risk, Inefficient Market Risk Information Risk,
International Risk, Legislative and Regulatory Risks, Liquidity Risk,
Loans and Other Direct Indebtedness Risks, Market Risk, Political Risk,
Pre-payment Risk, Real Estate Industry Risk, Transaction Cost Risk, Zero
Coupon and Pay-in-Kind Bonds Risk, and Valuation Risk. For specific
definitions/explanations of these types of risks, please see the
prospectus for this Fund. In general, this Fund may
invest in international mutual funds, which are exposed to certain risks
not ordinarily associated with domestic investments, such as currency,
economic and political risks, and different accounting
standards. Fund investments are subject to the risk that the
portfolio, particularly with longer maturities, will decrease in value if
the interest rates rise. High-yielding, non-investment grade bonds (“junk
bonds”) involve higher risk than investment grade bonds. Adverse
conditions may affect the issuer’s ability to pay interest and principal
on these securities. A rise/fall in the interest rates can have a
significant impact on bond prices and the NAV (net asset value) of the
Fund.
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Manager: Delaware
Management Company, a series of Delaware Management Business Trust, which
is a subsidiary of Delaware Management Holdings,
Inc.
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Expense:
0.90%. The Fund’s investment manager has contracted to waive
all or a portion of its investment advisory fees and or/reimburse expenses
from February 1, 2009 through January 31, 2010 in order to prevent total
annual fund operating expenses from exceeding, in an aggregate amount,
0.90% of the fund’s average daily net assets. The estimated
total annual fund operating expenses without the waiver is
1.31%.
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Delaware
Foundation® Growth Allocation Fund (Mutual Fund)
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Investment
Objectives: The
Fund seeks long-term capital growth. The benchmark for this
Fund is the S&P 500 Index.
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Investment
Strategies: The Fund
invests in a combination of underlying securities representing a variety of
asset classes and investment styles, using an active allocation
approach. The Fund typically targets about 80% of its net assets in
equity securities (with a range of 55% to 90%), and 20% of its net assets in
fixed income securities (with a range of 10% to 45%). The following
provides the target percentages of the Fund’s net assets in each style of
underlying equity securities: U.S. equity, such as U.S. large cap core, U.S.
large cap growth, U.S. large cap value, U.S. small cap core (target 40%, with a
range of 15% to 50%); international equity, such as international value and
international growth (target 30%, with a range of 15% to 50%); global real
estate (target 0%, with a range from 0% to 20%); and emerging markets (target
0%, with a range from 0% to 20%). The fixed income portion includes
bonds (target 38%, with a range of 20% to 50%) and cash equivalents (target 2%,
with a range of 0% to 10%).
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Primary
Risks: The Fund
has significant exposure to Small
Company Risk, Foreign Risk and Currency Risk due to its
international holdings and moderate exposure to Interest
Rate Risk and Emerging Markets Risk. Additional risks
include
Credit Risk, Derivatives Risk, Foreign Government and Supranational
Securities Risks; Foreign Risk, Futures and Option Risk; High-Yield,
High-Risk Foreign Income Securities Risk, Industry and Security Risk,
Inefficient Market Risk Information Risk, International Risk, Legislative
and Regulatory Risks, Liquidity Risk, Loans and Other Direct Indebtedness
Risks, Market Risk, Political Risk, Pre-payment Risk, Real Estate Industry
Risk, Transaction Cost Risk, Zero Coupon and Pay-in-Kind Bonds Risks, and
Valuation Risk. For specific
definitions/explanations of these types of risks, please see the
prospectus for this Fund. In general, the Fund may invest in
international mutual funds, which are exposed to certain risks not
ordinarily associated with domestic investments, such as currency,
economic and political risks, and different accounting standards. Note
that funds investing in small- and/or medium-sized company stocks
typically involve greater risk, particularly in the short-term, then those
investing in larger, more established companies. The Fund
investments are subject to the risk that the portfolio, particularly with
longer maturities, will decrease in value if the interest rates rise.
High-yielding, non-investment grade bonds (“junk bonds”) involve higher
risk than investment grade bonds. Adverse conditions may affect the
issuer’s ability to pay interest and principal on these
securities. A rise/fall in the interest rates can have a
significant impact on bond prices and the NAV (net asset value) of the
Fund.
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Manager: Delaware
Management Company, a series of Delaware Management Business Trust, which
is a subsidiary of Delaware Management Holdings,
Inc.
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Expense:
0.90%. The Fund’s investment manager has contracted to waive
all or a portion of its investment advisory fees and or/reimburse expenses
from February 1, 2009 through January 31, 2010 in order to prevent total
annual fund operating expenses from exceeding, in an aggregate amount,
0.90% of the Fund’s average daily net assets. The estimated
total annual fund operating expenses without the waiver is
1.42%.
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Bond Options
Bond
Options seek income or growth of income by investing primarily in
income-producing securities such as corporate bonds, mortgages, government
bonds, foreign bonds, convertible bonds, and preferred stocks. Bond
Options generally have a lower potential for capital growth.
Delaware Diversified Income Trust
(Collective Investment Trust)
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Investment
Objectives: The Trust seeks maximum long-term total
return, consistent with reasonable risk. The benchmark for the
Trust is Barclays Capital U.S. Aggregate
Index.
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Investment
Strategies: The
Trust allocates its investments principally among the following sectors:
U.S. investment grade, U.S. high yield, international developed markets,
and emerging markets. Under normal circumstances, there is no
limit to the amount of the Trust’s assets that may be invested in the
U.S. investment
grade sector, with the Trust’s manager investing primarily in debt
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and by U.S. corporations. U.S. investment
grade securities include securities which are issued or guaranteed as to
the payment of principal and interest by the U.S. government and its
various agencies and instrumentalities, and mortgage-backed securities
issued or guaranteed by the U.S. government. Under normal
circumstances, between 5% and 50% of the Trust’s assets will be invested
in the U.S. high
yield sector, including domestic high yield securities having a
liberal and consistent yield and those tending to reduce the risk of
market fluctuations, domestic corporate debt obligations, including notes,
which may be convertible or non-convertible, commercial paper, units
consisting of bonds with stock or warrants to buy stock attached,
debentures, convertible debentures, zero coupon bonds, and pay-in-kind
securities. U.S. high yield sector investments may also include
rated and unrated bonds. The rated bonds purchase by the Trust
are generally rated BB or lower by Standard & Poor’s (S&P) or
Fitch, Inc., Ba or lower by Moody’s Investors Service, Inc., or similarly
rated by another nationally recognized statistical rating
organization. Investments in the international developed
markets sector and the emerging markets sectors may range from 5% to 50%
of the Trust’s total assets on a combined basis; however, investments in
the emerging markets sector will, in the aggregate be limited to no more
than 15% of the Trust’s total assets.. The international
developed markets sector investments are primarily the fixed income
securities of issuers organized or having the majority of their assets or
deriving the majority of their operating income in international developed
markets, and may include foreign government securities, debt obligations
of foreign companies, and securities issued by supranational
entities. Emerging markets
sector investments may include the securities of issuers in any
foreign country, developed and underdeveloped, as well as the direct
obligations of such issuers. The Trust may also invest in
sponsored and unsponsored American Depository Receipts (ADRs), European
Depository Receipts (EDRs), Global Depository Receipts (GDRs), and zero
coupon bonds.
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Primary
Risks: The
Trust has significant exposure to Credit
Risk, Currency Risk, Derivatives Risk, Foreign Government Securities Risk,
Futures and Option Risk , Interest Rate Risk, International Risk,
Legislative and Regulatory Risk, Liquidity Risk, Loans and Other Direct
Indebtedness Risk, Market Risk, Pre-payment Risk , Zero Coupon and
Pay-in-Kind Bonds Risk, Transaction Costs Risk, and Valuation
Risk. For
specific definitions/explanations of these types of risks, please see the
disclosure statement for this Trust. In general,
investments in the Delaware Diversified Income Trust are subject to
the risk that the portfolio, particularly with longer maturities, will
decrease in value if the interest rates rise. High-yielding,
non-investment grade bonds (“junk bonds”) involve higher risk than
investment grade bonds. Adverse conditions may affect the issuer’s ability
to pay interest and principal on these securities. Foreign investments are
subject to risks not ordinarily associated with domestic investments, such
as currency, economic and political risks, and different accounting
standards. Securities of issuers from emerging market countries
may be more volatile, less liquid, and generally more risky than
investments in issuers from more developed foreign
countries. Diversification does not ensure a profit or
guarantee against a loss. The Trust will also be affected by prepayment
risk due to its holdings of mortgage-backed securities. With prepayment
risk, when homeowners prepay mortgages during periods of low interest
rates, the Trust may be forced to redeploy its assets in lower yielding
securities. If, and to the extent that, the Trust invests in forward
foreign currency contracts or uses other investments to hedge against
currency risks, the Trust will be subject to the special risks associated
with those activities.
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Manager: Wilmington
Trust Retirement and Institutional Services Company (the “Trustee”),
formerly known as AST Capital Trust Company, serves as the Trustee of the
Trust and maintains ultimate fiduciary authority over the management of,
and investments made, in the Trust. The Trustee is a wholly
owned subsidiary of Wilmington Trust FSB and a Delaware State chartered
trust company. The Trustee has engaged Delaware Investment
Advisers, a series of Delaware Management Business Trust, to act as the
investment sub-advisor to the
Trust.
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Stability of Principal Investment Options
Stability
of Principal Investment Options are conservative investment options which seek
to hold the principal value of an investment so that it is stable or close to
stable through all market conditions. Stability of Principal
Investment Pptions may credit a stated rate of return or minimum periodic
interest rate that may vary. These types of investments are often
referred to as a “guaranteed account” or “money market account.”
The
Lincoln Stable Value Account (Insured Product)
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Investment
Objectives: This Investment Option seeks to provide a
competitive current interest rate that translates into the highest
possible return with the lowest level of risk while also offering the
protection of principal. Contributions made to the Lincoln Stable Value
Account in any quarter will earn interest at the quarterly-set portfolio
rate. The portfolio rate is declared for the quarter and is in
effect only for that quarter. The portfolio rate is the
three-year average of the Barclays Capital Intermediate U.S.
Government/Credit Index, plus 0.20%, as of one month prior to the
beginning of each quarter. The guaranteed minimum crediting
rate for the Lincoln Stable Value Account is 3.00%. The
portfolio rate in effect for the second quarter (2Q) of 2009 is
4.64%. This formula is guaranteed for five (5) contract years
(ending October 1, 2013). The Lincoln National Life Insurance
Company will provide notice of a new formula prior to October 1,
2013. If the Barclays Intermediate U.S. Government/Credit Index
ceases to be published, The Lincoln National Life Insurance Company will
select a comparable index.
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Investment Strategies:
The Lincoln Stable Value Account, a fixed annuity, is part of the general
account of The Lincoln National Life Insurance Company and is backed by
the general credit worthiness and the claims paying ability of The Lincoln
National Life Insurance Company. The
general account invests in investment and non-investment grade
public companies, U.S. government bonds, high-quality corporate bonds, and
other high-quality asset classes in keeping with the investment policy
statement for the
portfolio.
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Primary Risks: Credit Risk (the chance
that the issuer of a security will fail to pay interest and principal in a
timely manner, or that such companies or individuals will be unable to pay
the contractual interest or principal on their debt obligations at
all); Inflation Risk
(the possibility that, over time, the returns will fail to keep up
with the rising cost of living); Interest Rate Risk
(the chance that bond prices overall will decline over short or even long
periods due to rising interest rates); Liquidity Risk (the
chance that the insured product is not backed by sufficient reserves to
meet participant withdrawals, or would incur a market value adjustment or
penalty for early withdrawal from one or more of its contracts); Manager Risk (the
chance that poor security selection will cause the Stable Value Fund to
under-perform other stability of principal investment options with similar
objectives); Market Risk
(the chance that the value of your investment will change because
of rising (or falling) stock or bond prices). There is no
government guarantee (such as the FDIC guarantee) protecting investments
in the Lincoln Stable Value
Account.
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Manager: Delaware
Investment Advisers, a series of Delaware Management Business Trust, is the registered
investment advisor.
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Expense: No asset
charges are deducted from participant accounts. 0.09% is paid
by The Lincoln National Life Insurance Company to Delaware Investment
Advisers as a management fee and has effectively reduced the rate of
return from the three-year average of the Lehman Intermediate U.S.
Government/Credit Index, plus 0.29% to that rate of return plus
0.20%.
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Brokerage Account
A
Self-Directed Brokerage Account or “SDBA” allows you to invest in certain
securities offered by a brokerage company selected by the Plan
Administrator. In order to have access to the Plan’s SDBA, you must
complete an application with TDAmeritrade to open a brokerage account with
them. You must also complete a consent and waiver form to be used by
our legal and compliance departments acknowledging the risks associated with
investing through a SDBA, providing certain information about yourself, and
agreeing that information about your SDBA transactions will be periodically
provided to the Company’s law and compliance departments. The SDBA is not open yet but will be
available at the discretion of the Plan Administrator.
Lincoln National Corporation Common Stock Account
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Investment
Objectives: This Investment Option is referred to as an
Employee Stock Ownership Plan. It is designed to provide
participants with the opportunity to invest in employer
securities.
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Investment
Strategies: To achieve its objective, this Investment
Option invests mainly in shares of the common stock of Lincoln National
Corporation (“LNC Common Stock”). The fund may also invest in
cash or short-term money-market securities to provide the liquidity and
flexibility necessary to sell or exchange units of the fund quickly and
easily, generally on a daily basis. When the amount of
short-term investments in the fund fall outside the range of 2.5% to 3.5%
of its net assets, LNC common stock is either bought or sold to bring the
short-term investment back into the target
range.
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Primary Risks: Inflation Risk;
Investment-Style Risk; Market Risk. This is a non-diversified
Investment Option, investing in the stock of a single
issuer. It is therefore a riskier investment than an Investment
Option that invests in a diversified pool of stocks of companies with
similar characteristics as this Account. For a description of
the risks associated with investment in Lincoln National Corporation, see
“Risk Factors” beginning on page 5 of this Prospectus. It is a
market-valued account, meaning that both the principal value and the
investment return may go up and down on based the market price of the
stock held in the fund. For a more detailed description of LNC
Common Stock. See “Lincoln National Corporation Common Stock”
below.
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Dividends: You
have the option to receive your LNC Common Stock Account dividends in cash
or to reinvest them. Dividends paid with respect to your
investment in the fund will be automatically reinvested in Common Stock-no
action is required if you wish to reinvest your
dividends. Wilmington Trust will pay your dividends by check as
soon as administratively practicable after the dividend payment
date.
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If you
are currently invested in the LNC Stock Fund and would like to receive dividends
in cash, you may change the default dividend reinvestment option by visiting the
Lincoln Alliance Web site and under “Initiate Request”, selecting Dividend Election, and then
follow the instructions. You may change this election as often as you
wish, but only the last election on file before the deadline for the applicable
dividend payment date will control. You may also change your dividend
election by calling the Lincoln Alliance Customer Service Center at
1-800-234-3500. Changes made by 3 p.m. (Central Time) on the last business day
before dividends are paid will be applied to the dividends payable on February
1, May 1, August 1, and November 1.
You should be aware that choosing to
receive your dividends in cash may result in a lower account value
upon retirement, due to fewer assets in the Plan and diminished ability to
leverage the power of pre-tax compounding of earnings.
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Share Ownership: The LNC
Stock Fund is a “unitized” stock fund and is the way you can
invest in LNC common stock within the Plan. When investing
in the LNC Stock Fund, you are purchasing units of the fund,
not actual shares of stock. The fund owns the
stock.
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The “units”
you own represent your pro-rata share of the fund's total
assets. The Plan's trustee determines the unit value daily using the
values of the underlying assets at the daily closing price of each asset.
The same economic or market conditions and trends that cause Lincoln National
Corporation’s stock price to fluctuate will similarly influence the unit price
of the LNC Stock Fund, although the LNC Stock Fund’s unit price
and the market
price of LNC common stock are likely to be different. Additionally,
the percentage of short-term investments being held, bought or sold by
the fund and any gains/losses realized on the sales of Lincoln stock
impact the return of the unitized LNC Stock Fund.
You may
become a direct owner of shares of LNC common stock through the Plan only when
you take a withdrawal or distribution and elect to receive LNC common
stock.
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Share Voting
Rights: If
you invest in this Investment Option, you will have “pass-through voting
rights.” This means that Wilmington Trust will vote the shares
in the manner that you direct, if you sign and return the proxy card in
time. You will have voting rights for the number of shares in
this Investment Option that is proportionate to the size of your
investment. Otherwise, Wilmington Trust will vote your interest
in the Investment Option in the same proportion as the other Plan
participants who voted.
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Trading
Restrictions: Officers of LNC
and certain other participants of LNC (“Restricted Employees”) with access
to inside information are subject to regular quarterly trading
restrictions imposed by LNC’s “Insider Trading and Confidentiality Policy”
on any transaction, except normal payroll deductions, that might cause an
increase or decrease in that person’s interest in the
Fund. Except for trading under a written securities trading
plan meeting the requirements of Rule 10b5-1, Restricted Employees may
only engage in fund switching transactions to increase or decrease their
interest in this Option during previously announced window trading
periods. Other participants may also be subject to trading
restrictions under the Policy.
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Account
Manager: Wilmington Trust
Company
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PLAN INTERESTS ARE SECURITIES
Persons
participating in the Plan acquire an interest in the Plan assets held and
administered by the Plan Trustee. This interest is itself a security and its
acquisition entails the risk of loss as well as the possibility of gain. The
character and extent of the participant’s interest in the Plan assets and his
rights and options in relation thereto are discussed in detail in this
prospectus supplement. Before deciding to participate, participants should
carefully read this prospectus supplement and consider and assess the risks and
opportunities in view of their individual situation.
LINCOLN NATIONAL CORPORATION COMMON STOCK
AND
PREFERRED STOCK
General
Our
articles of incorporation currently authorize the issuance of 800,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock. We may
issue our Preferred Stock from time to time in one or more series by resolution
of our board of directors. We have outstanding two series of
Preferred Stock, consisting of LNC’s $3.00 Cumulative Convertible Preferred
Stock, Series A (without par value), which we refer to as “Series A preferred
stock” and LNC’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B,
which we refer to as “Series B preferred stock. At December 7, 2009,
we had issued and outstanding 302,185,719 shares of Common Stock, 11,497 shares
of Series A preferred stock and 950,000 shares of Series B preferred
stock.
The
following descriptions of the classes of our capital stock are summaries, do not
purport to be complete, and are subject, in all respects, to the applicable
provisions of the Indiana Business Corporation Law, which we refer to as the
IBCL, and our Restated Articles of Incorporation (including: a board of
directors’ certificate of resolution designating the rights and preferences of
the Series A preferred stock; and an amendment to the restated articles of
incorporation designating the rights and preferences of the Series B preferred
stock), our Registration Statement on Form 10 filed with the Securities and
Exchange Commission on April 28, 1969, including any amendments or reports filed
for the purpose of updating such description, which, in each case, are included
as exhibits to the registration statement that includes this
prospectus.
Common
Stock
Transfer Agent and
Registrar. Our Common Stock is traded on the New York and
Chicago Stock Exchanges under the symbol “LNC.” The registrar and
transfer agent is BNY Mellon Shareowner Services.
Voting
Rights. Except as set forth below under “Anti-Takeover
Considerations—Certain State Law Provisions”, each holder of record of our
Common Stock is entitled to one vote for each share of our Common Stock held on
all matters submitted to a vote of the shareholders, including election of
directors. Holders of our Common Stock do not have cumulative voting
rights with respect to the election of directors or any other
matter.
Dividend
Rights. The holders of our Common Stock may receive cash
dividends, if and when declared by our board of directors out of funds legally
available for that purpose, and subject to preferential rights of the holders of
Preferred Stock or other special classes of stock.
Liquidation
Rights. In the event of a liquidation, dissolution or winding
up, holders of our Common Stock will be entitled to share ratably in all assets
remaining after payments to creditors and after satisfaction of the liquidation
preference, if any, of the holders of any Preferred Stock that may at the time
be outstanding.
Preemptive
Rights. Holders of our Common Stock do not have any preemptive
or similar equity rights.
Preferred
Stock
General. Our
restated articles of incorporation authorize our board of directors to provide
for the issuance of up to 10 million shares of Preferred Stock, in one or more
series, and to fix by resolution and to the extent permitted by the IBCL, the
relative rights, preferences and limitations of each series of Preferred Stock,
including dividend, redemption, liquidation, sinking fund, conversion and other
provisions in the resolutions or certificate establishing or designating the
series, without a vote or any other action taken by our
shareholders.
Shares
Outstanding. We currently have two series of Preferred Stock
outstanding, the Series A and the Series B Preferred Stock. All
outstanding shares of Series A and Series B preferred stock are duly authorized,
validly issued, fully paid and non-assessable.
Voting
Rights. Except as set forth below with respect to the Series B
preferred stock, each holder of Preferred Stock of any series outstanding is
entitled to one vote per share and to vote together, as a single class, with
holders of our Common Stock on all matters submitted to a vote of the common
shareholders.
Special Voting Rights With
Respect to Directors. In the event that six or more quarterly
dividends, whether or not consecutive, on any series of Preferred Stock are in
default, the holders of any outstanding series of Preferred Stock as to which
the default exists will be entitled, at the next annual meeting of shareholders,
to vote as a class to elect two of our directors. This right will
continue with respect to shares of cumulative Preferred Stock until all
accumulated and unpaid dividends on all such shares have been paid, with respect
to the Series B preferred stock, or declared and set aside for payment, with
respect to other series of preferred stock, and, with respect to shares of
non-cumulative Preferred Stock, if any, until any non-cumulative dividends have
been paid or declared and set apart for payment for four consecutive quarterly
dividend periods on all such shares, the holders of which were entitled to vote
at the previous annual meeting of shareholders.
Other Special Voting
Rights. Except as set forth below with respect to the Series B
preferred stock, the approval of the holders of record of at least two-thirds of
the outstanding shares of all series of our Preferred Stock, voting as a class,
will be required to take the following actions:
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amend
our articles of incorporation to create or authorize any stock ranking
prior to or on a parity with the outstanding Preferred Stock with respect
to the payment of dividends or distributions upon dissolution, liquidation
or winding up;
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to
create or authorize any security convertible into shares of stock ranking
prior to or on a parity with the outstanding Preferred Stock with respect
to the payment of dividends or distributions upon dissolution, liquidation
or winding up;
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amend,
alter, change or repeal any of the express terms of any outstanding
Preferred Stock, or any series thereof, in any prejudicial manner
(provided only holders of two-third of the outstanding shares of the
series prejudiced by such change or repeal need consent to such
action);
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merge
or consolidate with another corporation where we are not the surviving
entity, if the rights, preferences or powers of the Preferred Stock would
be adversely affected or if securities would thereupon be authorized or
outstanding which could not otherwise have been created without the
approval of the preferred shareholders;
or
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authorize,
or revoke a previously authorized, voluntary dissolution of LNC, approve
any limitation of the terms of our existence, or authorize the sale,
lease, exchange or other disposition of all or substantially all of our
property.
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Series
A Preferred Stock
Dividend
Rights. To the extent permitted by law, holders of LNC Series
A preferred stock are entitled to receive, but only when and as declared by our
board of directors, cash dividends at the per annum rate of $3.00 per share,
payable $0.75 per share quarterly. Dividends on the Series A
preferred stock are cumulative.
Liquidation. Holders
of Series A preferred stock are entitled to a liquidation preference of $80.00
per share, plus accrued dividends, before any assets may be distributed to
holders of our Common Stock or any other stock ranking junior to the Series A
preferred stock.
Redemption. The
Series A preferred stock may be redeemed at any time at the option of our board
of directors, in whole or in part, at a redemption price of $80.00 per share
plus accrued but unpaid dividends.
Conversion. Each
share of Series A preferred stock is currently convertible at the option of the
holder thereof into sixteen shares of our Common Stock, subject to certain
further adjustments. There is no conversion rate adjustment for a
merger.
Series
B Preferred Stock
Dividend
Rights. To the extent permitted by law, holders of LNC Series
B preferred stock are entitled to receive cash dividends at the per annum rate
of five percent (5%) per, payable quarterly in arrears each February 15, May 15,
August 15 and November 15. Dividends on the Series B preferred stock
are cumulative.
Liquidation. Holders
of Series B preferred stock are entitled to a liquidation preference of
$1,000.00 per share, plus accrued dividends, before any assets may be
distributed to holders of our Common Stock or any other stock ranking junior to
the Series B preferred stock.
Redemption. The
Series B preferred stock may be redeemed at any time at the option of our board
of directors upon consultation with the United States Treasury and the Office of
Thrift Supervision, in whole or in part, at a redemption price of $1,000.00 per
share plus accrued but unpaid dividends.
Voting
Rights. The Series B preferred stock is generally non-voting,
except for class voting rights on the issuance of shares ranking senior to the
Series B preferred stock, amendments to the rights of the holders of the Series
B preferred stock or any merger, exchange or similar transaction which would
adversely affect the rights of the holders of the Series B preferred
stock. In addition, if dividends on the Series B preferred stock have
not been paid in full for an aggregate of six quarterly dividend periods or
more, whether consecutive or not, the holders of the Preferred Stock, voting
together with holders of any then outstanding voting parity stock, will have the
right to elect two directors.
Anti-Takeover
Considerations
Certain Provisions of LNC’s
Restated Articles of Incorporation.
Our
restated articles of incorporation provide that the affirmative vote of the
holders of three-fourths of our voting stock is required to amend
Article III, which deals with the number, classification, qualifications
and removal of directors. Article III provides that the number of directors
may be fixed in the bylaws, that qualifications for directors may be set in the
bylaws, and that the bylaws may provide for classification of our board of
directors. The bylaws can be amended only by action of our board of directors.
Article III also provides that directors can be removed, with or without
cause, at a meeting of shareholders called expressly for that purpose upon the
affirmative vote of the holders of at least three-fourths of our voting
stock.
The
provisions of Article III requiring the affirmative vote of three-fourths
of our voting stock to amend Article III could make it difficult for the
shareholders to change the existing provisions of that article, which, in turn,
could discourage proxy contests and tender offers and make it more likely that
incumbent directors will maintain their positions.
Article IV
of our restated articles of incorporation also provide that no shares of the
common stock of The Lincoln National Life Insurance Company, our primary
insurance subsidiary, may be sold, leased, exchanged, mortgaged, pledged or
otherwise disposed of except by the vote of the holders of three-fourths of our
shares outstanding and entitled to vote thereon at an annual or special meeting
of shareholders.
Article V
of our restated articles of incorporation contains a “fair price” provision
which requires, subject to certain exceptions, the holders of at least
three-fourths of our voting stock to approve certain kinds of business
combinations involving LNC and any shareholder holding 10% or more of our voting
stock or certain affiliates of that shareholder unless:
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the
transaction is approved by a majority of the members of our board of
directors who are not affiliated with the 10% shareholder making the
proposal; or
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the
transaction meets certain minimum price and procedural
requirements.
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In either
of these cases, only the normal shareholder and director approval requirements
of the IBCL would govern the transaction. The “fair price” provision may be
amended or repealed only upon the affirmative vote of the holders of at least
three-fourths of our voting stock. The “fair price” provision is intended to
increase the likelihood that all our shareholders will be treated similarly if
certain kinds of business combinations are affected. The “fair price” provision
may have the effect of making a takeover of us more expensive and may therefor
discourage tender offers for less than three-fourths of our stock and
acquisitions of substantial blocks of our stock with a view to acquiring control
of us.
Certain State Law
Provisions.
Chapter 43
of the IBCL also restricts business combinations with interested shareholders.
It prohibits certain business combinations, including mergers, sales of assets,
recapitalizations, and reverse stock splits, between certain corporations having
100 or more shareholders that also have a class of voting shares registered with
the SEC under Section 12 of the Securities Exchange Act of 1934 (which
includes us) and an interested shareholder, defined as the beneficial owner of
10% or more of the voting power of the outstanding voting shares of that
corporation, for five years following the date the shareholder acquired such 10%
beneficial ownership, unless the acquisition or the business combination was
approved by the board of directors in advance of that date. If the combination
was not previously approved, the interested shareholder may effect a combination
after the five-year period only if the shareholder receives approval from a
majority of the disinterested shares or the offer meets certain fair price
criteria. A corporation may elect to opt out of these provisions in an amendment
to its articles of incorporation approved by a majority of the disinterested
shares. Such an amendment, however, would not become effective for
18 months after its passage and would apply only to stock acquisitions
occurring after its effective date. Our restated articles of incorporation do
not elect to opt out of these provisions.
Chapter
42 of the IBCL includes provisions designed to protect minority shareholders in
the event that a person acquires, pursuant to a tender offer or otherwise,
shares giving it more than 20%, more than 33 1/3%,
or more than 50% of the outstanding voting power (which we refer to as “control
shares”) of an “issuing public corporation.” Unless the issuing public
corporation’s articles of incorporation or bylaws provide that Chapter 42
does not apply to control share acquisitions of shares of the corporation before
the control share acquisition, an acquirer who purchases control shares cannot
vote the control shares until each class or series of shares entitled to vote
separately on the proposal, by a majority of all votes entitled to be cast by
that group (excluding the control shares and any shares held by officers of the
corporation and employees of the corporation who are directors thereof), approve
in a special or annual meeting the rights of the acquirer to vote the control
shares. Unless otherwise provided in a corporation’s articles of incorporation
or bylaws before a control share acquisition has occurred, in the event that
control shares acquired in a control share acquisition are accorded full voting
rights and the acquiring person acquires control shares with a majority or more
of all voting power, all shareholders of the issuing public corporation have
dissenters’ rights to receive the fair value of their shares.
“Issuing
public corporation” means a corporation which is organized in Indiana, has 100
or more shareholders, its principal place of business, its principal office or
substantial assets within Indiana and one of the following:
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more
than 10% of its shareholders resident in
Indiana;
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more
than 10% of its shares owned by Indiana residents;
or
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10,000
shareholders resident in Indiana.
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An
issuing public corporation may elect not to be covered by the statute by so
providing in its articles of incorporation or bylaws. Our restated articles of
incorporation do not elect to opt out of these provisions.
Indiana
insurance laws and regulations provide that no person may acquire our voting
securities if that person would directly or indirectly be in control of us after
the acquisition, unless that person has provided certain required information to
us and to the Indiana Insurance Commissioner and the Indiana Insurance
Commissioner has approved the acquisition. Control of us is presumed to exist if
any person beneficially owns 10% or more of our voting securities. Furthermore,
the Indiana Insurance Commissioner may determine, after notice and hearing, that
control exists despite the absence of a presumption to that effect.
Consequently, no person may acquire, directly or indirectly, 10% or more of our
voting securities to be outstanding after any offering of securities pursuant to
this prospectus, or otherwise acquire control of us, unless that person has
provided such required information to the Indiana Insurance Commissioner and the
Indiana Insurance Commissioner has approved such acquisition.
EXPERTS
The financial statements of The Lincoln
National Life Insurance Company Agents’ Savings and Profit-Sharing Plan included
in the Annual Report (Form 11-K) for the year ended December 31, 2008, have been
audited by Ernst & Young LLP, independent registered public accounting firm,
as set forth in their report thereon, included therein, and incorporated herein
by reference. In addition, the consolidated financial statements of LNC included
in LNC’s Annual Report (Form 10-K) for the year ended December 31, 2008
(including schedules appearing therein), and the effectiveness of LNC’s internal
control over financial reporting as of December 31, 2008, have been audited by
Ernst & Young LLP, independent registered public accounting firm, as set
forth in their reports thereon, included therein, and incorporated herein by
reference. Such financial statements and management's assessment of
internal control over financial reporting are incorporated herein by reference
in reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The
validity of our Common Stock offered hereby will be passed upon for us by Dennis
L. Schoff, Esquire, Senior Vice President and General Counsel of Lincoln
National Corporation. As of December 7, 2009 Mr. Schoff beneficially
owns approximately 233,944 shares of our Common Stock including options
exercisable within sixty (60) days of the date of the Registration
Statement. The validity of the interests in the Plan to which this
prospectus relates will be passed upon for the Plan by Andrew Scanlon, Esquire,
Senior Counsel of LNC.
WHERE YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other
information and documents with the Securities and Exchange Commission, or SEC.
You may read and copy any document we file with the SEC at:
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public
reference room maintained by the SEC in: Washington, D.C. (100 F. Street,
N.E., Room 1580, Washington, D.C. 20549). Copies of such materials can be
obtained from the SEC’s public reference section at prescribed rates. You
may obtain information on the operation of the public reference rooms by
calling the SEC at (800) SEC-0330,
or
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the
SEC website located at www.sec.gov.
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This
prospectus supplement is a combined prospectus, which is part of Registration
Statements filed on Form S-1 and S-3 with the SEC under the Securities Act. This
prospectus supplement does not contain all of the information set forth in the
Registration Statements and the exhibits and schedules to the Registration
Statements. For further information concerning us and the securities, you should
read the entire Registration Statements and the additional information described
under “Documents Incorporated by Reference” below. The Registration Statements
have been filed electronically and may be obtained in any manner listed above.
Any statements contained herein concerning the provisions of any document are
not necessarily complete, and, in each instance, reference is made to the copy
of such document filed as an exhibit to the Registration Statements or otherwise
filed with the SEC. Each such statement is qualified in its entirety by such
reference.
Information
about us, including the additional information described under “Documents
Incorporated by Reference” is also available on our web site at
http://www.lincolnfinancial.com/investors. This URL and the SEC’s URL above are
intended to be inactive textual references only. Such information on our or the
SEC’s web site is not a part of this prospectus supplement.
DOCUMENTS INCORPORATED BY REFERENCE
The
following documents have been filed (File No. 1-6028) with the SEC in accordance
with the provisions of the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), and are incorporated by reference in this
prospectus:
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Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2008;
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Our
Quarterly Report on Form 10-Q for the quarters ended March 31, June 30,
and September 30, 2009;
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Our
Current Reports on Form 8-K filed with the SEC on January 13,
March 19, March 27, March 30, May 20, June 15 (two filings),
June 16, June 22, June 26, July 10, August 19, and November 6, 2009,
except that Item 7.01 in the Current Report on Form 8-K dated July 10,
2009 shall not be incorporated herein by
reference;
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The
description of our common stock contained in Form 10 filed with the SEC on
April 28, 1969, including any amendments or reports filed for the purpose
of updating that description; and
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The
Lincoln National Life Insurance Company Agents’ Savings and Profit-Sharing
Plan’s Annual Report on Form 11-K for the fiscal year ended December 31,
2008.
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Each LNC
document filed subsequent to the date of this prospectus pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this prospectus and to be a part hereof from
the date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained herein (or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part of this
prospectus.
We will
provide without charge to each person to whom this prospectus is delivered, upon
the written or oral request of such person, a copy of the documents incorporated
by reference as described above (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents),
copies of all documents constituting part of the prospectus for the Plan, and
copies of the Plan. Please direct your oral or written request
to: Dennis L. Schoff, Senior Vice President, General Counsel &
Secretary, 150 N. Radnor Chester Road, Radnor, PA 19342,
484-583-1400, or dennis.schoff@lfg.com.
The
Lincoln National Life Insurance Company Agents’ Savings and Profit Sharing
Plan
Financial
Statements and Supplemental Schedule
Years
Ended December 31, 2008, 2007 and 2006
Table
of Contents
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Report
of Independent Registered Public Accounting Firm
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F-1
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Audited
Financial Statements:
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Statements
of Net Assets
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F-2
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Statements
of changes in Net Assets Available for Plan Benefits
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F-3
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Notes
to Financial Statements
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F-4
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Supplemental
Schedule
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Schedule
H, Line 4i – Schedule of Assets (Held at End of Year)
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F-43
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The financial statements for the
Lincoln National Life Insurance Company Agents’ Savings and Profit-Sharing Plan
are incorporated by reference from the Plan’s Annual Report on Form 11-K for the
fiscal year ended December 31, 2008.
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
Set forth
below are estimates of all expenses incurred or to be incurred by us in
connection with the issuance and distribution of our Common Stock to be
registered, other than underwriting discounts and commissions of which there are
none.
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$
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-0-
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Photocopying
and Printing
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5,000
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Trustee
Fees
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-0-
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Accounting
fees
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10,000
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Miscellaneous
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-0-
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TOTAL
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$
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15,000
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Item
14. Indemnification of Directors and Officers
Our
bylaws, pursuant to authority contained in the Indiana Business Corporation Law
and the Indiana Insurance Law, respectively, provide for the indemnification of
our officers, directors and employees against the following:
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reasonable
expenses (including attorneys’ fees) incurred by them in connection with
the defense of any action, suit or proceeding to which they are made or
threatened to be made parties (including those brought by, or on
behalf of us) if they are successful on the merits or otherwise in the
defense of such proceeding except with respect to matters as to which they
are adjudged liable for negligence or misconduct in the performance of
duties to their respective
corporations.
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reasonable
costs of judgments, settlements, penalties, fines and reasonable expenses
(including attorneys’ fees) incurred with respect to, any action, suit or
proceeding, if the person’s conduct was in good faith and the person
reasonably believed that his/her conduct was in our best interest. In the
case of a criminal proceeding, the person must also have reasonable cause
to believe his/her conduct was
lawful.
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Indiana
Law requires that a corporation, unless limited by its articles of
incorporation, indemnify its directors and officers against reasonable expenses
incurred in the successful defense of any proceeding arising out of their
serving as a director or officer of the corporation.
No
indemnification or reimbursement will be made to an individual judged liable to
us, unless a court determines that in spite of a judgment of liability to the
corporation, the individual is reasonably entitled to indemnification, but only
to the extent that the court deems proper. Additionally, if an officer, director
or employee does not meet the standards of conduct described above, such
individual will be required to repay us for any advancement of expenses it had
previously made.
In the
case of directors, a determination as to whether indemnification or
reimbursement is proper will be made by a majority of the disinterested
directors or, if it is not possible to obtain a quorum of directors not party to
or interested in the proceeding, then by a committee thereof or by special legal
counsel. In the case of individuals who are not directors, such determination
will be made by the chief executive officer of the respective corporation, or,
if the chief executive officer so directs, in the manner it would be made if the
individual were a director of the corporation.
Such
indemnification may apply to claims arising under the Securities Act of 1933, as
amended. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for our directors, officers or controlling persons pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act and therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by one of our directors, officers or controlling persons in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of the issue by the court.
We
maintain a program of insurance under which our directors and officers are
insured, subject to specified exclusions and deductible and maximum amounts,
against actual or alleged errors, misstatements, misleading statements, acts or
omissions, or neglect or breach of duty while acting in their respective
capacities for us.
The
indemnification and advancement of expenses provided for in our bylaws does not
exclude or limit any other rights to indemnification and advancement of expenses
that a person may be entitled to other agreements, shareholders’ and board
resolutions and our articles of incorporation.
Item
16. Exhibits.
The
exhibits filed with this Registration Statement are listed in the Exhibit Index
which is incorporated herein by reference.
Item
17. Undertakings.
The
undersigned Registrant hereby undertakes:
(a)
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
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(i)
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To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
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(ii)
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To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement.
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Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimate maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
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(iii)
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To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
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(b)
That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time be deemed to be the initial bona fide offering
thereof.
(c)
To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(d) That,
for the purpose of determining liability under the Securities Act to any
purchaser:
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(i)
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Each
prospectus filed by a Registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
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(ii)
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Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or
(x) for the purpose of providing the information required by
Section 10(a) of the Securities Act shall be deemed to be part of and
included in the registration statement as of the earlier of the date such
form of prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which the prospectus
relates, and the offering of such securities at that time shall be deemed
to be the initial bona
fide offering thereof. Provided, however, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective
date.
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(e)
That, for the purpose of determining liability of a Registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities, each undersigned Registrant undertakes that in a primary offering of
securities of an undersigned Registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned Registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such
purchaser:
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(i)
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Any
preliminary prospectus or prospectus of an undersigned Registrant relating
to the offering required to be filed pursuant to Rule
424;
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(ii)
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Any
free writing prospectus relating to the offering prepared by or on behalf
of an undersigned Registrant or used or referred to by an undersigned
Registrant;
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(iii)
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The
portion of any other free writing prospectus relating to the offering
containing material information about an undersigned Registrant or its
securities provided by or on behalf of an undersigned Registrant;
and
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Any
other communication that is an offer in the offering made by an
undersigned Registrant to the
purchaser.
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[(f)
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
each Registrant pursuant to the foregoing provisions, or otherwise, each
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of a Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, that Registrant will, unless in the opinion of its counsel that has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final jurisdiction of such issue.]
(g) Each
undersigned Registrant hereby undertakes that:
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(i)
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For
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
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(ii)
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The
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
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The
Lincoln National Life Insurance Company Agents’ Savings and Profit-Sharing
Plan
Pursuant
to the requirements of the Securities Act of 1933, the Plan and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Radnor, Commonwealth of Pennsylvania,
on the 11th day of December, 2009.
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The
Lincoln National Life Insurance Company Agents’ Savings and Profit-Sharing
Plan
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By:
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/s/Kim
Miner
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Kim
Miner, Interim Chair
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Lincoln
National Corporation
Benefits
Committee
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INDEX
TO EXHIBITS
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3.1
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The
Restated Articles of Incorporation of LNC as last amended effective May
11, 2007 are incorporated by reference to Exhibit 3.1 of LNC’s Form 8-K
(File No. 1-6028) filed with the SEC on May 10, 2007.
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3.2
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Articles
of Amendment date July 9, 2009 to the Restated Articles of Incorporation
of LNC are incorporated by reference to Exhibit 3.1 to LNC’s Form 8-K
(File No. 1-6028) filed with the SEC on July 10, 2009.
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3.3
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Amended
and Restated Bylaws of LNC (effective November 6, 2008) are incorporated
by reference to Exhibit 3.1 of LNC’s Form 10-Q (File No. 1-6028) for the
quarter ended September 30, 2008.
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23.1
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23.2
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Consent
of Andrew Scanlon, Esq., is contained in Exhibit 5.2 (included in Exhibit
5.2)
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