<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
Registration No. 333-10861
Registration No. 811-07785
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
(Group Variable Annuity III)
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
___________
LINCOLN LIFE & ANNUITY
VARIABLE ANNUITY ACCOUNT L
(Exact Name of Registrant)
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
(Name of Depositor)
120 Madison Street, 17th Floor
Syracuse, New York 13202
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: 1-800-893-7168
Robert O. Sheppard, Esquire
Lincoln Life & Annuity Company of New York
120 Madison Street, 17th Floor
Syracuse, New York 13202
(Name and Complete Address of Agent for Service)
Copy to:
Kimberly J. Smith, Esquire
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of securities being registered:
Interests in a separate account under group variable annuity contracts.
<PAGE>
CROSS REFERENCE SHEET
Showing Location of Information in Prospectus
FORM N-4 PROSPECTUS CAPTION
- -------- ------------------
1. Cover Page........................... Cover Page
2. Definitions.......................... Definitions
3. Synopsis or Highlights............... Summary
4. Condensed Financial Information...... Financial Information
5. General Description of Registrant, Lincoln Life, the Variable Investment
Depositor and Portfolio Companies.... Division and the Funds
6. Deductions and Expenses.............. Deductions and Charges
7. General Description of Variable Contract Provisions; Other Contract
Annuity Contracts.................... Provisions
8. Annuity Period....................... Annuity Period
9. Death Benefit........................ Contract Provisions, Death Benefits
10. Purchases and Contract Values........ Contract Provisions
11. Redemptions.......................... Contract Provisions, Withdrawals
12. Taxes................................ Federal Income Tax Considerations
13. Legal Proceedings.................... Other Information, Legal Proceedings
14. Table of Contents of the Statement Contents of Statement of Additional
of Additional Information............ Information
CROSS REFERENCE SHEET
Showing Location of Information in Statement of Additional Information
FORM N-4 STATEMENT OF ADDITIONAL INFORMATION
------------------------------------
CAPTION
-------
15. Cover Page........................... Cover Page
16. Table of Contents.................... Table of Contents
17. General Information and History...... Prospectus-Lincoln Life, The Variable
Investment Division and the Funds
18. Services............................. Not Applicable
19. Purchase of Securities Being Offered. Not Applicable
20. Underwriters......................... Distribution of the Contracts
21. Calculation of Yield Quotations
of Money Market Sub Accounts......... Not Applicable
22. Annuity Payments..................... Determination of Variable Annuity
Payment
23. Financial Statements................. Financial Statements
CROSS REFERENCE SHEET
Showing Location of Information in Part C-Other Information
24(a)Financial Statements and Exhibits... Not Applicable
24(b)Exhibits............................ Exhibits
25. Directors and Officers of the
Depositor........................... Directors and Officers of the
Depositor
26. Persons Controlled by or Under
Common Control with the Depositor
or Registrant....................... Organizational Chart
27. Number of Contract Owners........... Number of Contract Owners
28. Indemnification..................... Indemnification
29. Principal Underwriters.............. Principal Underwriters
30. Location of Accounts and Records.... Location of Accounts and Records
31. Management Services................. Management Services
32. Undertakings........................ Undertakings
<PAGE>
- --------------------------------------------------------------------------------
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Group Variable Annuity Contracts Lincoln Life & Annuity
Variable Annuity
Account L
120 Madison Street, 17th Floor
Syracuse, New York 13202
(800) 893-7168
VARIABLE ANNUITY III
[LOGO OF LINCOLN LIFE(R) APPEARS HERE]
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
MAY 1, 1998
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
THE APPLICABLE UNDERLYING FUNDS WHICH SHOULD BE RETAINED FOR FUTURE REFERENCE.
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISK, INCLUDING MARKET FLUC-
TUATION AND POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NY90003
This prospectus describes group annuity contracts ("Contracts") offered by Lin-
coln Life & Annuity Company of New York ("Lincoln Life"), a subsidiary of The
Lincoln National Life Insurance Company. The Contracts are designed to enable
Participants and Employers to accumulate funds for retirement programs meeting
the requirements of the following Sections of the Internal Revenue Code of
1986, as amended (the "Code"): 401(a), 403(b), 408 and 457 and other related
Sections as well as for programs offering non-qualified annuities. A Partici-
pant is an employee or other person affiliated with the Contractholder on whose
behalf a Participant Account is maintained under the terms of the Contract.
The Contracts permit Contributions to be deposited in the Guaranteed Interest
Division, which is part of Lincoln Life's General Account, and in certain Sub-
Accounts in Lincoln Life's Lincoln Life & Annuity Variable Annuity Account L
("Variable Investment Division"). Contributions to the Guaranteed Interest Di-
vision earn interest at a guaranteed rate declared by Lincoln Life. Contribu-
tions to the Variable Investment Division will increase or decrease in dollar
value depending on the investment performance of the underlying funds in which
the Sub-Accounts invest. Special limits apply to withdrawals and transfers from
the Guaranteed Interest Division.
Currently, the Variable Investment Division consists of the nine Sub-Accounts
listed below: Next to each listed Sub-Account is the name of the fund (the
"Fund") in which the Sub-Account invests. For more information about the in-
vestment objectives, policies and risks of the Funds please refer to the pro-
spectus for each of the Funds.
<TABLE>
<S> <C>
Index Account.......................................... Dreyfus Stock Index Fund
Growth I Account....................................... Fidelity's Variable
Insurance Products Fund:
Growth Portfolio
Asset Manager Account.................................. Fidelity's Variable
Insurance Products Fund
II: Asset Manager
Portfolio
Growth II Account...................................... American Century
Variable Portfolios,
Inc.: VP Capital
Appreciation
Balanced Account....................................... American Century
Variable Portfolios,
Inc.: VP Balanced
International Stock Account............................ T. Rowe Price
International Series,
Inc.
Socially Responsible Account........................... Calvert Social Balanced
Portfolio
Equity-Income Account.................................. Fidelity's Variable
Insurance Products Fund:
Equity-Income Portfolio
Small Cap Account...................................... Dreyfus Variable
Investment Fund: Small
Cap Portfolio
</TABLE>
This prospectus is intended to provide information regarding the Contracts of-
fered by Lincoln Life that you should know before investing. Please read and
retain this prospectus for future reference. A Statement of Additional Informa-
tion ("SAI"), dated May 1, 1998, has been filed with the Securities and Ex-
change Commission and is incorporated by this reference into this Prospectus.
If you would like a free copy write to: Lincoln Life & Annuity Company of New
York, TDA Client Services, P.O. Box 1337, Syracuse, New York 13201-1337, call
1-800-893-7168, or e-mail [email protected]. A table of contents for the
SAI appears on the last page of this Prospectus.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................................ 3
SUMMARY (Including Fee Table and Performance Information).................. 5
CONDENSED FINANCIAL INFORMATION............................................ 10
FINANCIAL STATEMENTS....................................................... 11
LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION AND THE FUNDS............... 11
CONTRACT PROVISIONS........................................................ 15
DEDUCTIONS AND CHARGES..................................................... 21
ANNUITY PERIOD............................................................. 22
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 24
VOTING RIGHTS.............................................................. 30
OTHER CONTRACT PROVISIONS.................................................. 31
GUARANTEED INTEREST DIVISION............................................... 32
OTHER INFORMATION.......................................................... 34
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION.................. 36
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each Sub-
Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation
Date and terminating when the Participant's Account balance is reduced to zero,
either through withdrawal(s), annuitization, imposition of charges, payment of
a Death Benefit or a combination thereof.
ANNUITANT: The person receiving annuity payments under the terms of the
Contract.
ANNUITY COMMENCEMENT DATE: The date on which Lincoln Life makes the first
annuity payment to the Annuitant as required by the Retired Life Certificate.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
annuity.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
BENEFICIARY: The person(s) designated to receive a Participant's Account
balance in the event of the Participant's death during the Accumulation Period
or the person(s) designated to receive any applicable remainder of an annuity
in the event of the Annuitant's death during the Annuity Period.
BUSINESS DAY: A day on which the New York Stock Exchange is customarily open
for business.
CONTRIBUTIONS: All amounts deposited under a Contract, including any amount
transferred from another contract or Trustee.
CONTRACT: A Group Variable Annuity contract issued by Lincoln Life to the
Contractholder.
CONTRACTHOLDER: The party named as the Contractholder on the group annuity
contract issued by Lincoln Life. The Contractholder may be an Employer, a
retirement plan trust, an association or any other entity allowed under the
law.
DIVISION(S): The Guaranteed Interest Division and/or the Variable Investment
Division.
EMPLOYER: The organization specified in the Contract which offers the Plan to
its employees.
FUNDS: The underlying funds in which the Sub-Accounts invest. Funds are
investment vehicles which offer their shares only to insurance companies'
separate accounts and other qualifying investors.
GENERAL ACCOUNT: All assets of Lincoln Life other than those in the Variable
Investment Division or any other separate account.
GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is reduced
when a withdrawal occurs, including any applicable Annual Administration
Charge.
GUARANTEED ANNUITY: An annuity for which Lincoln Life guarantees the amount of
each payment for as long as the annuity is payable.
GUARANTEED INTEREST DIVISION: The Division maintained by Lincoln Life for the
Contracts and other contracts for which Lincoln Life guarantees the principal
amount and interest credited thereto subject to any fees and charges as set
forth in the Contract. Amounts allocated to the Guaranteed Interest Division
are part of Lincoln Life's General Account.
LINCOLN LIFE: Lincoln Life & Annuity Company of New York.
3
<PAGE>
NET CONTRIBUTIONS: The sum of all Contributions credited to a Participant
Account less any Net Withdrawal Amounts, outstanding loan (including principal
and due and accrued interest) and amounts converted to a Payout Annuity.
NET WITHDRAWAL AMOUNT: The amount paid when a withdrawal occurs.
PARTICIPANT: An employee or other person affiliated with the Contractholder on
whose behalf an Account is maintained under the terms of the Contract.
PARTICIPANT ACCOUNT: An account maintained for a Participant during the
Accumulation Period the total balance of which equals the Participant's Account
balance in the Variable Investment Division plus the Participant's Account
balance in the Guaranteed Interest Division.
PARTICIPATION ANNIVERSARY: For each Participant, a date at one year intervals
from the Participant's Participation Date. If an anniversary occurs on a non-
Business Day, it is treated as occurring on the next Business Day.
PARTICIPATION DATE: A date assigned to each Participant corresponding to the
date on which the first Contribution on behalf of that Participant is received
by Lincoln Life. A Participant will receive a new Participation Date if such
Participant makes a Total Withdrawal, as defined in this prospectus, and
Contributions on behalf of the Participant are resumed under any Contract.
PARTICIPATION YEAR: A period beginning with one Participation Anniversary and
ending the day before the next Participation Anniversary, except for the first
Participation Year which begins with the Participation Date.
PAYOUT ANNUITY: A series of payments paid to a person. A Payout Annuity may be
either a Guaranteed Annuity or a Variable Annuity or a combination Guaranteed
and Variable Annuity. See "Annuity Period."
PLAN: The retirement program offered by an Employer to its employees for which
a Contract is used to accumulate funds.
RECEIPT: Receipt by Lincoln Life at its service office in Portland, Maine.
SUB-ACCOUNT: An account established in the Variable Investment Division which
invests in shares of a corresponding Fund.
VALUATION DATE: A Business Day. Accumulation Units and Annuity Units are
computed as of the close of trading on the New York Stock Exchange.
VALUATION PERIOD: A period used in measuring the investment experience of each
Sub-Account. The Valuation Period begins at the close of trading on the New
York Stock Exchange on one Valuation Date and ends at the corresponding time on
the next Valuation Date.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected sub-accounts. See
"Annuity Period."
VARIABLE INVESTMENT DIVISION: The Division which is maintained by Lincoln Life
for these Contracts and certain other Lincoln Life contracts for which Lincoln
Life does not guarantee the principal amount or investment results. The
Variable Investment Division is the Lincoln Life & Annuity Variable Annuity
Account L which is a group of assets segregated from the General Account whose
income, gains and losses, realized or unrealized, are credited to or charged
against the Variable Investment Division without regard to other income, gains
or losses of Lincoln Life. The Variable Investment Division currently consists
of nine Sub-Accounts. Additional Sub-Accounts may be added in the future.
4
<PAGE>
SUMMARY
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Lincoln Life is a life insurance company chartered under New York law on June
6, 1996. Lincoln Life is a subsidiary of The Lincoln National Life Insurance
Company.
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus are available
to Employers and other entities to provide a way to accumulate funds for
retirement and to provide Payout Annuities. Lincoln Life offers Contracts
designed to enable Participants and Employers to accumulate funds for
retirement programs meeting the requirements of the following Sections of the
Internal Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408,
457 and other related Sections as well as for programs offering non-qualified
annuities.
HOW CONTRIBUTIONS ARE MADE
Contributions under the Contract are deposited by the Contractholder.
Depending upon the type of Plan offered, Contributions may consist of salary
reduction Contributions, Employer Contributions or Participant post-tax
Contributions. Contributions are forwarded by the Contractholder to Lincoln
Life and allocated among the two Divisions in accordance with information
provided by the Contractholder. See "Contract Provisions, Contributions under
the Contract."
Special limits apply to transfers and withdrawals from the Guaranteed
Interest Division. See "Guaranteed Interest Division."
DIVISIONS OFFERED
Contributions may be allocated to the Guaranteed Interest Division or to the
Variable Investment Division or to both Divisions. The Variable Investment
Division currently consists of nine Sub-Accounts. A Contractholder may choose
to offer between zero and nine of the Sub-Accounts to its Participants under a
Contract. The Sub-Accounts invest their assets in shares of a corresponding
Fund. For a full description of the Funds, see the prospectuses for the Funds.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder under
certain Plans may make transfers between and among Divisions and Sub-Accounts.
Certain Plans may limit the transfers in dollar amount, type of Contribution,
or frequency. Certain Plans may require Contractholder approval for a transfer.
See "Transfers between Divisions and Sub-Accounts."
WITHDRAWALS
Subject to the restrictions imposed by the Code and regulations thereof and
by the applicable Plan, each year Participants may withdraw up to 20% of the
Guaranteed Interest Division account balance, or, if liquidating or
transferring the entire Guaranteed Interest Division account value, specified
amounts according to a pre-determined five year schedule. With respect to
Section 401(a) Plans and Plans subject to Title I of the Employee Retirement
Income Security Act of 1974 (ERISA), the Contractholder must authorize Lincoln
Life to process a withdrawal request by a Participant. Withdrawal requests
under Section 457 Plans must also be authorized by the Contractholder. With
respect to withdrawal requests by Participants under Plans not subject to Title
I of ERISA, certain Contracts may require that the Participants must certify to
Lincoln Life that an eligible event under the Code has occurred. Withdrawal
requests must be in writing and in a form acceptable to Lincoln Life.
5
<PAGE>
Certain Plans are also subject to distribution requirements under Section
401(a)(9) of the Code including the incidental death benefit requirements of
Section 401(a)(9)(G). Certain transfers from one Qualified Plan contract to
another Qualified Plan contract are not subject to withdrawal restrictions
under the Code. Withdrawals and distributions may have tax consequences,
including possibly a 10% Federal Excise Tax for premature distributions.
See "Federal Income Tax Considerations."
DEATH BENEFITS
The Contracts provide for a Death Benefit for a Participant who dies during
the Accumulation Period. See "Contract Provisions, Death Benefits."
PAYOUT ANNUITIES
As permitted by the applicable Plan, a Participant or a Beneficiary of a
deceased Participant may elect to convert all or part of the Participant's
Account balance or the Death Benefit, as appropriate, to a Payout Annuity.
Lincoln Life offers both Guaranteed and Variable Annuities or a combination
Guaranteed and Variable Annuity. The range of annuity options available
includes life annuities and annuities for a specific time period as well as
others described more fully in this prospectus. See "Annuity Period."
FREE-LOOK PROVISION
A Participant under a Section 403(b) or 408 Plan and certain Non-Qualified
Plans has ten days, in most cases, from the date the Participant receives an
Active Life Certificate to notify Lincoln Life in writing that the Participant
does not choose to participate under the Contract and to receive a return of
funds. See "Free-Look Period."
FEE TABLE
The following table and examples, prescribed by the Securities and Exchange
Commission (the "SEC"), are included to assist Contractholders and Participants
in understanding the transaction and operating expenses imposed directly or
indirectly under the Contracts. The standardized tables and examples assume the
highest deductions possible under the Contracts, whether or not such deductions
actually would be made from a Participant's Account.
<TABLE>
<S> <C>
Contract Related
Transaction Ex-
penses/1//
Sales Load Im-
posed on Pur-
chases: 0%
Annual Admin-
istration
Charge/2// $25
Separate Account
Annual Expenses
(as a percentage
of average
daily net as-
sets)
Mortality and
Expense Risk
Charge: 1.00%
Other Charges: 0.00%
Total Separate
Account
Annual Ex-
penses: 1.00%/3//
</TABLE>
6
<PAGE>
Fund Expenses/4//
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
INDEX G-I/5// AMGR/5// G-II BAL INT'L SOC RES/6// EQI/5// SMCAP
----- ------- -------- ---- ---- ----- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.25 0.60 0.55 1.00 1.00 1.05 0.69 0.50 0.75
Other Expenses 0.03 0.09 0.10 0 0 0 0.12 0.08 0.03
Total Fund Expenses 0.28 0.69 0.65 1.00 1.00 1.05 0.81 0.58 0.78
</TABLE>
Example #1: Assuming total withdrawal of the Participant's Account balance at
the end of the period shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
INDEX G-I AMGR G-II BAL INT'L SOC RES EQI SMCAP
------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 14.90 19.03 18.63 22.14 22.14 22.64 20.24 17.92 20.04
3 Years 46.28 58.88 57.65 68.30 68.30 69.81 62.53 55.51 61.93
5 Years 79.91 101.23 99.17 117.06 117.06 119.59 107.39 95.55 106.36
10 Years 174.85 219.14 214.90 251.35 251.35 256.45 231.73 207.44 229.65
Example #2: Assuming annuitization of the Participant's Account at the end of
the period shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<CAPTION>
INDEX G-I AMGR G-II BAL INT'L SOC RES EQI SMCAP
------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 14.90 19.03 18.63 22.14 22.14 22.64 20.24 17.92 20.04
3 Years 46.28 58.88 57.65 68.30 68.30 69.81 62.53 55.51 61.93
5 Years 79.91 101.23 99.17 117.06 117.06 119.59 107.39 95.55 106.36
10 Years 174.85 219.14 214.90 251.35 251.35 256.45 231.73 207.44 229.65
Example #3: Assuming persistency of the Participant's Account through the
periods shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<CAPTION>
INDEX G-I AMGR G-II BAL INT'L SOC RES EQI SMCAP
------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 14.90 19.03 18.63 22.14 22.14 22.64 20.24 17.92 20.04
3 Years 46.28 58.88 57.65 68.30 68.30 69.81 62.53 55.51 61.93
5 Years 79.91 101.23 99.17 117.06 117.06 119.59 107.39 95.55 106.36
10 Years 174.85 219.14 214.90 251.35 251.35 256.45 231.73 207.44 229.65
</TABLE>
The effect of the Annual Administration Charge for a period is determined by
dividing the total amount of such charges collected in the previous year by the
total average net assets of the accounts for the previous year, as of the
previous month ended; accounts include accounts available under Variable
Annuity III of Lincoln Life and under corresponding accounts of First UNUM Life
Insurance Company.
- --------
/1/The/examples do not take into account any deduction for premium taxes which
may be applicable. Loans taken by a Participant with respect to the Partici-
pant's Account balance in the Guaranteed Interest Division may be subject to
a charge for establishing the loan.
/2/The/Employer has the option of paying the Annual Administration Charge on
behalf of the Participants under a Contract. In such a situation, the pro-
jected expenses would be lower than those indicated in the examples. This
charge is not imposed during the Annuity Period. In certain situations the
Annual Administration Charge may be reduced or eliminated. See "Deductions &
Charges--Annual Administration Charge."
7
<PAGE>
/3/ Prior to January 1, 1998, a 1.20% mortality and expense risk charge was de-
ducted from the Contracts.
/4/ Until complete order instructions are received, initial Contributions may
be allocated temporarily to Fidelity's Variable Insurance Products Fund:
Money Market Portfolio. Management fees for this fund are 0.21%. Other
expenses are 0.10%. Total Fund Expenses are 0.31%. The Mortality and
Expense Risk Charge is not assessed. For a discussion of the Money Market
Portfolio, please see "Initial Contributions."
/5/ A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into arrange-
ments with their custodian whereby credits realized as a result of
uninvested cash balances was used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table
would have been 0.57% for VIP Equity-Income Portfolio, 0.67% for VIP
Growth Port-folio, and 0.64% for VIP II Asset Manager Portfolio.
/6/ The figures above are based on expenses for fiscal year 1997, and have
been restated to reflect an increase in transfer agency expenses of 0.01%
ex-pected to be incurred in 1998. "Management Fees" includes a performance
ad-justment which, depending on performance, could cause the fee to be as
high as 0.85% or as low as 0.55%. "Other Expenses" reflects an indirect
fee. Net fund operating expenses after reductions for fees paid indirectly
(again, restated) would be 0.78%.
The Contracts are designed for retirement planning. Withdrawals prior to
retirement or the Annuity Commencement Date are not consistent with the long-
term purposes of the Contracts and the applicable tax laws. Withdrawals may
also be subject to federal income tax and a 10% Federal tax penalty.
The fee table and examples reflect expenses and charges of the Sub-Accounts
and the expenses of the applicable Fund for the year ended December 31, 1997.
HOWEVER, THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND CHARGES OF THE SUB-ACCOUNTS OR THE FUNDS. SIMILARLY, THE
ASSUMED 5% ANNUAL RATE OF RETURN IS NOT AN ESTIMATE OR A GUARANTEE OF FUTURE
INVESTMENT PERFORMANCE. See "Deductions and Charges" in this prospectus and the
discussion of Fund Management in the prospectus for each of the Funds for
further information.
PERFORMANCE INFORMATION
The Variable Investment Division may advertise or use in sales literature
information concerning the investment performance of the various Sub-Accounts.
No performance presentation should be considered as representative of future
investment results. Actual performance is a function not only of the investment
management of the underlying Funds and market forces, but of the time and
frequency of Contributions, the charges and fees imposed under the Contract,
the fees and expenses of the Funds, and transfers made by a Participant, among
other factors.
The investment performance of the Sub-Accounts may be advertised in
comparison with the performances of other variable annuities, other investment
companies (such as mutual funds), and recognized indices (such as the Dow Jones
Industrial Average, Standard & Poor's 500 Composite Stock Price Index, NASDAQ
Index, Consumer Price Index), and data published by Lipper Analytical Services,
Inc., Morningstar, and Variable Annuity Research and Data Service or comparable
services. Performance of the Sub-Accounts may also be compared with performance
of other types of investments. Some advertisements may also include published
editorial comments and performance rankings by independent organizations and
publications that monitor the performance of separate accounts and mutual
funds.
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the value
of a hypothetical $1,000 contribution allocated to a Sub-Account from the
beginning to the end of each specified period of time. The SEC standardized
formula gives effect to all applicable charges under the Contracts. This method
of calculating performance further
8
<PAGE>
assumes that (i) a $1,000 contribution was allocated to a Sub-Account, (ii) no
transfers or additional payments were made and (iii) the withdrawal of the
investment occurs at the end of the period. Premium taxes are not included in
this calculation. The Sub-Accounts may also advertise this total return
performance as described above on a cumulative basis.
The Sub-Accounts may also present non-standard performance information based
on the history of a Fund and adjusted to reflect the fees and charges imposed
under a Contract. The Sub-Accounts may present total return information
computed on a calendar year basis. The Sub-Accounts may also present total
return information over specified periods of time (computed on an average
annual or cumulative basis) assuming that no administrative charge will be
deducted. The Sub-Accounts may present hypothetical examples that apply the
total return to a hypothetical initial investment. The Sub-Accounts may also
present total return information based on different amounts of periodic
investments. For additional performance information, please refer to the
Statement of Additional Information.
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contractholders,
Lincoln Life may reflect endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend Lincoln
Life or the Contracts. The endorser's name will be used only with the
endorser's consent. It should be noted that the list of endorsements may change
from time to time.
Also, from time to time, the rating of Lincoln Life as an insurance company
by A.M. Best may be referred to in advertisements or in reports to
Contractholders. Each year the A.M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect Best's opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance Industry. Best's ratings range from A++ to F.
In addition, the claims-paying ability of Lincoln Life as measured by the
Standard and Poor's Rating Group may be referred to in advertisements or in
reports to Contractholders. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to CCC.
From time to time Lincoln Life may refer to Moody's Investors Service rating
of Lincoln Life. Moody's Investors Service financial strength ratings indicate
an insurance company's ability to discharge policyholder obligations and claims
and are based on an analysis of the insurance company and its relationship to
its parent, subsidiaries, and affiliates. Moody's Investors Service ratings
range from Aaa to C.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance contracts in accordance with
their terms. Claims-paying ability ratings do not refer to an insurer's ability
to meet non-contract obligations (i.e., debt/commercial paper). Lincoln Life's
ratings should not be considered as bearing on the investment performance of
assets held in the Variable Investment Division or the safety (or lack thereof)
for an investment in the Variable Investment Division.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
The financial data included below should be read in conjunction with the
financial statements and the related data included in the Statement of
Additional Information.
ACCUMULATION UNIT VALUES
(For an Accumulation Unit outstanding throughout the period)
<TABLE>
<CAPTION>
SUB-ACCOUNT 1997
- ----------- -------
<S> <C>
Index Account*
Beginning of Period 24.0914
End of Period 29.8265
Growth I Account*
Beginning of Period 24.5294
End of Period 28.3282
Capital Appreciation Account*
Beginning of Period 15.6169
End of Period 14.0633
Asset Manager Account*
Beginning of Period 17.7688
End of Period 20.5827
Balanced Account*
Beginning of Period 16.9888
End of Period 18.5505
International Stock*
Beginning of Period 12.1078
End of Period 12.5035
Socially Responsible*
Beginning of Period 14.5280
End of Period 16.8728
Equity-Income*
Beginning of Period 16.3887
End of Period 19.9854
Small Cap*
Beginning of Period 15.5226
End of Period 17.6322
Money Market Account*
Beginning of Period 11.3276
End of Period 11.8940
</TABLE>
- --------
*The Sub-Account indicated commenced operations on January 31, 1997.
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Index Account 814,078
Growth I Account 1,819,150
Capital Appreciation Account 682,853
Asset Manager Account 1,420,180
Balanced Account 438,792
Socially Responsible Account 68,871
Equity-Income Account 888,790
International Stock Account 474,904
Small Cap Account 966,351
Money Market Account 2,134
</TABLE>
10
<PAGE>
Number of Fund Shares held by each of the corresponding Sub-Accounts as of
December 31st of each year
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Dreyfus Stock Index Fund 942,987
Fidelity's Variable Insurance Products Fund:
Growth Portfolio 1,389,081
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation 992,096
Fidelity's Variable Insurance Products Fund II:
Asset Manager Portfolio 1,623,105
American Century Variable Portfolios, Inc.
American Century VP Balanced 987,872
Calvert Social Balanced Portfolio 586,911
Fidelity's Variable Insurance Products Fund:
Equity-Income Portfolio 731,607
T. Rowe Price International Stock Portfolio 466,102
Dreyfus Variable Investment Fund: Small Cap Portfolio 298,206
Fidelity's Variable Insurance Products Fund:
Money Market Portfolio 25,386
</TABLE>
FINANCIAL STATEMENTS
The financial statements of the Variable Investment Division and the
statutory-basis financial statements and schedules of Lincoln Life may be found
in the Statement of Additional Information.
LINCOLN LIFE, THE VARIABLE INVESTMENT
DIVISION AND THE FUNDS
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Lincoln Life is a life insurance company chartered under New York law on June
6, 1996. Lincoln Life's principal executive offices are located at 120 Madison
Street, 17th Floor, Syracuse, New York 13202. Lincoln Life is licensed to sell
variable contracts in New York.
Lincoln Life is a subsidiary of The Lincoln National Life Insurance Company.
The Lincoln National Life Insurance Company was incorporated under the laws of
Indiana on June 12, 1905. The Lincoln National Life Insurance Company is
principally engaged in offering life insurance policies and annuity policies,
and ranks among the largest United States stock life insurance companies in
terms of assets and life insurance in force.
The Lincoln National Life Insurance Company is wholly owned by Lincoln
National Corporation ("LNC"), a publicly held insurance holding company
incorporated under Indiana law on January 5, 1968. The principal offices of
both The Lincoln National Life Insurance Company and LNC are located at 1300
South Clinton Street, Fort Wayne, Indiana 46801. Through subsidiaries, LNC
engages primarily in the issuance of life insurance and annuities, property
casualty insurance, and other financial services. Administrative services
necessary for the operation of the Variable Investment Division and the
Contracts are currently provided by The Lincoln National Life Insurance
Company. See "Deductions and Charges--Annual Administration Charge."
LINCOLN FINANCIAL ADVISORS CORPORATION
Lincoln Financial Advisors Corporation ("LFA"), a registered broker-dealer,
is the principal underwriter of the Contracts. As such, LFA will be offering
the Contracts and performing all duties
11
<PAGE>
and functions that are necessary and proper for distribution of the Contracts.
LFA also may enter into sales agreements with independent broker-dealers for
the sale of the Contracts. LFA may pay sales commissions to broker-dealers up
to an amount equivalent to 3.5% of Contributions under a Contract. LFA's
principal business address is 1300 South Clinton Street, Fort Wayne, Indiana
46802. LFA, as a broker-dealer, will do business in the state of Texas under
the name LNC Equity Sales Corporation.
THE VARIABLE INVESTMENT DIVISION
On July 24, 1996, the Board of Directors of Lincoln Life authorized the
establishment of the Variable Investment Division in accordance with New York
Insurance Laws. Under New York law, funds in the Variable Investment Division
are owned by Lincoln Life and Lincoln Life is not, nor can Lincoln Life be, a
trustee with respect to those funds. The Variable Investment Division is
registered with the Securities and Exchange Commission ("SEC") as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act").
Registration with the SEC does not involve supervision of the management or
investment practices or policies of either the Variable Investment Division or
Lincoln Life by the SEC.
The Variable Investment Division currently consists of nine Sub-Accounts. The
Sub-Accounts invest in shares of the Funds. Therefore, the investment
experience of the Sub-Accounts depends on the performance of the Funds.
The Variable Investment Division is a segregated investment account, meaning
that its assets may not be charged with liabilities resulting from any other
business Lincoln Life may conduct. The income, gains and losses, realized or
unrealized, from assets allocated to each Sub-Account of the Variable
Investment Division are credited to or charged against that Sub-Account,
without regard to other income, gains or losses in Lincoln Life's general
account or any other separate account or Sub-Account. The Contract provides
that the assets of the Variable Investment Division may not be charged with
liabilities arising out of any other business of Lincoln Life. Lincoln Life may
accumulate in the Variable Investment Division proceeds from charges under the
Contract and other amounts in excess of the Variable Investment Division assets
representing Contract reserves and liabilities. Lincoln Life is the issuer of
the Contracts and the obligations set forth therein, other than those of the
Contractholder or the Participant, are obligations of Lincoln Life.
THE FUNDS
The nine Sub-Accounts invest directly in nine corresponding Funds. Each of
these Funds was formed as an investment vehicle for insurance company separate
accounts. The investment objectives and policies of certain Funds are similar
to the investment objectives and policies of other portfolios that may be
managed by the same investment adviser or manager. The investment results of
the Funds, however, may be higher or lower than the results of such other
portfolios. There can be no assurance, and no representation is made, that the
investment results of any of the Funds will be comparable to the investment
results of any other portfolio, even if the other portfolio has the same
investment adviser or manager.
Information about each of the Funds, including their investment objectives
and investment management, is contained below. Additional information about the
Funds, their investment policies, risks, fees and expenses and all other
aspects of their operations, can be found in the prospectuses for the Funds,
which should be read carefully before investing. THERE IS NO ASSURANCE THAT ANY
FUND WILL ACHIEVE ITS STATED OBJECTIVES. Additional copies of the Funds'
prospectuses, as well as their Statements of Additional Information, can be
obtained directly from each of the Funds without charge by writing to the
particular Funds at the addresses noted on the front of the Fund prospectus.
Shares of the Funds are sold not only to the Sub-Accounts but also to variable
annuity and variable life separate accounts of other insurance companies and
qualified
12
<PAGE>
retirement plans. For a disclosure of possible conflicts involved in the Sub-
Accounts investing in Funds that are so offered, see the applicable Fund
prospectus.
All dividend and capital gain distributions of the Funds are automatically
reinvested in shares of the distributing Funds at their net asset value on the
date of distribution.
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company known as an index fund. Its goal is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, acts as the Fund manager and Mellon Equity Associates, an affiliate of
Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is the
Fund index manager.
CALVERT SOCIAL BALANCED PORTFOLIO OF CALVERT VARIABLE SERIES
CALVERT SOCIAL BALANCED PORTFOLIO: The Calvert Social Balanced Portfolio seeks
total return above the rate of inflation through an actively managed, non-
diversified portfolio of common and preferred stocks, bonds, and money market
instruments which offer income and growth opportunity and which satisfy the
social concern criteria established for the Portfolio. Shares of the Portfolio
are offered only to insurance companies for allocation to certain of their
variable accounts.
The Calvert Asset Management Company, Inc., located at 4550 Montgomery
Avenue, Suite 1000N, Bethesda, Maryland 20814, serves as the Portfolio's
investment adviser.
SMALL CAP PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company.
THE SMALL CAP PORTFOLIO: The Portfolio seeks to maximize capital appreciation.
The Small Cap Portfolio seeks out companies that The Dreyfus Corporation
believes have the potential for significant growth. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
companies with market capitalization of less than $1.5 billion, at the time of
purchase, both domestic and foreign which the Portfolio believes to be
characterized by new or innovative products or services which should enhance
prospects for growth in future earnings. The Portfolio may also invest in
special situations such as corporate restructurings, mergers or acquisitions.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Portfolio's investment adviser.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (VIP): VIP EQUITY-INCOME, VIP
GROWTH PORTFOLIO,
AND VIP MONEY MARKET PORTFOLIO
VIP EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by investing
at least 65% of its total assets in income-producing. The Portfolio has the
flexibility, however, to invest the balance in all types of domestic and
foreign securities, including bonds.
VIP GROWTH PORTFOLIO: The Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
VIP MONEY MARKET PORTFOLIO: The Portfolio seeks to obtain as high a level of
current income as is consistent with preserving capital and providing
liquidity. For more information regarding the Portfolio,
13
<PAGE>
into which initial Contributions are invested pending Lincoln Life's receipt of
a complete order, please see the "Initial Contributions" section.
Fidelity Management & Research Company ("FMR") is the manager of the VIP
Equity-Income Portfolio, the VIP Growth Portfolio and the VIP Money Market
Portfolio and is located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (VIP II): VIP II ASSET MANAGER
PORTFOLIO
VIP II ASSET MANAGER PORTFOLIO: The Portfolio seeks high total return with
reduced risk over the long term by allocating its assets among domestic and
foreign stocks, bonds and short-term money market instruments.
FMR is the manager of the Portfolio and is located at 82 Devonshire Street,
Boston, Massachusetts 02109. FMR or its affiliate may compensate Lincoln Life
or its affiliate for administrative, distribution, or other services. That
compensation would be based on assets of the Fidelity Funds attributable to the
Contracts and to certain other contracts issued or administered by Lincoln Life
and its affiliates.
AMERICAN CENTURY VP CAPITAL APPRECIATION AND AMERICAN CENTURY VP BALANCED OF
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AMERICAN CENTURY VP CAPITAL APPRECIATION: The Portfolio seeks capital growth by
investing primarily in common stocks that are considered by management to have
better-than-average prospects for appreciation.
AMERICAN CENTURY VP BALANCED: The Portfolio seeks capital growth and current
income. Its investment team intends to maintain approximately 60% of the
portfolio's assets in common stocks that are considered by its manager to have
better than average prospects for appreciation and the balance in bonds and
other fixed income securities.
American Century Variable Portfolios, Inc. is managed by American Century
Investment Management, Inc. which also manages the American Century family of
mutual funds. American Century Investment Management, Inc. has its principal
place of business at 4500 Main Street, Kansas City, Missouri 64111.
Lincoln Life or its affiliate may perform certain administrative or other
services that would otherwise be performed by American Century Services
Corporation, and American Century Investment Management, Inc. may pay Lincoln
Life or its affiliate for such services. Such compensation would be based on
assets of the American Century Funds attributable to the Contracts and certain
other contracts issued by Lincoln Life and its affiliates.
INTERNATIONAL STOCK PORTFOLIO OF T. ROWE PRICE INTERNATIONAL SERIES, INC.
INTERNATIONAL STOCK PORTFOLIO: The International Stock Portfolio seeks long-
term growth of capital through investments primarily in common stocks of
established, non-U.S. companies.
The Series is managed by Rowe Price-Fleming International, Inc., one of
America's largest international no load mutual fund managers with approximately
$30 billion under management as of December 31, 1997, from its offices in
Baltimore, London, Tokyo, Hong Kong, Singapore, and Buenos Aires.
14
<PAGE>
CONTRACT PROVISIONS
GENERAL
These Contracts were designed for Employers and other entities to enable
Participants and Employers to accumulate funds for retirement programs meeting
the requirements of the following Sections of the Internal Revenue Code of
1986, as amended (the "Code"): 401(a), 403(b), 408, 457 and other related
Sections as well as for programs offering non-qualified annuities. An Employer,
Association or trustee in some circumstances, may enter into a Contract with
Lincoln Life by filling out an application and returning it to Lincoln Life.
Upon Lincoln Life's acceptance of the application, Contractholders or an
affiliated Employer can forward Contributions on behalf of employees who then
become Participants under the Contracts. For Plans that have allocated rights
to the Participant, Lincoln Life will issue to each Participant a separate
Active Life Certificate that describes the basic provisions of the Contract to
each Participant.
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contributions are forwarded by the
Contractholders to Lincoln Life for investment. Depending on the Plan, the
Contributions may consist of salary reduction Contributions, Employer
Contributions or post-tax Contributions.
Contributions may accumulate on either a guaranteed or variable basis
depending upon the Divisions available under the Contract and/or the Division
in which the Contributions are deposited. Contributions to the Guaranteed
Interest Division become part of Lincoln Life's General Account and are
guaranteed a minimum rate of interest. See "Guaranteed Interest Division."
Contributions to the Variable Investment Division increase or decrease in value
daily to reflect the investment experience of the Sub-Accounts in which the
Contributions are invested.
Contributions by Participants may be in any amount unless there is a minimum
amount set by the Contractholder or Plan. A Contract may require the
Contractholder to contribute a minimum annual amount on behalf of all
Participants. Annual Contributions under Qualified Plans may be subject to
maximum limits imposed by the Code. Annual Contributions under non-qualified
plans may be limited by the terms of the Contract. In the Statement of
Additional Information see "Tax Law Considerations" for a discussion of these
limits. Subject to any restrictions imposed by the Plan or the Code, transfers
from other contracts and qualified rollover Contributions will be accepted.
Contributions must be in United States funds. All withdrawals and
distributions under this Contract will be in U.S. funds. If a bank or other
financial institution does not honor the check or other payment method
constituting a Contribution, Lincoln Life will treat the Contribution as
invalid. All allocation and subsequent transfers resulting from the invalid
Contributions shall be reversed and the party responsible for the invalid
Contribution shall reimburse Lincoln Life for any losses or expenses resulting
from the invalid Contribution.
INITIAL CONTRIBUTIONS
The initial Contribution for a Participant will be credited to the
Participant's Account no later than two (2) Business Days after it is received
by Lincoln Life at its service office if it is preceded or accompanied by a
completed enrollment form containing all the information necessary for
processing the Participant's Contribution. If Lincoln Life does not receive a
complete enrollment form, Lincoln Life will notify the Contractholder or the
Participant that Lincoln Life does not have the necessary information to
process the Contribution. If the necessary information is not provided to
Lincoln Life within five (5) Business Days after Lincoln Life first receives
the initial Contribution, Lincoln Life will return the initial Contribution
less any withdrawal(s) by the Participant or by the Contractholder, unless the
Participant or the Contractholder specifically consents to Lincoln Life
retaining the Contribution until the enrollment form is made complete.
15
<PAGE>
Notwithstanding the above, when the Contract includes language regarding the
"Pending Allocation Account", the following shall apply: Where state approval
has been obtained, if Lincoln Life receives Contributions which are not
accompanied by a properly completed Enrollment Form, Lincoln Life will notify
the Contractholder of that fact and deposit the Contributions to the Pending
Allocation Account, unless such Contributions are designated to another Account
in accordance with the Plan. Within two (2) Business Days of receipt of a
properly completed Enrollment Form, the Participant's Account balance in the
Pending Allocation Account will be transferred in accordance with the
allocation percentages elected on the Enrollment Form. All future Contributions
will also be allocated in accordance with these percentages until such time as
the Participant may notify Lincoln Life of a change. If a properly completed
Enrollment Form is not received after three monthly notices have been sent, the
Participant's Account balance in the Pending Allocation Account will be
refunded to the Contractholder within 105 days of the date of the initial
Contribution. The Pending Allocation Account invests in Fidelity's Variable
Insurance Products Fund Money Market Portfolio and is not available as an
investment option under the group annuity contract. Mortality & Expense Risk
Charges and the Annual Administration Charge do not apply to this Account.
These charges will be applicable upon receipt of a properly completed
Enrollment Form and the Participant's contract Participation Date will be the
date money was deposited in the Pending Allocation Account.
ALLOCATION OF CONTRIBUTIONS
A Participant must designate in writing, subject to the Plan, the percent of
their Contribution which will be allocated to each Division and to each Sub-
Account available under their Contract. The Contributions allocation percentage
to the Guaranteed Investment Division or any Sub-Account can be in any whole
percent. A Participant whose Employer offers two or more Lincoln Life contracts
for the same type of Qualified or Non-Qualified Plan may allocate Contributions
to a maximum of ten Sub-Accounts and the Guaranteed Interest Division.
Participants, subject to the terms of the Plan, may change the allocation of
Contributions by notifying Lincoln Life in writing or by telephone in
accordance with procedures published by Lincoln Life. Telephone requests for
allocation changes follow the same verification of identity rules as for
Transfers. (See "Telephone Transfers.") When Lincoln Life receives a notice in
writing, the form must be acceptable to Lincoln Life. Upon receipt by Lincoln
Life, the change will be effective for all Contributions received concurrently
with the allocation change form and for all future Contributions, unless a
later date is requested. Changes in the allocation of future Contributions have
no effect on amounts a Participant may have already contributed. Such amounts,
however, may be transferred between Divisions and Sub-Accounts pursuant to the
requirements described in "Transfers between Divisions and Sub-Accounts."
Allocations of Employer Contributions may be restricted by the applicable plan.
SUBSEQUENT CONTRIBUTIONS
The Contractholder will forward Contributions to Lincoln Life specifying the
amount being contributed on behalf of each Participant. The Contractholder must
send Contributions and provide such allocation information in accordance with
procedures established by Lincoln Life. The Contributions shall be allocated
among the Guaranteed Interest Division and the Variable Investment Division in
accordance with the Contractholder's or the Participant's written instructions
as described above in "Allocation of Contributions."
INVESTMENT OF CONTRIBUTIONS
Contributions are invested as of the date of receipt at Lincoln Life's
service office, provided that they are received prior to 4:00 p.m. (Eastern
Time) on a Business Day and allocation information is provided in a form
acceptable to Lincoln Life in accordance with procedures established by Lincoln
Life. If the Contribution is not received prior to 4:00 p.m. (Eastern Time),
Lincoln Life will invest the Contribution on the next Business Day.
Contributions on behalf of a Participant which are allocated to the Variable
Investment Division will be credited with Accumulation Units as of that date. A
16
<PAGE>
Participant's interest in the Variable Investment Division during the
Accumulation Period is the value of the Participant's Accumulation Units in
the Variable Investment Division. The number of Accumulation Units credited to
a Participant's Account in a Sub-Account is calculated by dividing the
Contribution allocated to the Sub-Account by the dollar value of an
Accumulation Unit next determined after receipt of the Contribution. The
number of Accumulation Units purchased will not vary as a result of any
subsequent fluctuations in the Accumulation Unit Value. The Accumulation Unit
Value, of course, fluctuates with the investment performance of the underlying
Fund and also reflects deductions and charges made against the Variable
Investment Division.
DETERMINATION OF ACCUMULATION UNIT VALUE
Contributions allocated to the Variable Investment Division are converted
into Accumulation Units. This is done by dividing each Contribution by the
value of an Accumulation Unit for the Valuation Period during which the
Contribution is allocated to the Variable Investment Division. The
Accumulation Unit Value for each Sub-Account was or will be established at the
inception of the Sub-Account. It may increase or decrease from Valuation
Period to Valuation Period. The Accumulation Unit Value for a Sub-Account for
a later Valuation Period is determined as follows:
(a) The total value of Fund shares held in the Sub-Account is calculated
by multiplying the number of shares by the net asset value at end of the
Valuation Period, and adding any dividend or other distribution of the Fund
if an exdividend date occurs during the Valuation Period; minus
(b) The liabilities of the Sub-Account at the end of the Valuation Peri-
od; these liabilities include daily charges imposed on the Sub-Account, and
may include a charge or credit with respect to any taxes paid or reserved
for by Lincoln Life that it determines result from the operations of the
Variable Investment Division; and
(c) The result of (b) is divided by the number of Accumulation Units out-
standing at the beginning of the Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation Period are
equal to the mortality and expense risk charge for the number of calendar days
in the Valuation Period.
The Participant's Account balance is equal to the sum of the Participant's
Account balances in both the Variable Investment Division and the Guaranteed
Interest Division.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period and subject to the terms of the Plan,
transfers may be made of all or part of a Participant's Account balance in any
Division or Sub-Account to another Sub-Account or Division. Transfers will not
change the allocation of future Contributions to the Divisions and Sub-
Accounts. Lincoln Life does not require that any minimum amount be
transferred. To effect a transfer, Lincoln Life must receive a written
transfer request in a form acceptable to Lincoln Life. During any one calendar
year, a Participant may make one transfer from the Guaranteed Interest
Division to the Variable Investment Division in an amount not to exceed 20% of
the Guaranteed Interest Division Account balance pursuant to the provisions of
the Contract.
Transfers to or from the Variable Investment Division are made using the
Accumulation Unit Value next computed following Lincoln Life's receipt of the
written transfer request.
TELEPHONE TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
Lincoln Life may accept telephone transfers from Participants when this is
allowed by the Contractholder. In order to prevent unauthorized or fraudulent
transfers, Lincoln Life will require a Participant to provide certain
identifying information before Lincoln Life will act upon their instructions.
Lincoln Life may also assign the Participant a Personal Identification Number
(PIN) to serve as
17
<PAGE>
identification. Lincoln Life will not be liable for following telephone
instructions it reasonably believes are genuine. Telephone transfer requests
may be recorded and written confirmation of all transfer requests will be
mailed to the Participant or Contractholder on the next Business Day. Telephone
transfers will be processed on the Business Day that they are received when
they are received at the Lincoln Life service office before 4:00 p.m. Eastern
Time. If the Participant or Contractholder determines that a transfer has been
made in error, the Participant or Contractholder must notify Lincoln Life
within 30 days of the confirmation notice date. See "Contract Provisions,
Transfers between Divisions and Sub- Accounts."
WITHDRAWALS
During the Accumulation Period and subject to the terms of the Plan,
withdrawals may be made from either or both Divisions of all or part of the
Participant's Account balance in a Division or Sub-Account remaining after
deductions for any applicable (1) Annual Administration Charge (imposed on
Total Withdrawals), (2) premium taxes, and (3) outstanding loan including loan
security. Annuity Conversion Amounts are not considered withdrawals. See
"Annuity Period, Annuities: General."
Special limits apply to withdrawals (and transfers to the Variable Investment
Division) from the Guaranteed Interest Division. See "Guaranteed Interest
Division."
Notwithstanding such limits, a Participant may withdraw 100% of their
Guaranteed Interest Division Account balance at any time provided that Lincoln
Life receives satisfactory proof of the following events: (a) the Participant
has attained age 59 1/2; (b) the Participant has died; (c) the Participant has
incurred a disability as defined under the Contract; (d) the Participant has
separated from service from their Employer, or (e) the Participant has incurred
a financial hardship. A Contractholder may choose to add the requirement that
the Participant be age 55 or older and separated from service in order to
receive a 100% withdrawal from the Contract; or to eliminate "financial
hardship" as an event entitling the Participant to a 100% withdrawal. Under
401(a) Contracts, the Contractholder may also choose to require participation
under the Contract for a specified number of years in conjunction with the
standard 100% withdrawal conditions (disability, age 59 1/2, separation from
service and financial hardship) and the above features, if added, in order to
be entitled to a 100% withdrawal. A Contractholder choosing one of these
features may receive a different declared interest rate under the Guaranteed
Interest Division of their Contract than under Contracts not offering these
features.
All withdrawal requests must indicate the amount to be withdrawn and be
submitted in a form acceptable to Lincoln Life. If the request does not specify
the Sub-Accounts and/or the Divisions from which the withdrawal is to be made,
the withdrawal will be made pro rata based on balances in the Sub-Accounts and
the Guaranteed Investment Division. Lincoln Life does not require that any
minimum amount be withdrawn. Telephone withdrawal requests are not permitted.
Withdrawals from the Variable Investment Division are made by reducing the
Participant's number of Accumulation Units in the applicable Sub-Account. In
determining the number of Accumulation Units to be reduced, Lincoln Life uses
the Accumulation Unit Value next computed after Lincoln Life's receipt of the
written withdrawal request.
Payment of all Variable Investment Division withdrawal amounts generally will
be made within seven days after receipt by Lincoln Life of the withdrawal
request in a form acceptable to Lincoln Life. See "Market Emergencies."
TOTAL WITHDRAWALS
A Total Withdrawal can only be made by a Participant who has no outstanding
loans under the Contract. A Total Withdrawal of a Participant's Account will
occur when (a) the Participant or Contractholder requests the liquidation of
the Participant's entire Account balance, or (b) the amount
18
<PAGE>
requested results in a remaining Participant's Account balance of less than or
equal to the Annual Administration Charge, in which case the request is treated
as if it were a request for liquidation of the Participant's entire Account
balance.
Any Active Life Certificate must be surrendered to Lincoln Life when a Total
Withdrawal occurs. If a Contractholder resumes Contributions on behalf of a
Participant after a Total Withdrawal, the Participant will receive a new
Participation Date and Active Life Certificate.
A Participant refund under the free-look provisions is not considered a Total
Withdrawal.
PARTIAL WITHDRAWALS
A Partial Withdrawal of a Participant's Account will occur when less than a
Total Withdrawal is made from a Participant's Account.
SYSTEMATIC WITHDRAWAL OPTION
Under certain Contracts Participants who are at least age 59 1/2, are
separated from service from their employer or are disabled and certain spousal
beneficiaries and alternate payees who are former spouses may be eligible for a
Systematic Withdrawal Option ("SWO") under the Contract. Payments are made only
from the Guaranteed Interest Division. Under the SWO a Participant may elect to
withdraw either a monthly amount which is an approximation of the interest
earned between each payment period based upon the interest rate in effect at
the beginning of each respective payment period or a flat dollar amount
withdrawn on a periodic basis. A Participant must have a vested pre-tax account
balance of at least $10,000 in the Guaranteed Interest Division in order to
select the SWO. A Participant may transfer amounts from the Variable Investment
Division to the Guaranteed Interest Division in order to support SWO payments.
These transfers, however, are subject to the transfer restrictions described in
this Prospectus and/or imposed by any applicable Plan. A one-time fee of up to
$30 may be charged to set up the SWO. This charge is waived for total vested
pre-tax account balances of $25,000 or more. Additional restrictions applicable
to withdrawals under a Contract generally may also apply to exercise of the
SWO. More information about SWO, including applicable fees and charges, is
available in the Contracts and Active Life Certificates as well as from Lincoln
Life.
MAXIMUM CONSERVATION OPTION
Under certain Contracts Participants who are at least age 70 1/2 may request
that Lincoln Life calculate and pay to them the minimum annual distribution
required by Sections 401(a)(9), 403(b)(10), 408 or 457(d) of the Code. The
Participant must complete forms as required by Lincoln Life in order to elect
this option. Lincoln Life will base its calculation solely on the Participant's
Account Value with Lincoln Life. Participants who select this option are
responsible for determining the minimum distributions amount applicable to
their non-Lincoln Life contracts.
WITHDRAWAL RESTRICTIONS
Withdrawals under Section 403(b) Contracts are subject to the limitations
under Section 403(b)(11) of the Code and regulations thereof and in any
applicable Plan document. That section provides that salary reduction
Contributions deposited and earnings credited on any salary reduction
Contributions after December 31, 1988 may only be withdrawn if the Participant
has (1) died, (2) become disabled, (3) attained age 59 1/2, (4) separated from
service or (5) incurred a hardship. If amounts accumulated in a Section
403(b)(7) custodial account are deposited in a Contract, such amounts will be
subject to the same withdrawal restrictions as are applicable to post-1988
salary reduction Contributions under the Contracts. For more information on
these provisions see "Federal Income Tax Considerations."
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Withdrawal requests for a Participant under Section 401(a) Plans, Section
457(b) Plans and Plans subject to Title I of ERISA must be authorized by the
Contractholder on behalf of a Participant. All withdrawal requests will require
the Contractholder's written authorization and written documentation specifying
the portion of the Participant's Account balance which is available for
distribution to the Participant. Withdrawal requests for Section 457(f) Plans
must be requested by the Contractholder.
For withdrawal requests (other than transfers to other investment vehicles),
by Participants under Plans not subject to Title I of ERISA and non-401(a)
Plans and non-457 Plans, the Participant must certify to Lincoln Life that one
of the permitted distribution events listed in the Code has occurred (and
provide supporting information, if requested) and that Lincoln Life may rely on
such representation in granting such withdrawal request. See "Federal Income
Tax Considerations." A Participant should consult their tax adviser as well as
review the provisions of their Plan before requesting a withdrawal.
In addition to the restrictions noted above, a Plan and applicable law may
contain additional withdrawal or transfer restrictions.
Withdrawals may have Federal tax consequences. In addition, early
withdrawals, as defined under Section 72(q) and 72(t) of the Code, may be
subject to a ten percent excise tax.
DEATH BENEFITS
The payment of death benefits will be governed by the provisions of the
applicable Plan and the Code. In the event of the death of a Participant during
the Accumulation Period, Lincoln Life will pay the Beneficiary, if one is
living, or the Plan the greater of the following amounts:
(1) The Net Contributions, or
(2) The Participant's Account balance less any outstanding loan (includ-
ing principal and due and accrued interest), provided that, if Lincoln Life
is not notified of the Participant's death within six months of such death,
the Beneficiary will receive the Death Benefit amount described in para-
graph (2).
A Beneficiary may elect to have the Death Benefit (1) paid as a lump sum, (2)
converted to a Payout Annuity or (3) as a combination of a lump sum payment and
a Payout Annuity.
Lincoln Life will calculate the Death Benefit as of the end of the Valuation
Period during which it receives both satisfactory notification of the
Participant's death and an election of a form of Death Benefit (as described
below). Payment of a lump sum election generally will be made within seven days
following such calculation. Payment of an annuity option will be paid in
accordance with the provisions regarding annuities. See "Annuity Period." If no
election is made within sixty days following Lincoln Life's receipt of
satisfactory notice of the Participant's death, the Death Benefit will be paid
in the form of a lump sum payment and will be calculated as of the end of the
Valuation Period during which that sixtieth day occurs (and payment generally
will be made within seven days after such calculation date). See "Market
Emergencies."
Satisfactory proof of death may consist of: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; a written statement by a medical doctor who
attended the deceased at the time of death; or any other proof satisfactory to
Lincoln Life.
Notwithstanding the above, under qualified annuities, if the Beneficiary is
someone other than the spouse of the deceased Participant, the Code provides
that the Beneficiary may not elect an annuity which would commence later than
December 31st of the calendar year following the calendar year of the
Participant's death. If a non-spousal Beneficiary elects to receive payment in
a single
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lump sum, the Code provides that such payment must be received no later than
December 31st of the fourth calendar year following the calendar year of the
Participant's death.
If the Beneficiary is the surviving spouse of the deceased Participant,
distributions generally are not required under the Code to begin earlier than
December 31st of the calendar year in which the Participant would have attained
age 70 1/2. If the surviving spouse dies before the date distributions
commence, then, for purposes of determining the date distributions to the
Beneficiary must commence, the date of death of the surviving spouse is
substituted for the date of death of the Participant.
Other rules apply to non-qualified annuities. See "Federal Income Tax
Considerations."
If there is no living named Beneficiary on file with Lincoln Life at the time
of a Participant's death and unless the Plan directs otherwise, Lincoln Life
will pay the Death Benefit to the Participant's estate in the form of a lump
sum payment, upon receipt of satisfactory proof of the Participant's death, but
only if such proof of death is received by Lincoln Life no later than the end
of the fourth calendar year following the year of the Participant's death. In
such case, valuation of the Death Benefit will occur as of the end of the
Valuation Period during which due proof of death is received by Lincoln Life,
and the lump sum Death Benefit generally will be paid within seven days of that
date. See "Market Emergencies."
DEDUCTIONS AND CHARGES
Lincoln Life will deduct the charges described below to cover costs and
expenses, services provided and risks assumed under the Contracts. Lincoln Life
incurs certain costs and expenses for the distribution and administration of
the Contracts and for providing the benefits payable thereunder. The amount of
a charge may not necessarily correspond to the costs associated with providing
the services or benefits indicated by the designation of the charge. For
example, the proceeds from charges, including the mortality and expense risk
charge, may be used in part to cover sales and distribution expenses incurred
by Lincoln Life.
CHARGES AGAINST THE VARIABLE INVESTMENT DIVISION
MORTALITY AND EXPENSE RISK CHARGES
Certain charges will be assessed as a percentage of the value of the net
assets of the Variable Investment Division to compensate Lincoln Life for risks
assumed in connection with the Contracts.
Lincoln Life deducts from the net assets of the Variable Investment Division
a daily charge of 1.00% on an annual basis. Prior to January 1, 1998, a 1.20%
mortality and expense risk charge was deducted from the Contracts.
This charge is assessed both during the Accumulation Period and the Annuity
Period although, during the Annuity Period, Lincoln Life will bear no mortality
risk with respect to the Annuity Options that do not involve life
contingencies. This amount is intended to compensate Lincoln Life for certain
Mortality and Expense Risks Lincoln Life assumes in operating the Variable
Investment Division and for providing services to the Participant. The total
charge may not be altered.
The Expense Risk is the risk that Lincoln Life's actual expenses in issuing
and administering the Contract will be more than Lincoln Life estimated. The
Mortality Risk borne by Lincoln Life arises from the chance that Lincoln Life's
actuarial estimate of mortality rates during the Annuity Period, as guaranteed
in the Contract, may prove erroneous and that an Annuitant may live longer than
expected. This contractual guarantee assures that neither an Annuitant's own
longevity nor an improvement in life expectancy generally will have any adverse
effect under the Contracts. In addition, Lincoln Life bears the Mortality Risk
because it guarantees to pay a Death Benefit that may be higher than the
Participant's Account balance upon the death of the Participant prior to the
Annuity Period.
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CHARGES AGAINST THE CONTRACTS
The charges that Lincoln Life assesses in connection with the Contracts are
described below.
ANNUAL ADMINISTRATION CHARGE
Lincoln Life provides many administrative functions in connection with the
Contracts, including receiving and allocating Contributions in accordance with
the Contracts, making annuity payments when they become due, and preparing and
filing all reports required to be filed by the Variable Investment Division. In
addition, Lincoln Life provides Participants with Account statements and
accounting services that keep track of pre-tax monies, employee and Employer
monies, vested Account balances and rollover or transferred monies.
In consideration for these administrative services, Lincoln Life currently
deducts $25 (or the balance of the Participant's Account if less) per year from
each Participant's Account balance on the last Business Day of the month in
which a Participation Anniversary occurs. This charge is deducted only during
the Accumulation Period. This Annual Administration Charge is also withdrawn
from a Participant's Account balance if and when a Participant's Account is
totally withdrawn on any date other than the last Business Day of the month in
which the Participation Anniversary occurs.
The Annual Administration Charge may be reduced or waived for those
Participants who are participating under another Lincoln Life contract which
imposes an Annual Administration Charge or where Lincoln Life's interest costs
or expenses are reduced due to the terms of the Contract, economies of scale or
administrative assistance provided by the Contractholder. In addition, the
Employer has the option of paying the Annual Administration charge on behalf of
the Participants under a Contract.
Under certain Contracts, the Contractholder may also choose to have the
Annual Administration Charge paid only by those Participants in the Variable
Investment Division. Contracts offering this provision will typically have a
declared interest rate in the Guaranteed Interest Division which is lower than
under contracts not offering this provision. For contracts offering this
provision, the Annual Administration Charge will be deducted as described in
this section.
PREMIUM TAXES
Certain states require that a premium tax be paid on contributions to a
variable annuity contract. Others assess a premium tax at the time of
annuitization. Lincoln Life will deduct a charge for any applicable premium tax
from the Participant's Account balance either (1) at the time of a Total
Withdrawal of a Participant's Account balance; (2) on the Annuity Commencement
Date; (3) at such other date as the taxes are assessed. Various states levy a
premium tax, currently ranging from 0.5% to 4.0%, on variable annuity
contracts.
MISCELLANEOUS
The Variable Investment Division purchases shares from the Funds at net asset
value. The net asset value reflects investment management fees and other
expenses that have already been deducted from the assets of the Funds. The
Funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in each prospectus for the Funds.
ANNUITY PERIOD
GENERAL
To the extent permitted by the Plan, the Participant, or the Beneficiary of a
deceased Participant, may elect to convert all or part of the Participant's
Account balance or the Death Benefit to a Payout Annuity. Payout Annuities are
available as either a Guaranteed or Variable Annuity or a combination
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of both. Annuity payments from a Guaranteed Annuity remain constant throughout
the annuity period. Payout Annuities may be maintained in the Variable
Investment Division, or in another separate account of Lincoln Life ("Variable
Payout Division"). No charge will be imposed at the time that the Annuity
Conversion Amount is applied to a Variable Payout Division in implementing any
Payout Annuity option. The Contract benefits and charges for a Payout Annuity,
whether maintained in the Variable Investment Division or in a Variable Payout
Division, are as described in this prospectus. The selection of funds available
through a Variable Payout Division may, however, differ from the selection of
Funds available through the Variable Investment Division. If a Participant's
Payout Annuity will be maintained in a Variable Payout Division, a prospectus
for the Variable Payout Division will be provided prior to the Annuity
Commencement Date. Annuity payments from a Variable Annuity fluctuate depending
upon the investment experience of the applicable sub-accounts. Variable Annuity
payments are based upon Annuity Unit Values. See "Annuity Payments" below and
"Determination of Variable Annuity Payments" in the Statement of Additional
Information for more information.
The Annuity Commencement Date marks the date on which Lincoln Life makes the
first annuity payment to an Annuitant. For Plans subject to Section
401(a)(9)(B) of the Code, a Beneficiary must select an Annuity Commencement
Date that is not later than one year after the date of the Participant's death.
A Participant or Contractholder may select any Annuity Commencement Date for
the Annuitant which is then reflected in the Retired Life Certificate. However,
since an annuity payment is considered a distribution under the Code, selection
of an Annuity Commencement Date may be affected by the distribution
restrictions under the Code and the minimum distribution requirements under
Section 401(a)(9) of the Code. See "Federal Income Tax Considerations." The
selection of an Annuity Commencement Date, the annuity option, the amount of
the Payout Annuity and whether the amount is to be paid as a Guaranteed or a
Variable Annuity must be made by the Participant in writing, in a form
satisfactory to Lincoln Life, and received by Lincoln Life at least 30 days in
advance of the Annuity Commencement Date. After the Annuity Commencement Date
an Annuitant may not change either their annuity option or the type (i.e.,
variable or guaranteed) of Payout Annuity for any amount applied toward the
purchase of an annuity.
The Annuity Conversion Amount is either the Participant's Account balance, or
a portion thereof, or the Death Benefit plus interest, as of the Annuity
Payment Calculation Date. For a Guaranteed Annuity, the Annuity Commencement
Date is typically one month after the Annuity Payment Calculation Date;
subsequent payments are at one month intervals from the Annuity Commencement
Date. For a Variable Annuity, the Annuity Commencement Date is ten (10)
Business Days after the initial Annuity Payment Calculation Date; subsequent
monthly payments have Annuity Payment Calculation Dates which are ten (10)
Business Days prior. The ten (10) Business Days are necessary to calculate the
amount of the Payout Annuity payments and to mail the checks in advance of
their monthly due dates.
If the Participant's Account balance or the Beneficiary's Death Benefit is
less than $2,000 or if the amount of the first scheduled payment is less than
$20, Lincoln Life may, at its option, cancel the annuity and pay the
Participant or Beneficiary the entire amount in a lump sum.
PAYOUT ANNUITY PAYMENTS
The amount of each annuity payment will depend upon the Annuity Conversion
Amount applied to an annuity option, the form of the annuity option selected
and the age of the Participant at the Annuity Commencement Date. Unless
otherwise notified, Lincoln Life will apply the Participant's Account balance
in the Guaranteed Interest Division toward a Guaranteed Annuity and the
Participant's Account balance in the Variable Investment Division toward a
Variable Annuity.
The payment amount for a Guaranteed Annuity is determined by dividing the
Participant's Annuity Conversion Amount in the Guaranteed Interest Division as
of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract.
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The initial payment amount for a Variable Annuity is determined by dividing
the Participant's Annuity Conversion Amount(s) in the applicable Sub-Account(s)
as of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract. The amounts of subsequent
payments vary depending on the investment experience of the sub-account(s) of
the Variable Investment Division or of a Variable Payout Division, as
applicable, and the interest rate option selected by the Contractholder or
Annuitant. The payment amounts will not be affected by Lincoln Life's mortality
or expense experience and will not be reduced by an Annual Administration
Charge. For additional information on the determination of subsequent payment
amounts, refer to the Statement of Additional Information, "Determination of
Variable Annuity Payments."
PAYOUT ANNUITY OPTIONS
Lincoln Life offers a range of annuity options including, but not limited to,
the following:
SINGLE LIFE ANNUITY
Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Payments are made monthly during the lifetime of the Annuitant with a monthly
payment guaranteed to the Beneficiary for the remainder of the selected number
of years, if the Annuitant dies before the end of the period selected. Payments
under this annuity option are smaller than a Single Life Annuity without a
guaranteed payment period.
JOINT LIFE ANNUITIES
Payments are made monthly during the joint lifetime of the Annuitant and a
designated second person.
NON-LIFE ANNUITIES
Annuity payments are guaranteed monthly for the selected number of years.
While there is no right to make any total or partial withdrawals during the
Annuity Period, an Annuitant who has selected this annuity option as a Variable
Annuity or a surviving Beneficiary may request at any time during the payment
period that the present value of any remaining installments be paid in one lump
sum.
Under Qualified Plans, any annuity selected must be payable over a period
that does not extend beyond the life expectancy of the Participant and the
Participant's designated Beneficiary. If the Beneficiary is someone other than
the Participant's spouse, the present value of payments to be made to the
Participant must be more than 50% of the present value of the total payments to
be made to the Participant and the Beneficiary.
In the event that an Annuitant dies before the end of a designated Annuity
period, the Beneficiary, if any, or the Annuitant's estate will receive any
remaining payments due under the annuity option in effect.
Note Carefully: Under the Single Life Annuity and Joint Life Annuities
options it would be possible for only one annuity payment to be made if the
Annuitant(s) were to die before the due date of the second annuity payment;
only two annuity payments if the Annuitant(s) were to die before the due date
of the third annuity payment; and so forth.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all
of the situations in which a person may be entitled to or may receive
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a distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon Lincoln Life's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service ("IRS"). No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of the
current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under section 401(a),
403(b), 408(b) or 457 of the Code ("Qualified Contracts"). The ultimate effect
of federal income taxes on the amounts held under a Contract, on Annuity
Payments, and on the economic benefit to the Contract Owner, the Annuitant, or
the Beneficiary may depend on the tax status of the individual concerned.
In addition, certain requirements must be satisfied in purchasing a Qualified
Contract with proceeds from a tax qualified retirement plan in order to
continue receiving favorable tax treatment. Therefore, you should consult your
legal counsel and tax adviser regarding the suitability of the Contract for
your situation, the applicable requirements and the tax treatment of the rights
and benefits of the Contract. This summary assumes that Qualified Contracts are
purchased with proceeds from retirement plans that qualify for the intended
special Federal income tax treatment.
All dollar amounts and percentages stated below are subject to change
according to Federal law. For additional Federal Income Tax Consideration,
please refer to the Statement of Additional Information.
NON-QUALIFIED CONTRACTS
In general, under non-qualified annuity contracts, an individual may make
Contributions to the Contracts which are not tax-deductible. A participant is
generally not taxed on increases in the value of a contract until a
distribution occurs. This can be in the form of a lump sum payment received by
requesting all or part of the cash value (i.e., withdrawals) or as Annuity
Payouts. For this purpose, the assignment or pledge of, or the agreement to
assign or pledge, any portion of the value of a contract will be treated as a
distribution. A transfer of ownership of a contract, or designation of an
annuitant (or other beneficiary) who is not also the participant, may also
result in tax consequences. The taxed portion of a distribution (in the form of
a lump sum payment or an annuity) is taxed as ordinary income. For
Contributions made after February 28, 1986, a participant who is not a natural
person (for example, a corporation) will, subject to limited exceptions, be
taxed on any increase in the contract's cash value over the investment in the
contract during the taxable year, even if no distribution occurs. The following
discussion applies to contracts owned by or on behalf of participants who are
natural persons.
In General. Section 72 of the Code governs taxation of annuities in general.
Lincoln Life believes that an Owner who is a natural person generally is not
taxed on increases in the Owner's Account Value until distribution occurs by
withdrawing all or part of such Account Value (e.g., withdrawals or Annuity
payments under the Annuity Option elected). For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the Account Value (and
in the case of a Qualified Contract, any portion of an interest in the
qualified plan) generally will be treated as a distribution. (The Contracts are
not assignable without Lincoln Life's prior written consent. See
"Assignability.") The taxable portion of a distribution (in the form of a
single sum payment or an annuity) is taxable as ordinary income.
The owner of any Contract who is not a natural person generally must include
in income any increase in the excess of the Account Value over the "investment
in the contract" (discussed below) during the taxable year. There are some
exceptions to this rule and prospective Owners that are not natural persons may
wish to discuss these with a competent tax adviser.
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Withdrawals. In the case of a withdrawal, generally amounts received are
first treated as taxable income to the extent that the cash value of the
contract immediately before the withdrawal exceeds the investment in the
contract at that time. Any additional amount withdrawn is not taxable. The
investment in the contract generally equals the portion, if any, of any
contributions paid by or on behalf of a participant under a contract which is
not excluded from the participant's gross income.
Annuity Payouts. Even though the tax consequences may vary depending on the
form of Annuity Payout selected under the contract, the recipient of an Annuity
Payout generally is taxed on the portion of such payout that exceeds the
investment in the contract. For variable Annuity Payouts the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payout that is not taxed. The dollar amount is determined by dividing the
investment in the contract by the total number of expected periodic payouts.
For fixed Annuity Payouts, there generally is no tax on the portion of each
payout that represents the same ratio that the investment in the contract bears
to the total expected value of payouts for the term of the annuity; the
remainder of each payout is taxable. For individuals whose annuity starting
date is after December 31, 1986, the entire distribution will be fully taxable
once the recipient is deemed to have recovered the dollar amount of the
investment in the contract.
Excise tax. There may be imposed an excise tax on distributions equal to 10%
of the amount treated as taxable income. The excise tax is not imposed in
certain circumstances, which generally are distributions:
1. Received on or after the participant attains age 59 1/2;
2. Made as a result of the participant's death or disability;
3. Received in substantially equal installments as a life annuity (sub-
ject to special recapture rules if the series of payouts is subsequently
modified);
4. Allocable to the investment in the contract before August 14, 1982;
5. Under a qualified funding asset in a structured settlement;
6. Under an Immediate Annuity contract as defined in the Code; and/or
7. Under a contract purchased in connection with the termination of cer-
tain retirement plans.
Multiple contracts. All non-qualified annuity contracts entered into after
October 21, 1988, and issued by the same insurance company (or its affiliates)
to the same participant during any calendar year will be treated as a single
contract for tax purposes.
Diversification. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund the shares of which are owned
by separate accounts of insurance companies) underlying a non-qualified annuity
contract must be "adequately diversified" in accordance with treasury
regulations in order for the contract to qualify as an annuity contract under
section 72 of the Code. The Variable Investment Division, through the Fund,
intends to comply with the diversification requirements prescribed in the
regulations.
Required Distributions. In addition to the requirements of section 817(h),
the Code (section 72(s)) provides that non-qualified annuity contracts issued
after January 18, 1985, will not be treated as annuity contracts for purposes
of section 72 unless the contract provides that (a) if any Participant dies on
or after the annuity starting date but prior to the time the entire interest in
the contract has been distributed, the remaining portion of such interest must
be distributed at least as rapidly as under the method of distribution in
effect at the time of the Participant's death; and (b) if any Participant dies
prior to the annuity starting date, the entire interest must be distributed
within five years after the death of the Participant. These requirements are
considered satisfied if any portion of the Participant's interest that is
payable to or for the benefit of a "designated beneficiary" is distributed over
that designated beneficiary's life, or a period not extending beyond the
designated beneficiary's life expectancy, and if that distribution begins
within one year of the Participant's death. The "designated beneficiary" must
be a natural person. Contracts issued after January 18, 1985
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contain provisions intended to comply with these Code requirements, although
regulations interpreting these requirements have yet to be issued. Lincoln Life
intends to review such provisions and modify them, if necessary, to assure that
they comply with the requirements of section 72(s) when clarified by regulation
or otherwise.
QUALIFIED CONTRACTS
In General. The Qualified Contract is designed for use with several types of
retirement plans. The tax rules applicable to participants and beneficiaries in
retirement plans vary according to the type of plan and the terms and
conditions of the plan. Special favorable tax treatment may be available for
certain types of contributions and distributions. Adverse tax consequences may
result from contributions in excess of specified limits; distributions prior to
age 59 1/2 (subject to certain exceptions); distributions that do not conform
to specified commencement and minimum distribution rules; aggregate
distributions in excess of a specified annual amount; and in other specified
circumstances.
Lincoln Life makes no attempt to provide more than general information about
use of the Contracts with the various types of retirement plans. Owners and
participants under retirement plans as well as annuitants and beneficiaries are
cautioned that the rights of any person to any benefits under Qualified
Contracts may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract issued in connection
with such a plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated in the administration of the Contracts.
Owners are responsible for determining that contributions, distributions and
other transactions with respect to the Contracts satisfy applicable law.
Purchasers of Contracts for use with any retirement plan should consult their
legal counsel and tax adviser regarding the suitability of the Contract.
Section 401(a) Plans. Section 401(a) of the Code provides special tax
treatment for pension, profit sharing and stock bonus Plans established by
Employers for their employees. Contributions to a Section 401(a) Plan and any
earnings attributable to such Contributions are currently excluded from the
Participant's income. Section 401(a) Plans are subject to, among other things,
limitations on: maximum Contributions, minimum coverage and participation,
minimum funding, minimum vesting requirements and distribution requirements.
The specific limitations are outlined in the plan document adopted by the
Employer.
A Participant who makes a withdrawal from a Section 401(a) program generally
must include that amount in current income. In addition, Section 401(k)(2) of
the Code requires that salary reduction Contributions made and/or earnings
credited on any salary reduction Contributions may not be withdrawn from the
Participant's Section 401(k) program prior to the Participant having (1)
attained age 59 1/2, (2) separated from service, (3) become disabled, (4) died
or (5) incurred a hardship. Hardship withdrawals may not include any income
credited after December 31, 1988 that is attributable to any salary reduction
Contributions. In addition, Section 402 of the Code permits tax-free rollovers
from Section 401(a) programs to individual retirement annuities or certain
other Section 401(a) programs under certain circumstances. Qualified
distributions eligible for rollover treatment may be subject to a 20% federal
tax withholding depending on whether or not the distribution is paid directly
to an eligible retirement plan.
Section 403(b) Plans. A Participant who is an employee of a hospital or other
tax-exempt organization described in Section 501(c)(3) or 501(e) of the Code
may exclude from current earnings amounts contributed to a Section 403(b)
program. Under the terms of a Section 403(b) program, an Employer may make
Contributions directly to the program on behalf of the Participant, the
Participant may enter into a salary reduction agreement with the Participant's
Employer authorizing the Employer to contribute a percentage of the
Participant's salary to the program and/or the Participant may authorize the
Employer to make after tax Contributions to the program. Currently, the Code
permits
27
<PAGE>
employees to defer up to $10,000 of their income through salary reduction
agreements. All Contributions made to the Section 403(b) program are subject to
the limitations described in Code Sections 402(g) regarding elective deferral
amounts, 403(b)(2) regarding the maximum exclusion allowance, and 415(a)(2) and
415(c) regarding the limitations on annual additions.
A Participant who makes a withdrawal from their Section 403(b) program
generally must include that amount in current income. In addition, Section
403(b)(11) of the Code requires that salary reduction Contributions made and/or
earnings credited on any salary reduction Contributions after December 31, 1988
may not be withdrawn from the Participant's Section 403(b) program prior to the
Participant having (1) attained age 59 1/2, (2) separated from service, (3)
become disabled (4) died or (5) incurred a hardship. Hardship withdrawals may
not include any income credited after December 31, 1988 that is attributable to
any salary reduction Contributions. The Internal Revenue Service has ruled
(Revenue Ruling 90-24) that amounts may be transferred between Section 403(b)
investment vehicles as long as the transferred funds retain withdrawal
restrictions at least as restrictive as that of the transferring investment
vehicle. Such transferred amounts are considered withdrawals under the
Contract. In addition, Section 403(b)(8) of the Code permits tax-free rollovers
from Section 403(b) programs to individual retirement annuities or other
Section 403(b) programs under certain circumstances. Qualified distributions
eligible for rollover treatment may be subject to a 20% federal tax withholding
depending on whether or not the distribution is paid directly to an eligible
retirement plan.
Section 408 Plans (IRAs). Under current law, individuals may contribute and
deduct the lesser of $2,000 or 100% of their compensation to an IRA. The $2,000
is increased to $4,000 when the IRA covers the taxpayer and a non-working
spouse. The deduction for Contributions is phased out for individuals who are
considered active participants under qualified Plans and whose Adjusted Gross
Income attains a certain level. In 1998, for a single person the $2,000
deduction is available when the taxpayer's Adjusted Gross Income is $30,000 or
less. For each $50 that the taxpayer's Adjusted Gross Income rises above
$30,000, the taxpayer's deductible IRA is reduced by $10. When the single
taxpayer's Adjusted Gross Income is $40,000 or greater, a tax deduction for an
IRA is no longer available. In 1998, for a married couple filing jointly, the
threshold level is $50,000 rather than $30,000. For a married person filing
separately, the threshold is $0.
In addition, certain amounts distributed from Section 401(a) and 403(b) Plans
may be rolled over to an IRA on a tax-free basis if done in a timely manner
(within 60 days of the Participant's receipt of the distribution). The
limitations on contributions discussed above do not apply to amounts rolled
over to an IRA.
All Participants in an IRA receive an IRA Disclosure. This document explains
the tax rules that apply to IRAs in greater detail.
Eligible Section 457 Plans. Eligible Section 457 Plans may be established by
state and local governments as well as private tax-exempt organizations (other
than churches). Participants may contribute on a before tax basis to a deferred
compensation Plan of their employer in accordance with the employer's Plan and
Section 457 of the Code. Section 457 places limitations on the amount of
Contributions to these Plans. Generally, the limitation is one-third of
includable compensation or $7,500, as indexed, whichever is less. In the
Participant's final three years of employment before normal retirement age, the
$7,500 limit is increased to $15,000.
Participants in an Eligible 457 Plan may not receive a withdrawal or other
distribution from their Plan except in the event of separation of service from
the employer, attainment of age 70 1/2, or when faced with an unforeseen
emergency. The Contractholder's Plan may further restrict the Participant's
rights to a withdrawal. In general, all amounts received under a Section 457
Plan are taxable.
An employee electing to participate in an Eligible Section 457 Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan. Plans of state or local governments
28
<PAGE>
established on August 20, 1996, or later, must hold all assets and income in
trust (or custodial accounts or an annuity contract) for the exclusive benefit
of participants and their beneficiaries. State or local government plans that
were in existence before August 20, 1996 are allowed until January 1, 1999 to
meet this requirement. Non-governmental plans are not subject to this
requirement and employees of these plans are general creditors of the Employer.
Participants under Eligible Section 457 Plans should look to the terms of their
Plan for any changes in regard to participation other than those disclosed in
this Prospectus.
Section 457(f) Plans. Section 457(f) Plans may be established by state and
local governments as well as private tax-exempt organizations. Employers and
Participants may contribute on a before-tax basis to a deferred compensation
Plan of their Employer in accordance with the Employer's Plan. Section 457(f)
does not place limitations on the amount of Contributions to these Plans;
however, the Internal Revenue Service may review these plans to determine if
the deferral amount is acceptable to the IRS based on the nature of the 457(f)
Plan.
Participants in 457(f) Plans may not receive a withdrawal or other
distribution from their 457(f) Plans until a distributable event occurs. The
Plan will define such events.
An employee electing to participate in a Section 457(f) Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any contract issued with
respect to the Plan and that the Employer retains all rights under the contract
issued with respect to the Plan. Participants under Section 457(f) Plans should
look to the terms of their Plan for any charges in regard to participating
other than those disclosed in this Prospectus.
Taxation of Qualified Annuities: General. In Qualified Plans such as 401(a),
403(b) and 408 and Eligible 457 Plans, the Participant is not taxed on the
value in their Accounts until they receive payments from the Account. In some
situations, default or forgiveness of a loan, assignment or other transactions
will result in taxable income. Distributions from all these Plans are taxed
under the rules of Sections 72 and 402 of the Code.
Penalty Tax For Premature Distributions. Section 72(t) imposes a 10% excise
tax on certain premature distributions for non-qualified and Section 401(a),
403(b) and 408 Plans. The penalty tax will not apply to distributions made on
account of the Participant having (i) attained age 59 1/2; (ii) become
disabled; or (iii) died. The penalty tax will also not apply under 401(a) and
403(b) retirement plans where a Participant separates from service after age
55. In addition, the penalty does not apply if the distribution is received as
a series of substantially equal periodic payments made for the life (or life
expectancy) of the Participant or the joint lives (or life expectancies) of the
Participant and a designated Beneficiary. Certain other exceptions may also
apply. The 10% excise tax is an additional tax; it does not apply to any money
that the Participant receives as a return of their cost basis. The 10% excise
tax does not apply to Section 457 Plans.
Minimum Distributions. Participants in Plans subject to Code Sections 401(a),
403(b), 408 and Eligible 457 Plans are subject to Minimum Distribution Rules.
For a Participant who attains age 70 1/2 after December 31, 1987, distributions
generally must begin by April 1 of the calendar year following the calendar
year in which the Participant attains age 70 1/2. For a Participant who attains
age 70 1/2 before January 1, 1988, distributions must begin on the April 1 of
the calendar year following the later of (1) the calendar year in which the
Participant attains age 70 1/2 or (2) the calendar year in which the
Participant retires. Additional requirements may apply with respect to certain
Plans.
Participants in Eligible 457 Plans are taxed when Plan benefits are
distributed or made available to them. Participants in 457(f) Plans are taxed
when services related to contributions are performed or when distributions are
not subject to a substantial risk of forfeiture. Distributions under Eligible
457 or 457(f) Plans are taxed as ordinary income.
The following discussion generally applies to a Contract owned by a natural
person.
29
<PAGE>
Withdrawals. In the case of a withdrawal under a Qualified Contract,
including withdrawals under the Systematic Withdrawal Option, a ratable portion
of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the individual's total accrued benefit under
the retirement plan. The "investment in the contract" generally equals the
amount of any non-deductible Contributions paid by or on behalf of any
individual. For a Contract issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax rules may be available
for certain distributions from a Qualified Contract.
With respect of a Non-Qualified Contract, partial withdrawals are generally
treated as taxable income to the extent that the Account Value immediately
before the withdrawal exceeds the "investment in the contract" at that time.
Full surrenders of a Non-Qualified Contract are treated as taxable income to
the extent that the amount received exceeds the "investment in the contract."
Annuity Payments. Although the tax consequences may vary depending on the
Annuity payment elected under the Contract, in general, only the portion of the
Annuity payment that represents the amount by which the Account Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity payments is
taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract". For
Fixed Annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity payments for the term of the
payments; however, the remainder of each Annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity payments is taxable. If Annuity payments cease as a result
of an Annuitant's death before full recovery of the "investment in the
contract," consult a competent tax advisor regarding deductibility of the
unrecovered amount.
Restrictions under Qualified Contracts. Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
INVESTOR CONTROL
The Treasury Department has indicated that guidelines may be issued under
which a variable annuity contract will not be treated as an annuity contract
for tax purposes if the contract owner has excessive control over the
investments underlying the contract. The issuance of those guidelines may
require us to impose limitations on your right to control the investment. We do
not know whether any such guidelines would have a retroactive effect.
VOTING RIGHTS
Lincoln Life is the legal owner of the shares of the Funds held by the
Variable Investment Division. As such, Lincoln Life is entitled to vote those
Fund shares with respect to issues such as the election of a Fund's directors,
ratification of a Fund's choice of independent auditors and other matters
required by the 1940 Act to be voted on by shareholders.
In those years in which the Funds hold a shareholder meeting, Lincoln Life
will solicit from Contractholders voting instructions with respect to Fund
shares held by the Variable Investment Division. Each Contractholder will
receive a number of votes in proportion to the Contractholder's investment in
the corresponding Sub-Account as of the record date established by the Fund.
30
<PAGE>
During the Accumulation Period, a Participant has the right to instruct
Contractholders as to the votes attributable to their Participant Account
balance in the Sub-Accounts. Annuitants have similar rights with respect to the
annuity amount attributable to the Sub-Accounts.
Lincoln Life will furnish Contractholders with sufficient Fund proxy material
and voting instruction forms for all Participants who have voting rights under
the Contract. Lincoln Life will vote those Fund shares attributable to the
Contract for which Lincoln Life receives no voting instructions in the same
proportion as Lincoln Life will vote shares for which Lincoln Life has received
instructions. Lincoln Life will vote shares attributable to amounts Lincoln
Life may have in the Variable Investment Division in the same proportion as
votes that Lincoln Life receives from Contractholders. If the federal
securities laws or regulations or any interpretation of them changes so that
Lincoln Life is permitted to vote shares of the Fund in Lincoln Life's own
right or to restrict Participant voting, Lincoln Life may do so.
Fund shares may be held by separate accounts of insurance companies
unaffiliated with Lincoln Life. Fund shares held by those separate accounts
will be voted, in most cases, according to the instruction of owners of
insurance policies and contracts issued by those other unaffiliated insurance
companies. This will dilute the effect of the voting instructions of the
Contractholders in the Variable Investment Division. Lincoln Life does not
foresee any disadvantage to this. Pursuant to conditions imposed in connection
with regulatory relief, the Fund's Board of Directors has an obligation to
monitor events to identify conflicts that may arise and to determine what
action, if any, should be taken. For further information, see the prospectuses
for the Funds.
OTHER CONTRACT PROVISIONS
RIGHTS RESERVED BY LINCOLN LIFE
Lincoln Life reserves the right, subject to compliance with applicable law,
including approval by the Contractholder or the Participants if required by
law, (1) to create additional Sub-Accounts in the Variable Investment Division,
(2) to combine or eliminate Sub-Accounts in the Variable Investment Division,
(3) to transfer assets from one Sub-Account in the Variable Investment Division
to another, (4) to transfer assets to the General Account and other separate
accounts, (5) to cause the deregistration of the Variable Investment Division
under the Investment Company Act of 1940, (6) to operate the Variable
Investment Division under a committee and to discharge such committee at any
time, and (7) to eliminate any voting rights which the Contractholder or the
Participants may have with respect to the Variable Investment Division, (8) to
amend the Contract to meet state law requirements or to meet the requirements
of the Investment Company Act of 1940 or other federal securities laws and
regulations, (9) to operate the Variable Investment Division in any form
permitted by law, (10) to substitute shares of another fund for the shares held
by a Sub-Account, and (11) to make any change required by the Internal Revenue
Code, ERISA or the Securities Act of 1933. Participants will be notified if any
changes are made that result in a material change in the underlying investments
of the Variable Investment Division.
ASSIGNABILITY
The Contracts are not assignable without Lincoln Life's prior written
consent. In addition, a Participant, a Beneficiary or an Annuitant may not,
unless permitted by law, assign or encumber any payment due under the Contract.
MARKET EMERGENCIES
While Lincoln Life generally may not suspend the right of redemption or delay
payment from the Variable Investment Division for more than seven days, the
following events may delay payment for
31
<PAGE>
more than seven days: (1) any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings); (2) any period when
trading in the markets normally utilized is restricted, or an emergency exists
as determined by the Securities and Exchange Commission, so that disposal of
investments or determination of the Accumulation Unit Value or Variable Annuity
payment value is not reasonably practicable; or (3) for such other periods as
the Securities and Exchange Commission by order may permit for the protection
of the Participants.
CONTRACT DEACTIVATION
Under certain Contracts, Lincoln Life may deactivate a Contract by
prohibiting new contributions and/or new Participants after the date of
deactivation. Lincoln Life will give the Contractholder and the Participants at
least 90 days notice of the date of deactivation.
FREE-LOOK PERIOD
Participants under Sections 403(b), 408 and certain Non-Qualified Plans will
receive an Active Life Certificate upon Lincoln Life's receipt of a duly
completed participation enrollment form. If the Participant chooses not to
participate under the Contract, the Participant may exercise the free-look
right by sending a written notice to Lincoln Life that the Participant does not
wish to participate under the Contract, within 10 days after the date the
Active Life Certificate is received by the Participant. For purposes of
determining the date on which the Participant has sent written notice, the
postmark date will be used.
If a Participant exercises the free-look right in accordance with the
foregoing procedure, Lincoln Life will refund in full the Participant's
aggregate Contributions less aggregate withdrawals made on behalf of the
Participant or, if greater, with respect to Contributions to the Variable
Investment Division, the Participant's Account balance in the Variable
Investment Division on the date the Participant's written notice is received by
Lincoln Life.
OTHER CONTRACTS
Lincoln Life and the Variable Investment Division offer other group variable
annuity contracts which invest in the same Funds. These contracts may impose
different charges that could affect Sub-Account performance, and may offer
different benefits.
GUARANTEED INTEREST DIVISION
GENERAL
Contributions to the Guaranteed Interest Division become part of Lincoln
Life's General Account. The General Account is subject to regulation and
supervision by the New York Insurance Department as well as the insurance laws
and regulations of the jurisdictions in which the Contracts are distributed.
In reliance on certain exemptions, exclusions and rules, Lincoln Life has not
registered the interests in the General Account as a security under the
Securities Act of 1933 and has not registered the General Account as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interests therein are subject to regulation under the 1933 Act or the
1940 Act. Lincoln Life has been advised that the staff of the SEC has not made
a review of the disclosures which are included in this prospectus which relate
to the General Account and the Guaranteed Interest Division. These disclosures,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. This prospectus is generally intended to serve as a
disclosure
32
<PAGE>
document only for aspects of the Contract involving the Variable Investment
Division and contains only selected information regarding the Guaranteed
Interest Division. Complete details regarding the Guaranteed Interest Division
are in the Contract.
Amounts contributed to the Guaranteed Interest Division are guaranteed a
minimum interest rate according to contract minimums of at least 3.0%. A
Participant who makes a Contribution to the Guaranteed Interest Division is
credited with interest beginning on the next calendar day following the date of
receipt if all Participant data is complete.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN LINCOLN LIFE'S SOLE
DISCRETION. THE PARTICIPANTS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0%
WILL BE DECLARED.
PARTICIPANT'S ACCOUNT BALANCE IN THE GUARANTEED INTEREST DIVISION
The Participant's Account balance in the Guaranteed Interest Division on any
Valuation Date will reflect the amount and frequency of any Contributions
allocated to the Guaranteed Interest Division, plus any transfers from the
Variable Investment Division and interest credited to the Guaranteed Interest
Division, less any withdrawals, Annual Administration Charges and loan-related
charges allocated to the Guaranteed Interest Division and any transfers to the
Variable Investment Division.
TRANSFERS, TOTAL AND PARTIAL WITHDRAWALS
Special limits apply to transfers and withdrawals from the Guaranteed
Interest Division. During any one calendar year a Participant may make one
withdrawal , OR one transfer to the Variable Investment Division, from the
Guaranteed Interest Division, in any amount not to exceed 20% of the Guaranteed
Interest Division Account balance. Participants stating their intention to
liquidate their entire Guaranteed Interest Division Account balance, or
transfer it to the Variable Investment Division, however, may make one
withdrawal or transfer request for five consecutive calendar years from their
Guaranteed Interest Division Account balance in the following percentages:
<TABLE>
<CAPTION>
YEAR REQUEST RECEIVED PERCENTAGE OF GUARANTEED
BY LINCOLN LIFE INTEREST DIVISION AVAILABLE
--------------------- ---------------------------
<S> <C>
1 20%
2 25%
3 33.33%
4 50%
5 100%
</TABLE>
The five consecutive withdrawals may not be submitted more frequently than
twelve months apart. Lincoln Life also reserves the right to require that any
Participant stating their intention to liquidate their Guaranteed Interest
Division Account balance stop Contributions to the Contract. The above
Liquidation Schedule is subject to the same conditions as other withdrawals.
LOANS
During a Participant's Accumulation Period, a Participant, whose Plan permits
loans, may apply for a loan under the Contract by completing a loan application
available from Lincoln Life. Loans are secured by the Participant's Account
balance in the Guaranteed Interest Division. The amounts and terms of a
Participant loan may be subject to the restrictions imposed under Section 72(p)
of the Code, Title I of ERISA, and any applicable Plans. With respect to Plans
subject to Title I of ERISA, the initial amount of a Participant loan may not
exceed the lesser of 50% of the Participant's vested Account balance in the
Guaranteed Interest Division or $50,000 and must be at least $1,000. A
Participant in a Plan that is not subject to ERISA may borrow up to $10,000 of
their vested Account
33
<PAGE>
balance without regard to the 50% limitation stated above. A Participant may
have only one loan outstanding at any time and may not establish more than one
loan in any six month period. More information about loans, including interest
rates and applicable fees and charges, is available in the Contracts, Active
Life Certificates, and the Annuity Loan Agreement as well as from Lincoln Life.
DEFERRAL PERIODS
If a payment is to be made from the Guaranteed Interest Division, Lincoln
Life may defer the payment for the period permitted by the law of the
jurisdiction in which the Contract is distributed, but in no event, for more
than 6 months after a written election is received by Lincoln Life. During the
period of deferral, interest at the then current interest rate will continue to
be credited to a Participant's Account in the Guaranteed Interest Division.
OTHER INFORMATION
LEGAL PROCEEDINGS
Lincoln Life is involved in various pending or threatened proceedings arising
from the conduct of its business. Most of these proceedings are routine and in
the ordinary course of business. In some instances, these proceedings include
claims for unspecified or substantial punitive damages and similar relief in
addition to amounts for alleged contractual liability or requests for equitable
relief. After consultation with legal counsel and a review of available facts,
it is management's opinion that the ultimate liability, if any, under these
suits will not have a material adverse impact on the financial position of
Lincoln Life.
PREPARING FOR YEAR 2000
Lincoln Life, as part of its year 2000 updating process and in conjunction
with its parent company (Lincoln National Life Insurance Company), is
responsible for the updating of the Variable Investment Division related
computer systems. Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. The year 2000 issue affects virtually all companies and
organizations.
An affiliate of Lincoln Life, Delaware Service Company (Delaware), provides
substantially all of the necessary accounting and valuation services for the
Variable Investment Division. Delaware, for its part, is responsible for
updating all of its computer systems, including those which service the
Variable Investment Division, to accommodate the year 2000. Lincoln National
Life Insurance Company and Delaware have begun formal discussions with each
other to assess the requirements for their respective systems to interface
properly in order to facilitate the accurate and orderly operation of the
Variable Investment Division beginning in the year 2000.
The year 2000 issue is pervasive and complex and affects virtually every
aspect of the businesses of Lincoln Life, Lincoln National Life Insurance
Company, and Delaware (the Companies). The computer systems of the Companies
and their interfaces with the computer systems of vendors, suppliers, customers
and other business partners are particularly vulnerable. The inability to
properly recognize date-sensitive electronic information and to transfer data
between systems could cause errors or even complete failure of systems, which
would result in a temporary inability to process transactions correctly and
engage in normal business activities for the Variable Investment Division. The
Companies respectively are redirecting significant portions of their internal
information technology efforts and are contracting, as needed, with outside
consultants to help update their systems to accommodate the year 2000. Also, in
addition to the discussions with each other noted above, the Companies have
respectively initiated formal discussions with other critical parties that
34
<PAGE>
interface with their systems to gain an understanding of the progress by those
parties in addressing year 2000 issues. While the Companies are making
substantial efforts to address their own systems and the systems with which
they interface, it is not possible to provide assurance that operational
problems will not occur.
The Companies presently believe that, assuming the modification of existing
computer systems, updates by vendors and conversion to new software and
hardware, the year 2000 issue will not pose significant operations problems for
their respective computer systems. In addition, the Companies are incorporating
potential issues surrounding year 2000 into their contingency planning process,
in the event that, despite these substantial efforts, there are unresolved year
2000 problems. If the remediation efforts noted above are not completed timely
or properly, the year 2000 issue could have a material adverse impact on the
operation of the businesses of Lincoln Life or Delaware, or both.
The cost of addressing year 2000 issues and the timeliness of completion will
be closely monitored by management of the Companies. Nevertheless, there can be
no guarantee by Lincoln Life, Lincoln National Life Insurance Company, or
Delaware that estimated costs will be achieved, and actual results could differ
significantly from those anticipated. Specific factors that might cause such
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer problems, and other uncertainties.
35
<PAGE>
TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS.............................................................. 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS............................... 2
PERFORMANCE CALCULATIONS................................................. 3
TAX LAW CONSIDERATIONS................................................... 9
DISTRIBUTION OF CONTRACTS................................................ 11
INDEPENDENT AUDITORS..................................................... 11
FINANCIAL STATEMENTS..................................................... 11
Audited Financial Statements of Variable Investment Division
Audited Statutory-Basis Financial Statements and Schedules of Lincoln Life
</TABLE>
36
<PAGE>
VARIABLE ANNUITY III
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE SUB-ACCOUNTS OF
LINCOLN LIFE & ANNUITY
VARIABLE ANNUITY ACCOUNT L
OF
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions.............. 2
Determination of Variable
Annuity Payments........ 2
Performance Calcula-
tions................... 3
Tax Law Considerations... 9
Distribution of Con-
tracts.................. 11
Independent Auditors..... 11
Financial Statements..... 11
Audited Financial State-
ments of Variable In-
vestment Division
Audited Statutory-Basis
Financial Statements
and Schedules of Lin-
coln Life
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should
be read in conjunction with the prospectus for the Group Annuity Contracts
(the "Contracts"), dated May 1, 1998.
A copy of the prospectus to which this SAI relates is available at no charge
by writing to Lincoln Life & Annuity Company of New York, TDA Client Services,
P.O. Box 1337, Syracuse, New York 13201-1337, calling Lincoln Life at 1-800-
893-7168, or e-mailing [email protected].
NY90023
<PAGE>
DEFINITIONS
ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion Amount
in determining the dollar amount of an annuitant's annuity payments for
Guaranteed Annuities or the initial payment for Variable Annuities.
ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the first
day of a calendar month. For Variable Annuities, this is the Valuation Date
ten (10) Business Days prior to the first day of a calendar month.
ANNUITY UNIT: An accounting unit of measure that is used in calculating the
amounts of annuity payments to be made from a Sub-Account during the Annuity
Period.
ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in a Sub-Account on
any Valuation Date.
CODE: The Internal Revenue Code of 1986, as amended.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
As stated in the prospectus, the amount of each Variable Annuity payment will
vary depending on investment experience. The initial payment amount of the
Annuitant's Variable Annuity for each Sub-Account is determined by dividing
his Annuity Conversion Amount in each Sub-Account as of the initial Annuity
Payment Calculation Date ("APCD") by the Applicable Annuity Conversion Factor
as defined as follows:
The Annuity Conversion Factors which are used to determine the initial
payments are based on the 1983 Individual Annuity Mortality Table, set back
four (4) years, and an interest rate in an integral percentage ranging from
zero to six percent (0 to 6.00%) as selected by the Annuitant.
The amount of the Annuitant's subsequent Variable Annuity payment for each
Sub-Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by the
Annuity Unit Value for that Sub-Account selected for his interest rate
option as described above as of his initial APCD; and
(b) Multiplying the resultant number of annuity units by the Annuity Unit
Values for the Sub-Account selected for his interest rate option for his
respective subsequent APCDs.
Each subsequent Annuity Unit Value for a Sub-Account for an interest rate
option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of
subsequent APCD by the Accumulation Unit Value for the Sub-Account as of
the immediately preceding APCD;
Dividing the resultant factor by one (1.00) plus the interest rate
option to the n/365 power where n is the number of days from the
immediately preceding APCD to the subsequent APCD; and
Multiplying this factor times the Annuity Unit Value as of the
immediately preceding APCD.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
<TABLE>
<C> <S>
1. Annuity Unit Value as of immediately preceding Annuity Payment
Calculation Date................................................$11.0000
2. Accumulation Unit Value as of Annuity Payment Calculation Date...$20.0000
3. Accumulation Unit Value as of immediately preceding Annuity Payment
Calculation Date................................................$19.0000
4. Interest Rate.......................................................6.00%
5. Interest Rate Factor (30 days).....................................1.0048
6. Annuity Unit Value as of Annuity Payment Calculation Date =
1 times 2 divided by 3 divided by 5.............................$11.5236
</TABLE>
ILLUSTRATION OF ANNUITY PAYMENTS
<TABLE>
<C> <S>
1. Annuity Conversion Amount as of Participant's initial Annuity Payment
Calculation Date.............................................$100,000.00
2. Assumed Annuity Conversion Factor per $1 of Monthly Income for an
individual age 65
selecting a Single Life Annuity with Assumed Interest Rate of
6%...............................................................$138.63
3. Participant's initial Annuity Payment = 1 divided by 2............$721.34
4. Assumed Annuity Unit Value as of Participant's initial Annuity Payment
Calculation Date................................................$11.5236
5. Number of Annuity Units = 3 divided by 4..........................62.5968
6. Assumed Annuity Unit Value as of Participant's second Annuity Payment
Calculation Date................................................$11.9000
7. Participant's second Annuity Payment = 5 times 6..................$744.90
</TABLE>
2
<PAGE>
PERFORMANCE CALCULATIONS
STANDARD TOTAL RETURN CALCULATION
The Variable Investment Division may advertise average annual total return
information calculated according to a formula prescribed by the Securities and
Exchange Commission ("SEC"). Average annual total return shows the average
annual percentage increase, or decrease, in the value of a hypothetical
Contribution allocated to a Sub-Account from the beginning to the end of each
specified period of time. The SEC standardized version of this performance
information is based on an assumed Contribution of $1,000 allocated to a Sub-
Account at the beginning of each period and surrender or withdrawal of the
value of that amount at the end of each specified period, giving effect to any
charges and fees applicable under the Contract. The effect of the Annual
Administration Charge for a period is determined by dividing the total amount
of such charges collected in the previous year by the total average net assets
of the accounts for the previous year, as of the previous month ended;
accounts include accounts available under Variable Annuity III of Lincoln Life
and under corresponding accounts of First UNUM Life Insurance Company, pending
assumption reinsurance by Lincoln Life of Variable Annuity III contracts
issued through such corresponding accounts. This method of calculating
performance further assumes that (i) a $1,000 Contribution was allocated to a
Sub-Account and (ii) no transfers or additional payments were made. Premium
taxes are not included in the term "charges" for purposes of this calculation.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical Contribution that would compare
the Accumulation Unit value on the first day of the specified period to the
ending redeemable value at the end of the period according to the following
formula:
T = (ERV/C) 1/n--1
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
Contribution of $1,000 made at the beginning of the applicable period, where C
equals a hypothetical Contribution of $1,000, and where n equals the number of
years.
For Sub-Account average annual total return information calculated according
to the formula prescribed by the SEC, see "Sub-Account Performance."
NON-STANDARDIZED CALCULATION OF TOTAL RETURN PERFORMANCE
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. Such non-standard performance
information may be based on the historical performance of a Fund and adjusted
to reflect some or all of the fees and charges imposed under a Contract.
The Variable Investment Division may also present total return information
computed on the same basis as the standardized method except that charges
deducted from the hypothetical Contribution will not include any Annual
Administration Charge. The total return percentage under this method will be
higher than the resulting percentage from the standardized method.
The Sub-Accounts also may present total return information calculated by
subtracting a Sub-Account's Accumulation Unit Value at the beginning of a
period from the Accumulation Unit Value of that Sub-Account at the end of the
period and dividing that difference (in that Sub-Account's Accumulation Unit
Value) by the Accumulation Unit Value of that Sub-Account at the beginning of
the period. This computation results in a total growth rate for the specified
period which we annualize in order to obtain the average annual percentage
change in the Accumulation Unit Value for the period used. This method of
calculating performance does not take into account the Annual Administration
Charge or premium taxes, and assumes no transfers. Such percentages would be
lower if these charges were included in the calculation.
In addition, the Variable Investment Division may present actual aggregate
total return figures for various periods, reflecting the cumulative change in
value of an investment in the Variable Investment Division for the specified
period.
For information regarding the historical performance of the Funds adjusted for
the fees and charges imposed under a Contract, see "Historical Fund
Performance Adjusted for Variable Investment Division and Contract Fees and
Charges."
3
<PAGE>
PERFORMANCE INFORMATION
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1997. THIS INFORMATION DOES NOT INDICATE
OR REPRESENT FUTURE PERFORMANCE.
TOTAL RETURN
Total returns quoted in sales literature or advertisements reflect all aspects
of a Sub-Account's return. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Sub-Account over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced
the same result if the rate of growth or decline had been constant over the
period. Contractholders and participants should recognize that average annual
returns represent averaged returns rather than actual year-to-year
performance.
SUB-ACCOUNT PERFORMANCE
The tables below assume a hypothetical investment of $1,000 at the beginning
of the period in the Sub-Account investing in the applicable Fund and
withdrawal of the investment on 12/31/97. The rates thus reflect the mortality
and expense risk charge, the withdrawal charge and a pro rata portion of the
Annual Administration Charge. The first table shows Sub-Account average annual
total return information calculated according to the formula prescribed by the
SEC. The second table shows Sub-Account cumulative total return information.
THIS INFORMATION DOES NOT INDICATE OR REPRESENT FUTURE PERFORMANCE.
SUB-ACCOUNT STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
LIFE OF
SUB- SUB-
ACCOUNT ACCOUNT
INCEPTION ENDING
DATE 12/31/97
--------- --------
<S> <C> <C>
Asset Manager (Fidelity VIP II: Asset Manager) 1/31/97 13.60%
Socially Responsible (Calvert Social Balanced Portfolio) 1/31/97 11.52
Balanced (American Century VP Balanced) 1/31/97 7.67
Equity-Income (VIP Equity-Income) 1/31/97 17.34
Index Account (Dreyfus Stock Index) 1/31/97 22.08
Growth I (Fidelity VIP Growth) 1/31/97 10.40
Capital Appreciation (American Century VP Capital Apprecia-
tion) 1/31/97 -14.87
International Stock (T. Rowe Price International Stock
Portfolio) 1/31/97 2.49
Small Cap (Dreyfus Small Cap) 1/31/97 9.59
</TABLE>
SUB-ACCOUNT CUMULATIVE TOTAL RETURN (NONSTANDARD)
<TABLE>
<CAPTION>
LIFE OF
SUB- SUB-
ACCOUNT YEAR TO ACCOUNT
INCEPTION QUARTER DATE ENDING
DATE 12/31/97 12/31/97 12/31/97
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Asset Manager (Fidelity VIP II: Asset
Manager) 1/31/97 1.62% 12.38% 12.38%
Socially Responsible (Calvert Social Bal-
anced Portfolio) 1/31/97 0.18 10.49 10.49
Balanced (American Century VP Balanced) 1/31/97 -1.01 7.00 7.00
Equity-Income (VIP Equity-Income) 1/31/97 1.48 15.76 15.76
Index Account (Dreyfus Stock Index) 1/31/97 2.24 20.03 20.03
Growth I (Fidelity VIP Growth) 1/31/97 -1.33 9.47 9.47
Capital Appreciation
(American Century VP Capital Apprecia-
tion) 1/31/97 -13.43 -13.70 -13.70
International Stock
(T. Rowe Price International Stock Port-
folio) 1/31/97 -7.62 2.27 2.27
Small Cap (Dreyfus Small Cap) 1/31/97 -6.00 8.74 8.74
</TABLE>
4
<PAGE>
HISTORICAL FUND PERFORMANCE ADJUSTED FOR VARIABLE INVESTMENT DIVISION AND
CONTRACT FEES AND CHARGES
Performance information for the periods prior to the date the Sub-Accounts
commenced operations will be calculated based on the performance of the Funds
and the assumption that the Sub-Accounts were in existence for the same
periods as those indicated for the Funds, with the Contract charges that were
in effect during the time periods shown. This performance information is
referred to as "adjusted" performance information. THIS INFORMATION DOES NOT
INDICATE OR REPRESENT FUTURE PERFORMANCE.
Table 1A below assumes a hypothetical investment of $1,000 at the beginning of
the period in the Sub-Account investing in the applicable fund and withdrawal
of the investment on 12/31/97. The rates thus reflect the mortality and
expense risk charge and a pro rata portion of the Annual Administration
Charge. Table 1B shows the cumulative total return on the same basis.
TABLE 1A -- SUB-ACCOUNT ADJUSTED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Manager 9/06/89 18.96% 15.69% 11.29% N/A 10.96%
(Fidelity VIP II: Asset
Manager)
Socially Responsible 09/02/86 18.39 18.90 11.24 10.67% 9.44
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 14.18 14.65 9.63 N/A 9.39
(American Century VP
Balanced)
Equity-Income 10/09/86 26.32 23.73 18.41 14.91 12.84
(VIP Equity-Income)
Index Account 09/29/89 31.10 28.76 17.96 N/A 14.02
(Dreyfus Stock Index)
Growth I 10/09/86 21.75 22.46 16.28 15.37 13.72
(Fidelity VIP Growth)
Capital Appreciation 05/01/91 -4.64 5.08 4.17 6.96 7.59
(American Century VP
Capital Appreciation)
International Stock 03/03/94 1.63 7.97 N/A N/A 6.51
(T. Rowe Price
International Stock
Portfolio)
Small Cap 08/31/90 15.10 19.03 24.29 N/A 41.83
(Dreyfus Small Cap)
</TABLE>
5
<PAGE>
TABLE 1B -- SUB-ACCOUNT ADJUSTED CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
LIFE OF
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 1.62% 18.96% 18.96% 54.86% 70.75% N/A 137.56%
(Fidelity VIP II: Asset
Manager)
Socially Responsible 09/02/86 0.18 18.39 18.39 68.07 70.35 175.52% 177.97
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 -1.01 14.18 14.18 50.70 58.34 N/A 81.98
(American Century VP
Balanced)
Equity-Income 10/09/86 1.48 26.32 26.32 89.44 132.76 301.41 288.39
(VIP Equity-Income)
Index Account
(Dreyfus Stock Index) 09/29/89 2.24 31.10 31.10 113.46 128.36 N/A 195.29
Growth I
(Fidelity VIP Growth) 10/09/86 -1.33 21.75 21.75 83.63 112.60 317.67 324.20
Capital Appreciation
(American Century VP 11/20/87 -13.43 -4.64 -4.64 16.03 22.69 96.06 109.74
Capital Appreciation)
International Stock
(T. Rowe Price 03/31/94 -7.62 1.63 1.63 25.86 N/A N/A 26.71
International Stock
Portfolio)
Small Cap 08/31/90 -6.00 15.10 15.10 68.66 196.62 N/A 1,200.07
(Dreyfus Small Cap)
</TABLE>
Tables 2A and 2B show performance information on the same assumptions as
Tables 1A and 1B except that Tables 2A and 2B do not reflect deductions of the
pro rata portion of the Annual Administration Charge because certain Contracts
and Participants are not assessed such a charge.
6
<PAGE>
TABLE 2A -- SUB-ACCOUNT ADJUSTED AVERAGE TOTAL RETURN ASSUMING NO ANNUAL
ADMINISTRATION CHARGE
<TABLE>
<CAPTION>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 19.20% 15.97% 11.59% N/A 11.33%
(Fidelity VIP II: Asset
Manager)
Socially Responsible 09/02/86 18.64 19.17 11.54 11.07% 9.87
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 14.42 14.92 9.92 N/A 9.70
(American Century VP
Balanced)
Equity-Income 10/09/86 26.57 24.02 18.72 15.32 13.28
(VIP Equity-Income)
Index Account
(Dreyfus Stock Index) 09/29/89 31.36 29.05 18.27 N/A 14.40
Growth I (Fidelity VIP
Growth) 10/09/86 22.00 22.74 16.59 15.78 14.17
Capital Appreciation
(American Century VP 11/20/87 -4.42 5.34 4.46 7.36 8.00
Capital Appreciation)
International Stock
(T. Rowe Price 03/31/94 1.86 8.23 N/A N/A 6.77
International Stock
Portfolio)
Small Cap (Dreyfus Small 08/31/90 15.35 19.31 24.61 N/A 42.24
Cap)
</TABLE>
7
<PAGE>
TABLE 2B -- SUB-ACCOUNT ADJUSTED CUMULATIVE TOTAL RETURN ASSUMING NO ANNUAL
ADMINISTRATION CHARGE
<TABLE>
<CAPTION>
LIFE OF
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 1.85% 19.20% 19.20% 55.95% 73.06% N/A 144.24%
(Fidelity VIP II: Asset
Manager)
Socially Responsible 09/02/86 0.41 18.64 18.64 69.25 72.66 185.66% 190.70
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 -0.78 14.42 14.42 51.77 60.50 N/A 85.51
(American Century VP
Balanced)
Equity-Income 10/09/86 1.71 26.57 26.57 90.74 135.82 316.01 306.06
(VIP Equity-Income)
Index Account 09/29/89 2.47 31.36 31.36 114.90 131.38 N/A 203.56
(Dreyfus Stock Index)
Growth I 10/09/86 -1.10 22.00 22.00 84.90 115.42 332.80 343.39
(Fidelity VIP Growth)
Capital Appreciation 11/20/87 -13.21 -4.42 -4.42 16.89 24.40 103.38 118.00
(American Century VP
Capital Appreciation)
International Stock 03/31/94 -7.40 1.86 1.86 26.78 N/A N/A 27.90
(T. Rowe Price
International Stock
Portfolio)
Small Cap 08/31/90 -5.78 15.35 15.35 69.84 200.41 N/A 1,227.73
(Dreyfus Small Cap)
</TABLE>
Table 3 below shows total return information on a calendar year basis using
the same assumptions as Tables 2A and 2B. The rates of return shown reflect
the mortality and expense risk charge. Similar to Tables 2A and 2B, Table 3
does not reflect deduction of the pro rata portion of the Annual
Administration Charge because certain Contracts and Participants are not
assessed such a charge.
TABLE 3 -- SUB-ACCOUNT "HYPOTHETICAL" CALENDAR YEAR ANNUAL RETURN ASSUMING NO
ANNUAL ADMINISTRATION CHARGE*
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ----- ----- ------ ------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager n/a n/a n/a 5.45 21.11 10.53 19.60 -7.20 15.57 13.24 19.20
Socially Responsible 5.51 10.42 19.53 2.94 15.02 6.33 6.72 -4.39 28.24 11.28 18.64
Balanced n/a n/a n/a n/a n/a -7.17 6.38 -0.58 19.68 10.81 14.42
Equity-Income -2.30 21.25 15.95 -16.29 29.88 15.50 16.89 5.80 33.49 12.92 26.57
Index n/a n/a n/a -4.69 28.29 5.82 8.02 -0.32 35.16 21.09 31.36
Growth I 2.43 14.21 29.95 -12.78 43.78 8.00 17.94 -1.21 33.75 13.35 22.00
Capital Appreciation n/a -3.41 27.17 -2.40 40.18 -2.52 8.99 -2.34 29.55 -5.43 -4.42
International Stock n/a n/a n/a n/a n/a n/a n/a n/a 9.86 13.34 1.86
Small Cap n/a n/a n/a n/a 156.65 69.25 66.31 6.47 27.85 15.22 15.35
</TABLE>
*The above calendar-year returns assume a hypothetical investment of $1,000 on
January 1 of the first full calendar year that the underlying fund was in
existence. The returns assume that the money will be left on account until
retirement. Returns are provided for years before the fund was an available
investment option under the Contract.
8
<PAGE>
Returns for those periods reflect a hypothetical return as if those funds were
available under the Contract, and reflect the deduction of the mortality and
expense risk charge. The returns do not reflect deductions for the pro rata
portion of the Annual Administration Charge.
SEC regulations require that any product performance data be accompanied by
standardized performance data.
TAX LAW CONSIDERATIONS
RETIREMENT PROGRAMS:
Participants are urged to discuss the income taxes considerations of their
retirement plan with their tax advisors. In many situations special rules may
apply to the plans and/or to the participants. See the Prospectus for a more
complete discussion of tax considerations and for limitations on the following
discussion.
Contributions to retirement programs subject to Sections 401(a), 403(b), 408
and 457(b) may be excludable from a Participant's reportable gross income if
the Contributions do not exceed the limitations imposed under the Code.
Certain plans allow employees to make Elective Salary Deferral Contributions.
Certain Plans allow Employers to make Contributions. The information below is
a brief summary of some the important federal tax considerations that apply to
retirement plans. When there is a written Plan, often the Contribution limits,
withdrawal rights and other provisions of the Plan may be more restrictive
than those allowed by the Code.
Elective Salary Deferral Contributions:
For calendar year 1998 the maximum elective salary deferral contributions to a
401(k) Plan which is a type of 401(a) Plan is limited to $10,000; for a 403(b)
plan the limit is $10,000 unless the employee is qualified employee; for an
Eligible 457 Plan the limit is $8,000.
Total Salary Deferral & Employer Contributions:
QUALIFIED RETIREMENT PLAN - 401(a) PLAN
The Code limits the Contributions to a defined contribution 401(a) plan to the
lesser of $30,000 or 25% of compensation.
TAX SHELTERED ANNUITY PLAN - 403(b) Plan
Total contributions which include both salary deferral contributions and
employer contributions are also limited.
The combined limit is:
(a) the amount determined by multiplying 20 percent of the employee's
includable compensation by the number of years of service, over
(b) the aggregate of the amount contributed by the employer for annuity
contracts and excludable from the gross income of the employee for the
prior taxable year.
Therefore, if the maximum exclusion allowance is less than $10,000 a year, the
employee's elective deferrals plus any other employer Contributions cannot
exceed this lesser amount.
Section 415 of the Code imposes limitations with respect to annual
contributions to all Section 403(b) programs, qualified plans and simplified
employee pensions maintained by the Employer. A Participant's annual
contributions to these programs and defined contribution plans generally
cannot exceed the lesser of $30,000 or 25 percent of the employee's
compensation. This amount is subject to the maximum exclusion allowance and
the salary deferral amount limitations.
ELIGIBLE 457 PLAN - 457(b) PLAN
For a 457(b) plan the contribution limit is generally the lesser of $7,500, as
indexed, or 33% of the employee's compensation.
9
<PAGE>
SECTION 457(f) PLANS
These are non-qualified deferred compensation arrangements between an Employer
and its employees. There are no stated limits in the Code regarding this type
of Plan.
INDIVIDUAL RETIREMENT ACCOUNT - IRA OR 408 PLAN
For IRA's the maximum deductible contribution is the lesser of $2,000 or 100%
of taxable income. The $2,000 is increased to $4,000 when the IRA covers the
taxpayer and a non-working spouse.
TRANSFERS AND ROLLOVERS:
Participants who receive distributions from their 401(a) or 403(b) contract
may transfer the amount not representing employee contributions to an
Individual Retirement Account or Annuity (IRA) or another Section 401(a) or
403(b) program without including that amount in gross income for the taxable
year in which paid. Note 401(a) distributions may not be transferred to a
403(b) plan or vice versa. If the amount is paid directly to an acceptable
rollover account, Lincoln Life is not required to withhold any amount. In
order for the distribution to qualify for rollover, the distribution must be
made on account of the employee's death, after the employee attains age 59
1/2, on account of the employee's separation from service, or after the
employee has become disabled. The distribution cannot be part of a series of
substantially equal payments made over the life expectancy of the employee or
the joint life expectancies of the employee and his or her spouse or made for
a specified period of 10 years or more. The rollover must be made within sixty
days of the distribution to avoid taxation.
Pursuant to Revenue Ruling 90-24, a Participant, to the extent permitted by
any applicable Contract or Plan, may transfer funds between Section 403(b)
investment vehicles, including both Section 403(b)(1) annuity contracts and
Section 403(b)(7) custodial accounts. Any amount transferred must continue to
be subject to withdrawal restrictions at least as restrictive as that of the
transferring investment vehicle. Lincoln Life considers any total or partial
transfer from a Lincoln Life investment vehicle to a non-Lincoln Life
investment vehicle to be a withdrawal.
Once every twelve months a participant in an IRA may roll the money from one
IRA to another IRA.
The rollover rules are not available to Section 457 Plans; limited transfers
are permitted under Eligible 457 Plans. If the rollover amount is paid
directly to the Participant, the amount distributed may be subject to a 20%
federal tax withholding.
EXCISE TAX ON EARLY DISTRIBUTIONS:
Section 72(t) of the Code provides that any distribution made to a Participant
in a 401(a), 403(b) or 408 plan other than on account of the following events
will be subject to a 10 percent excise tax on the taxable amount distributed:
a) the employee has attained age 59 1/2;
b) the employee has died;
c) the employee is disabled;
d) the employee is 55 and has separated from service (Does not apply to
IRA's).
Distributions which are received as a life annuity where payment is made at
least annually will not be subject to an excise tax. Certain amounts paid for
medical care may also not be subject to an excise tax. Distributions from 408
Plans may qualify for additional exceptions.
MINIMUM DISTRIBUTION RULES:
The value in a contract under Sections 401(a), 403(b), 408 and Eligible 457
Plans are subject to the distribution rules provided in Section 401(a)(9) of
the Code. Generally, that section requires that an employee must begin
receiving distributions of his post-1986 balance by April 1 of the calendar
year following the calendar year in which the employee attains age 70 1/2.
Such distributions must not exceed the life expectancy of the employee or the
life expectancy of such employee and the designated beneficiary (as defined
under the plan). An employee who attained age 70 1/2 before January 1, 1988
must begin receiving distributions by April 1 of the calendar year following
the later of (a) the calendar year in which the employee attains age 70 1/2 or
(b) the calendar year in which the employee retires. There are special rules
for Section 403(b) Plans.
10
<PAGE>
Amounts contributed to an Eligible 457 contract must be distributed not
earlier than the earliest of: (1) calendar year in which the Participant
attains age 70 1/2, (2) the Participant separates from service with the
Employer, or (3) when the Participant has an unforeseen emergency. However, in
no event may the distribution begin any later than described in Sections
401(a)(9) and 457(d) of the Code.
Additionally, distribution of an employee's entire account balance (including
pre-1987 funds) must satisfy the minimum distribution incidental benefit
requirement. In general, this requires that death and other non-retirement
benefits payable under the above plans be incidental to the primary purpose of
the program which is to provide deferred compensation to the employee. A payee
is subject to a penalty for failing to receive the required minimum annual
distribution. Section 4974(a) of the Code provides that a payee will be
subject to a penalty equal to 50 percent of the amount by which the required
minimum distribution exceeds the actual amount distributed during the taxable
year.
Additional information on federal income taxation is included in the
prospectus.
DISTRIBUTION OF CONTRACTS
Lincoln Financial Advisors Corporation ("LFA"), an indirect subsidiary of
Lincoln National Corporation, is registered with the Securities and Exchange
Commission as a broker-dealer under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. LFA is the
Variable Investment Division's principal underwriter and also enters into
selling agreements with other unaffiliated broker-dealers authorizing them to
offer the Contracts.
INDEPENDENT AUDITORS
The financial statements of the Variable Investment Division and the
statutory-basis financial statements and schedules of Lincoln Life & Annuity
Company of New York appearing in this SAI and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports also appearing elsewhere in this document and in the Registration
Statement. The financial statements and schedules audited by Ernst & Young LLP
have been included in this document in reliance on their reports given on
their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial statements of the Variable Investment Division and the statutory-
basis financial statements and schedules of Lincoln Life appear on the
following pages.
11
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors of Lincoln Life & Annuity Company of New York and
Contract Owners of Lincoln Life & Annuity Variable Annuity Account L
We have audited the accompanying statement of assets and liability of Lincoln
Life & Annuity Variable Annuity Account L (Variable Account) as of December
31, 1997, and the related statements of operations and changes in net assets
for the year then ended. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lincoln Life & Annuity
Variable Annuity Account L at December 31, 1997, and the results of its
operations and changes in its net assets for the year then ended in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 20, 1998
F-1
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT DREYFUS DREYFUS
OF NET STOCK INDEX SMALL CAP
ASSETS COMBINED FUND PORTFOLIO
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
Dreyfus Stock Index Fund:
942,987.3398 shares at $25.75
per share
(cost--$21,230,228).......... 14.7% $ 24,281,924 $ 24,281,924
Dreyfus Variable Investment
Fund Small Cap
Portfolio:
298,205.6002 shares at $57.14
per share
(cost--$16,198,941).......... 10.3 17,039,468 $ 17,039,468
American Century Variable
Portfolios, Inc.:
VP Capital Appreciation
Portfolio--
992,096.3842 shares at
$9.68 per share
(cost--$10,477,450)........ 5.7 9,603,493
VP Balanced Portfolio--
987,872.2087 shares at
$8.24 per share
(cost--$7,726,823)......... 4.9 8,140,067
Fidelity's Variable Insurance
Products Fund:
Growth Portfolio--
1,389,081.3470 shares at
$37.10 per share
(cost--$46,035,165)........ 31.3 51,534,918
Equity-Income Portfolio--
731,606.8780 shares at
$24.28 per share
(cost--$15,904,504)........ 10.8 17,763,415
Money Market Portfolio--
25,386.0000 shares at $1.00
per share
(cost--$25,386)............ -- 25,386
Fidelity's Variable Insurance
Products Fund II
Asset Manager Portfolio:
1,623,104.8860 shares at
$18.01 per share
(cost--$27,750,783).......... 17.7 29,232,119
Calvert Responsibly Invested
Balanced Portfolio:
586,911.1111 shares at $1.98
per share
(cost--$1,111,144)........... 0.7 1,162,084
T. Rowe Price International
Series, Inc.:
466,101.8800 shares at $12.74
per share
(cost--$5,980,021)........... 3.6 5,938,138
----- ------------ ------------ ------------
TOTAL INVESTMENTS AND TO-
TAL ASSETS (Cost--
$152,440,446)............ 100.0 164,721,012 24,281,924 17,039,468
LIABILITY--Payable to Lincoln
Life & Annuity
Company of New York............ -- 5,389 799 554
----- ------------ ------------ ------------
NET ASSETS................ 100.0% $164,715,623 $ 24,281,125 $ 17,038,914
===== ============ ============ ============
Net assets are represented by:
Units in accumulation period....................... 814,078.4274 966,350.6337
Unit value......................................... $ 29.8265 $ 17.6322
------------ ------------
Value in accumulation period....................... $ 24,281,125 $ 17,038,914
============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CALVERT
CENTURY AMERICAN VIPF VIPF II RESPONSIBLY T. ROWE VIPF
VP CAPITAL CENTURY VIPF EQUITY- ASSET INVESTED PRICE MONEY
APPRECIATION VP BALANCED GROWTH INCOME MANAGER BALANCED INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES PORTFOLIO
------------ -------------- -------------- ------------ -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9,603,493
$ 8,140,067
$ 51,534,918
$ 17,763,415
$ 25,386
$ 29,232,119
$ 1,162,084
$ 5,938,138
- -------------- -------------- -------------- ------------ -------------- ----------- ------------ ----------
9,603,493 8,140,067 51,534,918 17,763,415 29,232,119 1,162,084 5,938,138 25,386
311 267 1,684 582 958 38 196 --
- -------------- -------------- -------------- ------------ -------------- ----------- ------------ ----------
$ 9,603,182 $ 8,139,800 $ 51,533,234 $ 17,762,833 $ 29,231,161 $ 1,162,046 $ 5,937,942 $ 25,386
============== ============== ============== ============ ============== =========== ============ ==========
682,852.7378 438,791.7773 1,819,150.0962 888,789.6201 1,420,180.3705 68,870.9488 474,903.8148 2,134.3864
$14.0633 $ 18.5505 $ 28.3282 $ 19.9854 $ 20.5827 $ 16.8728 $ 12.5035 $ 11.8940
- -------------- -------------- -------------- ------------ -------------- ----------- ------------ ----------
$ 9,603,182 $ 8,139,800 $ 51,533,234 $ 17,762,833 $ 29,231,161 $ 1,162,046 $ 5,937,942 $ 25,386
============== ============== ============== ============ ============== =========== ============ ==========
</TABLE>
F-3
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DREYFUS DREYFUS
STOCK INDEX SMALL CAP
COMBINED FUND PORTFOLIO
----------- ----------- ----------
<S> <C> <C> <C>
Net Investment Income:
Dividends from investment income........ $ 7,544,303 $ 992,361 $ 978,325
Mortality and expense guarantees........ (1,548,723) (213,185) (149,641)
----------- ---------- ----------
NET INVESTMENT INCOME..................... 5,995,580 779,176 828,684
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) on invest-
ments.................................. $ (170,424) 94,127 93
Net change in unrealized appreciation
(depreciation) on investments.......... 12,280,567 3,051,696 840,527
----------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS............ 12,110,143 3,145,823 840,620
----------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS.......... $18,105,723 $3,924,999 $1,669,304
=========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN AMERICAN CALVERT
CENTURY CENTURY VIPF VIPF II RESPONSIBLY T. ROWE VIPF
VP CAPITAL VP VIPF EQUITY- ASSET INVESTED PRICE MONEY
APPRECIATION BALANCED GROWTH INCOME MANAGER BALANCED INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES PORTFOLIO
- ------------ --------- --------- --------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 195,849 $ 309,664 $ 1,290,216 $ 983,039 $ 2,580,748 $ 80,835 $132,063 $ 1,203
(104,990) (79,040) (494,323) (154,973) (284,916) (9,768) (57,887) --
- ----------- --------- ----------- ----------- ----------- --------- -------- -------
90,859 230,624 795,893 828,066 2,295,832 71,067 74,176 1,203
(206,670) (300) 12,403 (31,271) (57,065) 3,443 14,816 --
(873,957) 413,244 5,499,753 1,858,911 1,481,336 50,940 (41,883) --
- ----------- --------- ----------- ----------- ----------- --------- -------- -------
(1,080,627) 412,944 5,512,156 1,827,640 1,424,271 54,383 (27,067) --
- ----------- --------- ----------- ----------- ----------- --------- -------- -------
$ (989,768) $ 643,568 $ 6,308,049 $ 2,655,706 $ 3,720,103 $ 125,450 $ 47,109 $ 1,203
=========== ========= =========== =========== =========== ========= ======== =======
</TABLE>
F-5
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DREYFUS DREYFUS
STOCK INDEX SMALL CAP
COMBINED FUND PORTFOLIO
------------ ----------- -----------
<S> <C> <C> <C>
Changes from operations:
Net investment income................... $ 5,995,580 $ 779,176 $ 828,684
Net realized gain (loss) on invest-
ments.................................. (170,424) 94,127 93
Net change in unrealized appreciation
(depreciation) on investments.......... 12,280,567 3,051,696 840,527
------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. 18,105,723 3,924,999 1,669,304
Net increase from unit transactions..... 146,609,900 20,356,126 15,369,610
------------ ----------- -----------
NET ASSETS AT DECEMBER 31, 1997......... $164,715,623 $24,281,125 $17,038,914
============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN AMERICAN CALVERT
CENTURY CENTURY VIPF VIPF II RESPONSIBLY T. ROWE VIPF
VP CAPITAL VP VIPF EQUITY- ASSET INVESTED PRICE MONEY
APPRECIATION BALANCED GROWTH INCOME MANAGER BALANCED INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES PORTFOLIO
------------ --------- --------- --------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 90,859 $ 230,624 $ 795,893 $ 828,066 $ 2,295,832 $ 71,067 $ 74,176 $ 1,203
(206,670) (300) 12,403 (31,271) (57,065) 3,443 14,816 --
(873,957) 413,244 5,499,753 1,858,911 1,481,336 50,940 (41,883) --
----------- ---------- ----------- ----------- ----------- ---------- ---------- -------
(989,768) 643,568 6,308,049 2,655,706 3,720,103 125,450 47,109 1,203
10,592,950 7,496,232 45,225,185 15,107,127 25,511,058 1,036,596 5,890,833 24,183
----------- ---------- ----------- ----------- ----------- ---------- ---------- -------
$ 9,603,182 $8,139,800 $51,533,234 $17,762,833 $29,231,161 $1,162,046 $5,937,942 $25,386
=========== ========== =========== =========== =========== ========== ========== =======
</TABLE>
F-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-8
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
THE ACCOUNT:
Lincoln Life & Annuity Variable Annuity Account L (the Variable Account) is a
segregated investment account of Lincoln Life & Annuity Company of New York
(the Company) and is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust.
On October 1, 1996, UNUM Life Insurance Company of America (UNUM America) and
First UNUM Life Insurance Company (First UNUM) completed the sale of their
tax-qualified annuity business to the Company and The Lincoln National Life
Insurance Company (Lincoln Life), the parent of the Company. The contracts of
participants in the variable accounts of UNUM America and First UNUM with
respect to which consent is obtained from contractholders and participants
have been reinsured pursuant to an assumption reinsurance agreement. Assets
attributable to such participants' contracts have been transferred to the
Variable Account and the variable account of Lincoln Life. Assets attributable
to contracts of participants with respect to which such consent is not
obtained remain in the variable accounts of UNUM America and First UNUM.
During 1997, net assets of the Variable Account increased by approximately
$118,826,588 from novations of assets from the variable accounts of UNUM
America and First UNUM.
INVESTMENTS:
In accordance with the terms of the variable annuity contracts, all payments
transferred to the Variable Account by contract owners are allocated to
purchase shares of either Dreyfus Stock Index Fund, Dreyfus Variable
Investment Fund: Small Cap Portfolio (Dreyfus Small Cap Portfolio), American
Century Variable Portfolios: American Century VP Capital Appreciation
(American Century VP Capital Appreciation Portfolio) and American Century VP
Balanced (American Century VP Balanced Portfolio), Fidelity's Variable
Insurance Products Fund: Growth Portfolio (VIPF Growth Portfolio) and Equity-
Income Portfolio (VIPF Equity-Income Portfolio), Fidelity's Variable Insurance
Products II: Asset Manager Portfolio (VIPF II Asset Manager Portfolio),
Calvert Responsibly Invested Balanced Portfolio or T. Rowe Price International
Series, Inc. (T. Rowe Price International Series) (collectively, the Funds).
Fidelity's Variable Insurance Product Funds: Money Market Portfolio (VIPF
Money Market Portfolio) is used only for investment of initial contributions
for which Lincoln Life has not received complete order instructions. Upon
receipt of complete order instructions, the payments transferred to VIPF Money
Market Portfolio are allocated to purchase shares of one of the above funds.
The Variable Account is fully invested in shares of the Funds. Investments in
the Funds are stated at the closing net asset value per share on December 31,
1997.
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by the average-cost method.
DIVIDENDS:
Dividends paid to the Variable Account are automatically reinvested in shares
of the Funds on the payable date with the exception of VIPF Money Market
Portfolio which is invested monthly.
FEDERAL INCOME TAXES:
Operations of the Variable Account form a part of and are taxed with
operations of the Company, which is taxed as a "life insurance company" under
the Internal Revenue Code. Using current law, no federal income taxes are
payable with respect to the Variable Account's net investment income and the
net realized gain on investments.
2. MORTALITY AND EXPENSE GUARANTEES
Amounts are paid to the Company for mortality and expense guarantees at an
effective annual rate of 1.20% of each portfolio's average daily net assets
within the Variable Account with the exception of VIPF Money Market Portfolio.
Accordingly, the Company is responsible for all sales, general, and
administrative expenses applicable to the Variable Account. Effective January
1, 1998, the effective annual rate of the mortality and expense guarantee was
reduced to 1.00% of each portfolio's average daily net assets.
F-9
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NET ASSETS
Net Assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
DREYFUS DREYFUS
STOCK INDEX SMALL CAP
COMBINED FUND PORTFOLIO
------------ ----------- -----------
<S> <C> <C> <C>
Unit Transactions--accumulation units... $146,609,900 $20,356,126 $15,369,610
Accumulated net investment income....... 5,995,580 779,176 828,684
Accumulated net realized gain (loss) on
investments............................ (170,424) 94,127 93
Net unrealized appreciation (deprecia-
tion) on investments................... 12,280,567 3,051,696 840,527
------------ ----------- -----------
$164,715,623 $24,281,125 $17,038,914
============ =========== ===========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
AMERICAN AMERICAN CALVERT
CENTURY CENTURY VIPF VIPF II RESPONSIBLY VIPF
VP CAPITAL VP VIPF EQUITY- ASSET INVESTED T. ROWE PRICE MONEY
APPRECIATION BALANCED GROWTH INCOME MANAGER BALANCED INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES PORTFOLIO
- ------------ ---------- ----------- ----------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$10,592,950 $7,496,232 $45,225,185 $15,107,127 $25,511,058 $1,036,596 $5,890,833 $24,183
90,859 230,624 795,893 828,066 2,295,832 71,067 74,176 1,203
(206,670) (300) 12,403 (31,271) (57,065) 3,443 14,816 --
(873,957) 413,244 5,499,753 1,858,911 1,481,336 50,940 (41,883) --
- ----------- ---------- ----------- ----------- ----------- ---------- ---------- -------
$ 9,603,182 $8,139,800 $51,533,234 $17,762,833 $29,231,161 $1,162,046 $5,937,942 $25,386
=========== ========== =========== =========== =========== ========== ========== =======
</TABLE>
F-11
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997
----------------------------
UNITS AMOUNT
-------------- ------------
<S> <C> <C>
DREYFUS STOCK INDEX FUND
Accumulation Units:
Contract purchases.......................... 853,087.3329 $ 21,122,316
Terminated contracts........................ (39,008.9055) (766,190)
-------------- ------------
814,078.4274 20,356,126
DREYFUS SMALL CAP PORTFOLIO
Accumulation Units:
Contract purchases.......................... 1,007,091.0375 15,721,180
Terminated contracts........................ (40,740.4038) (351,570)
-------------- ------------
966,350.6337 15,369,610
AMERICAN CENTURY VP CAPITAL APPRECIATION PORTFO-
LIO
Accumulation Units:
Contract purchases.......................... 840,498.1930 12,740,274
Terminated contracts........................ (157,645.4552) (2,147,324)
-------------- ------------
682,852.7378 10,592,950
AMERICAN CENTURY VP BALANCED PORTFOLIO
Accumulation Units:
Contract purchases.......................... 472,823.0173 7,987,684
Terminated contracts........................ (34,031.2400) (491,452)
-------------- ------------
438,791.7773 7,496,232
VIPF GROWTH PORTFOLIO
Accumulation Units:
Contract purchases.......................... 1,876,222.8953 46,001,624
Terminated contracts........................ (57,072.7991) (776,439)
-------------- ------------
1,819,150.0962 45,225,185
VIPF EQUITY-INCOME PORTFOLIO
Accumulation Units:
Contract purchases.......................... 944,505.5911 15,833,029
Terminated contracts........................ (55,715.9710) (725,902)
-------------- ------------
888,789.6201 15,107,127
VIPF II ASSET MANAGER PORTFOLIO
Accumulation Units:
Contract purchases.......................... 1,499,603.6267 26,714,688
Terminated contracts........................ (79,423.2562) (1,203,630)
-------------- ------------
1,420,180.3705 25,511,058
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO
Accumulation Units:
Contract purchases.......................... 75,295.1473 1,122,183
Terminated contracts........................ (6,424.1985) (85,587)
-------------- ------------
68,870.9488 1,036,596
T. ROWE PRICE INTERNATIONAL SERIES
Accumulation Units:
Contract purchases.......................... 507,483.4483 6,196,968
Terminated contracts........................ (32,579.6335) (306,135)
-------------- ------------
474,903.8148 5,890,833
VIPF MONEY MARKET PORTFOLIO
Accumulation Units:
Contract purchases.......................... 9,483.5416 107,942
Terminated contracts........................ (7,349.1552) (83,759)
-------------- ------------
2,134.3864 24,183
------------
NET INCREASE FROM UNIT TRANSACTIONS....... $146,609,900
============
</TABLE>
F-12
<PAGE>
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1997.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
COST OF PROCEEDS
PURCHASES FROM SALES
----------- ----------
<S> <C> <C>
Calvert Responsibly Invested Balanced $ 1,203,018 $ 95,317
T. Rowe Price International Stock 6,329,031 363,826
Dreyfus Stock Index 22,114,677 978,575
Dreyfus VIF Small Cap 16,699,505 500,656
American Century TCI Growth 12,936,123 2,252,004
American Century TCI Balanced 8,297,348 570,225
Fidelity VIP Growth 47,291,839 1,269,077
Fidelity VIP II Asset Manager 29,295,436 1,487,588
Fidelity VIP Equity-Income 16,816,068 880,293
Fidelity VIP Money Market 109,145 83,759
</TABLE>
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Lincoln Life & Annuity Company of New York
We have audited the accompanying statutory-basis balance sheets of Lincoln
Life & Annuity Company of New York (an indirect wholly owned subsidiary of
Lincoln National Corporation) as of December 31, 1997 and 1996, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for the year ended December 31, 1997 and for the
period from June 6, 1996 (date of incorporation) to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the New York Insurance Department, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles and the effects on the
accompanying financial statements are described in Note 1.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Lincoln Life & Annuity Company of New York at December
31, 1997 and 1996, or the results of its operations or its cash flows for the
year ended December 31, 1997 and for the period from June 6, 1996 (date of
incorporation) to December 31, 1996.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lincoln Life &
Annuity Company of New York at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the year ended December 31, 1997 and for
the period from June 6, 1996 (date of incorporation) to December 31, 1996, in
conformity with accounting practices prescribed or permitted by the New York
Insurance Department.
March 12, 1998
/s/ Ernst & Young LLP
S-1
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
BALANCE SHEETS--STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds............................................ $593,431,718 $604,353,271
Policy loans..................................... 39,054,927 40,609,076
Cash and short-term investments.................. 163,773,594 19,335,007
Receivable for securities........................ 34,804 --
------------ ------------
Total cash and invested assets................. 796,295,043 664,297,354
Accrued investment income.......................... 10,706,003 9,022,375
Data processing equipment.......................... 248,782 103,557
Other admitted assets.............................. 86,946 --
Separate account assets............................ 164,721,012 --
------------ ------------
Total admitted assets.......................... $972,057,786 $673,423,286
============ ============
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policyholders' funds............................. $587,465,491 $601,117,439
Future policy benefits and claims................ 1,214,524 --
Other liabilities................................ 6,784,652 16,351,624
Federal income taxes (recoverable)............... (342,378) 1,445,538
Asset valuation reserve.......................... 2,350,411 1,128,548
Interest maintenance reserve..................... 2,594,552 3,204,140
Net transfers due from separate accounts......... (5,582,705) --
Separate account liabilities..................... 164,721,012 --
------------ ------------
Total liabilities.................................. 759,205,559 623,247,289
Capital and surplus:
Common stock, $100 par value:
Authorized, issued and outstanding--20,000 shares
(owned by The Lincoln National Life Insurance
Company)........................................ 2,000,000 2,000,000
Paid-in surplus.................................. 227,407,481 69,000,000
Unassigned surplus--deficit...................... (16,555,254) (20,824,003)
------------ ------------
Total capital and surplus.......................... 212,852,227 50,175,997
------------ ------------
Total liabilities and capital and surplus.......... $972,057,786 $673,423,286
============ ============
</TABLE>
See accompanying notes.
S-2
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS--STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Premiums and deposits............................ $184,112,330 $631,355,849
Net investment income............................ 43,953,796 10,769,172
Surrender charges................................ 1,334,705 310,991
Amortization of the interest maintenance reserve. 370,129 205,255
Other revenues................................... 183,048 18,347
------------ ------------
Total revenues................................. 229,954,008 642,659,614
Benefits and expenses:
Benefits paid or provided to policyholders....... 72,475,389 640,912,693
Commissions...................................... 2,459,308 18,931,151
General expenses................................. 7,272,936 1,754,158
Insurance taxes, licenses and fees............... 739,989 47,046
Net transfers to separate accounts............... 139,478,473 --
------------ ------------
Total benefits and expenses.................... 222,426,095 661,645,048
------------ ------------
Gain (loss) from operations before federal income
taxes and net realized capital losses............. 7,527,913 (18,985,434)
Federal income taxes (benefit)..................... 1,942,625 (391,144)
------------ ------------
Gain (loss) from operations before net realized
capital losses.................................... 5,585,288 (18,594,290)
Net realized capital losses........................ (73,398) (855)
------------ ------------
Net income (loss).................................. $ 5,511,890 $(18,595,145)
============ ============
</TABLE>
See accompanying notes.
S-3
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS-- CAPITAL AND
STOCK SURPLUS DEFICIT SURPLUS
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances at June 6, 1996... $ -- $ -- $ -- $ --
Add (deduct):
Capital paid-in.......... 2,000,000 -- -- 2,000,000
Surplus paid-in.......... -- 69,000,000 -- 69,000,000
Net loss................. -- -- (18,595,145) (18,595,145)
Increase in nonadmitted
assets.................. -- -- (1,100,310) (1,100,310)
Increase in asset valua-
tion reserve............ -- -- (1,128,548) (1,128,548)
---------- ------------ ------------ ------------
Balances at December 31,
1996...................... 2,000,000 69,000,000 (20,824,003) 50,175,997
Add (deduct):
Surplus paid-in.......... -- 158,407,481 -- 158,407,481
Net income............... -- -- 5,511,890 5,511,890
Increase in nonadmitted
assets.................. -- -- (21,278) (21,278)
Increase in asset valua-
tion reserve............ -- -- (1,221,863) (1,221,863)
---------- ------------ ------------ ------------
Balances at December 31,
1997...................... $2,000,000 $227,407,481 $(16,555,254) $212,852,227
========== ============ ============ ============
</TABLE>
See accompanying notes.
S-4
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 6, 1996
DECEMBER 31, TO DECEMBER
1997 31, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considera-
tions received................................ $ 184,112,330 $ 631,355,849
Investment income received..................... 43,781,378 1,837,439
Benefits paid.................................. (85,008,691) (23,169,165)
Insurance expenses paid........................ (154,355,904) (20,919,059)
Federal income taxes paid...................... (1,893,859) --
Other income received and expenses paid, net... 1,613,631 329,338
------------- -------------
Net cash provided by (used in) operating activi-
ties............................................ (11,751,115) 589,434,402
INVESTING ACTIVITIES
Sale, maturity or repayment of investments..... 272,961,178 366,021,652
Purchase of investments........................ (265,700,363) (965,220,343)
Net decrease (increase) in policy loans........ 1,554,149 (40,609,076)
------------- -------------
Net cash provided by (used in) investing activi-
ties............................................ 8,814,964 (639,807,767)
FINANCING AND MISCELLANEOUS ACTIVITIES
Capital and surplus paid-in.................... 158,407,481 71,000,000
Other.......................................... (11,032,743) (1,291,628)
------------- -------------
Net cash provided by financing activities........ 147,374,738 69,708,372
------------- -------------
Increase in cash and short-term investments...... 144,438,587 19,335,007
Total cash and short-term investments at begin-
ning of year.................................... 19,335,007 --
------------- -------------
Total cash and short-term investments at end of
year............................................ $ 163,773,594 $ 19,335,007
============= =============
</TABLE>
See accompanying notes.
S-5
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Lincoln Life & Annuity Company of New York (the "Company") is a wholly owned
subsidiary of The Lincoln National Life Insurance Company ("Lincoln Life"),
which is a wholly owned subsidiary of Lincoln National Corporation ("LNC").
The Company was organized under the laws of the state of New York on June 6,
1996 as a life insurance company.
The Company received approval from the New York Insurance Department (the
"Department") to operate as a licensed insurance company in the state of New
York on September 27, 1996. The Company's operations consist of group 403(b)
tax-qualified annuity business acquired from UNUM Corporation affiliates on
October 1, 1996. The purchase was completed in the form of an indemnity
reinsurance transaction with an initial ceding commission of $15,600,000 which
the Department required the Company to record as an expense in the 1996
statement of operations. Upon novation, the indemnity reinsurance agreements
for general accounts were replaced with assumption reinsurance agreements and
the acquired separate accounts were recorded via assumption reinsurance
agreements. The group tax-qualified annuities are sold to not-for-profit
organizations throughout the state of New York by independent brokers. The
Company also sells single premium immediate annuity contracts to 403(b)
contractholders who desire annuitization.
USE OF ESTIMATES
Preparation of financial statements requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
BASIS OF PRESENTATION
The accompanying statutory-basis financial statements have been prepared in
conformity with accounting practices prescribed or permitted by the
Department. "Prescribed" statutory accounting practices include state laws,
regulations and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners ("NAIC").
"Permitted" statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, may
differ from company to company within a state and may change in the future.
The NAIC currently is in the process of codifying statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Codification will likely change,
to some extent, prescribed statutory accounting practices and may result in
changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification, which is expected to be
approved by the NAIC in 1998, will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the state of New York must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Department. At this time, it
is unclear whether the state of New York will adopt Codification. However,
based on the current draft of the proposed accounting practices, management
believes that the impact of Codification will not be material to the Company's
statutory-basis financial statements.
Existing statutory accounting practices differ from generally accepted
accounting principles ("GAAP"). The more significant variances from GAAP are
as follows:
INVESTMENTS
Bonds are reported at amortized cost or market value based on their NAIC
rating. For GAAP, the Company's bonds are classified as available-for-sale
and, accordingly, are reported at fair value with changes in the fair values
reported directly in shareholder's equity after adjustments for deferred
income taxes.
S-6
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of bonds attributable to changes in
the general level of interest rates and amortizes those deferrals over the
remaining period to maturity of the individual security sold. The net deferral
is reported as the "interest maintenance reserve" in the accompanying balance
sheets. Realized capital gains and losses are reported in income net of
federal income tax and transfers to the interest maintenance reserve. The
"asset valuation reserve" is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, realized
capital gains and losses are reported in the income statement on a pretax
basis in the period that the asset giving rise to the gain or loss is sold and
valuation allowances are provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
are charged to income.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally start-up and
organizational costs and furniture and equipment, are excluded from the
accompanying balance sheets and are charged directly to unassigned surplus.
PREMIUMS
Premiums and deposits are reported as premiums and deposits revenues; whereas,
under GAAP, such premiums and deposits are treated as liabilities and policy
charges represent revenues.
REINSURANCE
Commissions on business assumed are reported as an expense; whereas, under
GAAP the reinsurance transaction would be treated as a purchase of a business
and the ceding commission would represent the purchase price which would be
allocated to the assets and liabilities acquired at their respective fair
values. The excess of liabilities over assets acquired would be treated as
goodwill.
POSTRETIREMENT BENEFITS
For purposes of calculating the Company's postretirement benefit obligation,
only vested employees and current retirees are included in the actuarial
benefit valuation. Under GAAP, active employees not currently eligible would
also be included.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
A reconciliation of the Company's capital and surplus and net income (loss)
determined in accordance with statutory accounting practices with amounts
determined in accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
------------------------- -------------------------
PERIOD FROM
DECEMBER 31, YEAR ENDED JUNE 6, 1996
------------------------- DECEMBER 31, TO DECEMBER
1997 1996 1997 31 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Amounts as reported on a
statutory basis......... $212,852,227 $50,175,997 $5,511,890 $(18,595,145)
Add (deduct):
Net unrealized gain on
bonds................. 14,327,159 215,899 -- --
Interest maintenance
reserve............... 2,594,552 3,204,140 (370,129) 3,204,140
Net realized loss on
investments........... -- -- (239,459) --
Asset valuation re-
serve................. 2,350,411 1,128,548 -- --
Difference between GAAP
and statutory-basis
policyholders' funds.. (19,203,409) (15,536,418) (3,666,991) (15,536,418)
Present value of future
profits and deferred
acquisition costs..... 37,605,108 37,081,156 523,952 37,081,156
Deferred federal income
taxes................. (5,558,937) (1,290,978) 670,981 (1,215,413)
Nonadmitted assets..... 1,121,588 1,100,310 -- --
------------ ----------- ---------- ------------
Amounts on a GAAP basis.. $246,088,699 $76,078,654 $2,430,244 $ 4,938,320
============ =========== ========== ============
</TABLE>
S-7
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
The discount or premium on bonds is amortized using the interest method. For
mortgage-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic
life of the securities. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to reflect actual
payments to date and anticipated future payments. The net investment in the
securities is adjusted to the amount that would have existed had the new
effective yield been applied since the acquisition of the securities.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying amounts for these investments
approximate their fair values.
Policy loans are reported at unpaid balances.
Realized capital gains and losses on investments sold are determined using the
specific identification method. Changes in admitted asset carrying amounts of
bonds are credited or charged directly in unassigned surplus.
DATA PROCESSING EQUIPMENT
Data processing equipment is reported at cost, less accumulated depreciation.
Data processing equipment is depreciated on a straight-line basis over the
useful life of the asset.
PREMIUMS
Premiums for group tax-qualified annuity business are recognized as revenue
when deposited. Individual annuity premiums are recognized as revenue when
due.
BENEFITS
Annuity benefit reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Department.
The tabular interest, tabular less actual reserve released and the tabular
cost have been determined by formula or from the basic data for such items.
Tabular interest funds not involving life contingencies were determined using
the actual interest credited to the funds plus the change in accrued interest.
Liabilities related to policyholders' funds left on deposit with the Company
generally are equal to fund balances less applicable surrender charges, and do
not differ materially from reserve practices prescribed by the Department.
PENSION BENEFITS
Costs associated with the Company's defined benefit pension plans are
systematically accrued during the expected period of active service of the
covered employees.
ASSETS HELD IN SEPARATE ACCOUNTS AND LIABILITIES RELATED TO SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for the exclusive
benefit of variable annuity contractholders and for which the contractholders,
and not the Company, bears the investment risk. Separate account
contractholders have no claim against the assets of the general account of the
Company. Separate account assets are reported at fair value and consist of
mutual funds. The fees received by the Company for administrative and
contractholder maintenance services performed for these separate accounts are
included in the Company's statements of operations.
S-8
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
VULNERABILITY FROM CONCENTRATIONS
The Company is licensed to conduct life insurance business in the state of New
York. Currently, its products are sold through independent brokers in the
group 403(b) marketplace, primarily to higher-education institutions and non-
profit healthcare organizations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. INVESTMENTS
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 6, 1996 TO
DECEMBER DECEMBER 31,
31, 1997 1996
----------- ---------------
<S> <C> <C>
Income:
Bonds............................................. $42,237,959 $ 9,427,203
Policy loans...................................... 1,990,613 439,305
Cash and short-term investments................... 315,328 1,024,525
----------- -----------
Total investment income............................. 44,543,900 10,891,033
Investment expenses................................. 590,104 121,861
----------- -----------
Net investment income............................... $43,953,796 $10,769,172
=========== ===========
</TABLE>
The cost or amortized cost, gross unrealized gains and losses and the fair
value of investments in bonds are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Corporate.................... $445,296,161 $12,163,765 $(1,677,849) $455,782,077
U.S. government.............. 12,326,095 191,925 -- 12,518,020
Foreign government........... 17,131,754 636,803 (426,360) 17,342,197
Mortgage-backed.............. 115,611,907 3,369,970 (3,564) 118,978,313
State and municipal.......... 3,065,801 72,469 -- 3,138,270
------------ ----------- ----------- ------------
$593,431,718 $16,434,932 $(2,107,773) $607,758,877
============ =========== =========== ============
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Corporate.................... $374,672,586 $ 1,065,584 $(2,174,439) $373,563,731
U.S. government.............. 66,997,162 582,337 -- 67,579,499
Foreign government........... 4,992,530 56,125 -- 5,048,655
Mortgage-backed.............. 157,690,993 762,919 (76,627) 158,377,285
------------ ----------- ----------- ------------
$604,353,271 $ 2,466,965 $(2,251,066) $604,569,170
============ =========== =========== ============
</TABLE>
Fair value for bonds are based on quoted market prices, where available. For
bonds not actively traded, fair values are estimated using values obtained
from independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market
rate applicable to the coupon rate, credit quality and maturity of the
investments.
S-9
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
A summary of the cost or amortized cost and fair value of investments in bonds
at December 31, 1997, by contractual maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
Maturity:
In 1999-2002....................................... $159,878,049 $161,394,220
In 2003-2007....................................... 224,195,608 229,089,814
After 2007......................................... 93,746,154 98,296,530
Mortgage-backed securities......................... 115,611,907 118,978,313
------------ ------------
Total................................................ $593,431,718 $607,758,877
============ ============
</TABLE>
The expected maturities may differ from the contractual maturities in the
foregoing table because certain borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Proceeds from sales of investments in bonds were $274,742,319 and $365,646,000
in 1997 and 1996, respectively. Gross gains of $1,533,793 and $4,871,624 and
gross losses of $1,922,165 and $2,443 during 1997 and 1996, respectively, were
realized on those sales. Net gains (losses) of $(26) and $376,041 were
realized on sales of short-term investments in 1997 and 1996, respectively.
Realized capital gains and losses are reported net of federal income taxes of
$55,541 and $1,836,682 in 1997 and 1996, respectively, and amounts transferred
to the interest maintenance reserve of $239,459 and $3,409,395 in 1997 and
1996, respectively.
At December 31, 1997, investments in bonds with an admitted asset value of
$500,177 were on deposit with the Department to satisfy regulatory
requirements.
At December 31, 1997, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
3. FEDERAL INCOME TAXES
The effective federal income tax rate for financial reporting purposes differs
from the prevailing statutory tax rate principally due to differences in
ceding commissions for tax return and financial statement purposes.
4. ANNUITY RESERVES
At December 31, 1997, the Company's future policy benefits and claims and
policyholders' funds, including separate accounts, that are subject to
discretionary withdrawal with adjustment, subject to discretionary withdrawal
without adjustment and not subject to discretionary withdrawal provisions are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------------ -------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
At book value, less surrender charge.................... $263,779,308 35.2%
At market value......................................... 159,132,918 21.3
------------ -----
422,912,226 56.5
Subject to discretionary withdrawal without adjustment at
book value with minimal or no charge or adjustment....... 323,686,183 43.3
Not subject to discretionary withdrawal................... 1,214,524 0.2
------------ -----
Total future policy benefits and claims and policyholders'
funds.................................................... $747,812,933 100.0%
============ =====
</TABLE>
S-10
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
5. CAPITAL AND SURPLUS
The Company was initially capitalized on August 12, 1996 with a capital
contribution from Lincoln Life in the amount of $2,000,000. Additional paid-in
surplus from Lincoln Life of $69,000,000 and $158,407,481 was received in
September 1996 and December 1997, respectively.
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount of
capital and surplus maintained by a life insurance company is to be determined
based on the various risk factors. At December 31, 1997, the Company exceeds
the RBC requirements.
The payment of dividends by the Company requires 30 day advance notice to the
Department.
6. EMPLOYEE BENEFIT PLANS
The Company participates in various employee benefit plans sponsored by LNC.
PENSION PLANS
LNC maintains funded defined benefit pension plans for most of its employees.
The benefits for employees are based on total years of service and the highest
60 months of compensation during the last 10 years of employment. The plans
are funded by contributions to tax-exempt trusts. The Company's funding policy
is consistent with the funding requirements of Federal laws and regulations.
Contributions are intended to provide not only the benefits attributed to
service to date, but also those expected to be earned in the future. Plan
assets consist principally of listed equity securities, corporate obligations
and government bonds.
LNC also administers an unfunded, non-qualified, defined benefit salary
continuation plan that provides certain officers of the Company defined
pension benefits based on years of service and final monthly salary upon death
or retirement.
401(K) PLAN
LNC and the Company sponsor contributory defined contribution plans for
eligible employees and agents. The Company's contributions to the plans are
equal to each participant's pretax contribution, not to exceed 6% of base pay,
multiplied by a percentage ranging from 25% to 150%, which varies according to
certain incentive criteria as determined by LNC's Board of Directors.
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLANS
LNC sponsors unfunded defined benefit plans that provide postretirement
medical and life insurance benefits to full-time employees and agents who,
depending on the plan, have worked for the Company 10 to 15 years and attained
age 55 to 60. Medical benefits are also available to spouses and other
dependents of employees and agents. For medical benefits, limited
contributions are required from individuals retired prior to November 1, 1988;
contributions for later retirees, which can be adjusted annually, are based on
such items as years of service at retirement and age at retirement. The life
insurance benefits are noncontributory, although participants can elect
supplemental contributory benefits.
7. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under lease agreements that
expire at various intervals over the next six years and are subject to renewal
options at market rates prevailing at the time of renewal. Rental expense
S-11
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
for all operating leases was $155,664 and $32,252 for 1997 and 1996,
respectively. Future minimum rental commitments are as follows:
<TABLE>
<S> <C>
1998............................ $ 190,224
1999............................ 195,081
2000............................ 195,081
2001............................ 189,494
2002............................ 161,563
Thereafter...................... 134,637
----------
$1,066,080
==========
</TABLE>
OTHER CONTINGENCY MATTERS
The Company is involved in various pending or threatened legal proceedings
arising from the conduct of business. In some instances, these proceedings
include claims for unspecified or substantial punitive damages and similar
types of relief in addition to amounts for alleged contractual liability or
requests for equitable relief. After consultation with legal counsel and a
review of available facts, it is management's opinion that these proceedings
ultimately will be resolved without materially affecting the financial
position or results of operations of the Company.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of the Company's financial instruments.
Considerable judgment is required to develop these fair values and,
accordingly, the estimates shown are not necessarily indicative of the amounts
that would be realized in a one-time, current market exchange of the Company's
financial instruments.
BONDS
Fair values of bonds are based on quoted market prices, where available. For
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the coupon rate, credit quality and maturity
of the investments.
POLICY LOANS
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using Treasury interest rates consistent
with the maturity durations assumed. These durations were based on historical
experience.
CASH AND SHORT-TERM INVESTMENTS
The carrying value of cash and short-term investments approximates fair value.
POLICYHOLDER FUNDS
The fair values of policyholder funds are based on their approximate surrender
values.
The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CARRYING
ASSETS (LIABILITIES) VALUE FAIR VALUE
-------------------- ------------- -------------
<S> <C> <C>
Bonds............................................. $ 593,431,718 $ 607,258,877
Policy loans...................................... 39,054,927 39,054,927
Cash and short-term investments................... 163,773,594 163,773,594
Policyholders' funds.............................. (587,465,491) (587,465,491)
</TABLE>
S-12
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
9. TRANSACTIONS WITH AFFILIATES
The Company has entered into agreements with Lincoln Life to receive
processing and other corporate services. Fees paid to Lincoln Life for such
services were $3,454,014 and $931,000 for 1997 and 1996, respectively. The
Company has also entered into an agreement with Lincoln Life to provide 403(b)
processing services primarily related to banking and cash management. Fees
received from Lincoln Life for such services were $578,003 and $229,000 for
1997 and 1996, respectively.
The Company has an investment management agreement with an affiliate, Lincoln
Investment Management, Inc., for investment advisory and asset management
services. Fees paid for such investment services were $558,011 and $122,000
for 1997 and 1996, respectively.
10. SEPARATE ACCOUNTS
Separate account premiums, deposits and other considerations amounted to
$167,895,749 in 1997. Reserves for separate accounts with assets at fair value
were $159,132,918 at December 31, 1997. All reserves are subject to
discretionary withdrawal at market value. All of the Company's separate
accounts are nonguaranteed.
A reconciliation of transfers to (from) separate accounts for the year ended
December 31, 1997 is as follows:
<TABLE>
<S> <C>
Transfers as reported in the Summary of Operations of various
Separate Accounts:
Transfers to separate accounts................................. $167,895,749
Transfers from separate accounts............................... (28,417,276)
------------
Net transfer to separate accounts as reported in the Company's
NAIC Annual Statement........................................... $139,478,473
============
</TABLE>
11. SUBSEQUENT EVENT
Additional surplus contributed by Lincoln Life on December 29, 1997 was used
to finance an indemnity reinsurance transaction whereby the Company and
Lincoln Life reinsured 100% of a block of individual life insurance and
annuity business of CIGNA Corporation. The Company paid $149,621,452 to CIGNA
on January 2, 1998 under the terms of the reinsurance agreement. Operating
results generated by this block of business after the closing date will be
included in the Company's financial statements from the closing date. At the
time of closing, this block of business had statutory liabilities of
$779,551,235 that became the Company's obligation. The Company also received
assets, measured on a historical statutory basis, equal to the liabilities.
During 1997, this block produced premiums, fees and deposits of $157,650,000
and earnings of $9,285,600 on a statutory basis of accounting. The Company
expects to pay $1,000,000 to cover expenses associated with the reinsurance
agreement.
12. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is pervasive and complex and affects virtually every
aspect of the Company's business. The Company's computer systems and
interfaces with the computer systems of vendors, suppliers, customers and
business partners are particularly vulnerable. The inability to properly
recognize date sensitive electronic information and transfer data between
systems could cause errors or even a complete systems failure which would
result in a temporary inability to process transactions correctly and engage
in normal business activities. The Company shares information systems with
Lincoln Life, and Lincoln Life is redirecting a large portion of its internal
information technology efforts and contracting with outside consultants to
update its systems to accommodate the year 2000. Also, Lincoln Life and the
Company have initiated formal communications with critical parties that
interface with the Company's systems to gain an understanding of their
progress in addressing Year 2000 Issues. While the Company is making every
effort to address its own systems and the systems with which it interfaces, it
is not possible to provide assurance that operational problems will not occur.
The Company presently believes that
S-13
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
with the modification of existing computer systems, updates by vendors and
conversion to new software and hardware, the Year 2000 Issue will not pose
significant operational problems for its computer systems. In addition, the
Company is developing contingency plans in the event that, despite its best
efforts, there are unresolved year 2000 problems. If the remediation efforts
noted above are not completed timely or properly, the Year 2000 Issue could
have a material adverse impact on the operation of the Company's business.
During 1997 and 1996, expenditures to address this issue were not material to
the Company's financial statements. In addition, the Company's financial plans
for 1998 through 2000 include immaterial amounts relative to this issue. The
cost of addressing Year 2000 Issues and the timeliness of completion will be
closely monitored by management and are based on management's current best
estimates which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. Nevertheless, there can be no guarantee
that these estimated costs will be achieved and actual results could differ
significantly from those anticipated. Specific factors that might cause such
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer problems and other uncertainties.
S-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
OTHER FINANCIAL INFORMATION
Board of Directors
Lincoln Life & Annuity Company of New York
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of selected statutory basis financial data is presented
to comply with the National Association of Insurance Commissioners' Annual
Statement Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the auditing
procedures applied in our audit of the statutory-basis financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the statutory-basis financial statements taken as a whole.
March 12, 1998
/s/ Ernst & Young LLP
S-15
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
SUPPLEMENTAL SCHEDULE OF SELECTED
FINANCIAL DATA--STATUTORY BASIS
DECEMBER 31, 1997
<TABLE>
<S> <C>
Investment income earned:
Government bonds................................................ $ 10,210,129
Other bonds (unaffiliated)...................................... 32,025,370
Policy loans.................................................... 1,990,613
Cash on hand and on deposit..................................... 15,706
Short-term investments.......................................... 299,622
Aggregate write-ins for investment income....................... 2,460
------------
Gross investment income........................................... $ 44,543,900
============
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less................................... $157,373,927
Over 1 year through 5 years................................... 206,718,997
Over 5 years through 10 years................................. 252,342,252
Over 10 years through 20 years................................ 69,249,669
Over 20 years................................................. 53,525,556
------------
Total by maturity................................................. $739,210,401
============
Bonds by class (statement value):
Class 1......................................................... $493,275,662
Class 2......................................................... 218,168,700
Class 3......................................................... 18,838,715
Class 4......................................................... 8,927,324
------------
Total by class.................................................... $739,210,401
============
Total bonds publicly traded....................................... $693,512,440
============
Total bonds privately placed...................................... $ 45,697,961
============
Short-term investments (cost or amortized cost)................... $145,778,683
============
Cash on deposit................................................... $ 17,994,911
============
Annuities:
Ordinary:
Immediate amount of income payable............................ $ 140,946
============
Deposit funds and dividend accumulations:
Deposit funds account balance................................... $587,465,491
============
</TABLE>
S-16
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTE TO SUPPLEMENTAL SCHEDULE OF SELECTED
FINANCIAL DATA-- STATUTORY BASIS
NOTE--BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis financial data as
of December 31, 1997 for purposes of complying with paragraph 9 of the Annual
Audited Financial Reports in the General section of the National Association
of Insurance Commissioners' Annual Statement Instructions and agrees to or is
included in the amounts reported in Lincoln Life & Annuity Company of New
York's 1997 Statutory Annual Statement as filed with the New York Insurance
Department.
S-17
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) The following financial statements are included in Part B:
Financial Statements of Registrant - Lincoln Life & Annuity Variable Annuity
Account L.
Statutory-Basis Financial Statements and Schedules of Depositor - Lincoln Life &
Annuity Company of New York.
(b) Exhibits
1. Resolution adopted by the Board of Directors of Lincoln Life
& Annuity Company of New York on July 24, 1996 establishing
the Lincoln Life & Annuity Variable Annuity Account L of
Lincoln Life & Annuity Company of New York. /1/
2. Not applicable.
3(a). Principal Underwriting Contract. /2/
3(b). Broker-dealer sales agreement. /2/
4(a). Forms of Group Annuity Contracts. /2/
4(b). Form of 401(a) Group Annuity Contract for Lincoln Life & Annuity
Company of New York. /3/
4(c). Form of endorsement to Group Annuity Contract and
Certificate. /4/
5(a). Form of application for Group Annuity Contract for Lincoln
Life & Annuity Company of New York. /2/
5(b). Form of Participant enrollment form (including acknowledgment
of on redemption imposed by I.R.C. Section 403(b)). /2/
6. Copy of certificate of incorporation and by-laws of Lincoln
Life & Annuity Company of New York. /1/
7. Not applicable.
8(a). Participation Agreement between Lincoln Life & Annuity Company
of New York and Dreyfus Life & Annuity Index Fund, Inc. and
Dreyfus Variable Investment Fund. /2/
8(b). Participation Agreement between Lincoln Life & Annuity Company
of New York and Variable Insurance Products Fund and Fidelity
Distributors Corporation. /2/
8(c). Participation Agreement between Lincoln Life & Annuity Company
of New York and Variable Insurance Products Fund II and Fidelity
Distributors Corporation. /2/
8(d). Participation Agreement between Lincoln Life & Annuity Company
of New York and Twentieth Century Securities, Inc. /2/
C-1
<PAGE>
8(e). Participation Agreement between Lincoln Life & Annuity Company
of New York and Acacia Capital Corporation and Calvert
Distributors, Inc. /2/
8(f). Participation Agreement between Lincoln Life & Annuity Company
of New York and T. Rowe Price International Series, Inc. and
T. Rowe Price Investment Services, Inc. /2/
9. Consent and opinion of Counsel as to the legality of the
securities being registered. /2/
10(a). Consent of Ernst & Young LLP, Independent Auditors.
10(b). Not applicable.
11. Not applicable.
12. Not applicable.
13(a). Schedule for Computation of Performance Quotations. /3/
13(b). Supplement to Schedule for Computation of Performance
Quotations.
14. Not applicable.
15(a). Organizational Chart of Lincoln National Life Insurance Holding
Company System.
15(b). Memorandum Concerning Books and Records.
- ------------------------------------
/1/ Incorporated herein by reference to the registrant's initial
registration statement filed with the Securities and Exchange Commission on
August 27, 1996 (File No. 333-10861).
/2/ Incorporated herein by reference to Pre-effective Amendment No. 1 on
Form N-4 filed by the Lincoln Life & Annuity Variable Account L of Lincoln Life
& Annuity Company of New York with the Securities and Exchange Commission on
September 30, 1996.
/3/ Incorporated herein by reference to Post-effective Amendment No. 1 on
Form N-4 filed by Lincoln Life & Annuity Variable Account L of Lincoln Life &
Annuity Company of New York on April 30, 1997 (File No. 333-10861).
/4/ Incorporated herein by reference to Post-effective Amendment No. 2 on
Form N-4 filed by Lincoln Life & Annuity Variable Annuity Account L of Lincoln
Life & Annuity Company of New York on May 1, 1998 (File No. 333-10863).
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following list contains the officers and directors of Lincoln Life & Annuity
Company of New York who are engaged directly or indirectly in activities
relating to the Lincoln Life & Annuity Variable Annuity Account L as well as the
Contracts. The list also shows Lincoln Life & Annuity Company of New York's
executive officers.
<TABLE>
<CAPTION>
Name Positions and Offices with Lincoln Life & Annuity Company of New York
- ---- ---------------------------------------------------------------------
<S> <C>
Philip L. Holstein* President, Treasurer and Director
Troy D. Panning* Second Vice President and Chief Financial Officer
Roland C. Baker Director
1801 S. Meyers Road
Oakbrook Terrace, IL 60181
J. Patrick Barrett Director
Chairman & CEO
Carpat Investments
4605 Watergap
Manlius, NY 13104
Thomas D. Bell, Jr. Director
President & CEO
Burson-Marstellar Worldwide
230 Park Avenue South
New York, NY 10003
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
Jon A. Boscia** Director
Kathleen R. Gorman* Assistant Vice President
Harry L. Kavetas Director
Executive Vice President & CFO
Eastman Kodak Company
343 State Street
Rochester, NY 14650-0235
Barbara S. Kowalczyk*** Director
M. Leanne Lachman Director
Managing Director
Schroder Real Estate Associates
437 Madison Avenue - 18th Floor
New York, NY 10022
Louis G. Marcoccia Director
Senior Vice President
Syracuse University
Skytop Office Building
Skytop Road
Syracuse, NY 13244-5300
John M . Pietruski Director
27 Paddock Lane
Colts Neck, NJ 07722
Lawrence T. Rowland**** Director
Gabriel L. Shaheen** Director
Robert O. Sheppard* Assistant Vice President
Richard C. Vaughan*** Director
</TABLE>
* Principal business address of each person is 120 Madison Street, 17th
Floor, Syracuse, New York 13202.
** Principal business address of each person is 1300 S. Clinton Street, Fort
Wayne, Indiana 46802.
*** Principal business address of each person is 200 E. Berry Street, Fort
Wayne, Indiana 46802.
**** Principal business address of each person is 1700 Magnavox Way, One
Reinsurance Place, Fort Wayne, Indiana 46804.
Item 26. Persons Controlled by or Under Common Control with Lincoln Life &
Annuity Company of New York ("Lincoln Life") or the Lincoln Life & Annuity
Variable Annuity Account L.
Lincoln Life & Annuity Variable Annuity Account L is a separate account of
Lincoln Life and may be deemed to be controlled by Lincoln Life although Lincoln
Life will follow voting instructions of Contractholders with respect to voting
on certain important matters requiring a vote of Contractholders.
See Exhibit 15(a): The Organizational Chart of Lincoln National Life Insurance
Holding Company System is hereby incorporated herein by this reference.
C-3
<PAGE>
Item 27. Number of Contractholders
As of March 31, 1998, Registrant had 6 Contractholders.
Item 28. Indemnification
Under the Participation Agreements entered into between Lincoln Life and the
Dreyfus Life & Annuity Index Fund, Inc., Dreyfus Variable Investment Fund and
Dreyfus Corporation, Variable Insurance Products Funds I and II and Fidelity
Distributors Corporation, Twentieth Century Management Company, Acacia Capital
Corporation, and T. Rowe Price (the "Funds"), Lincoln Life and its directors,
officers, employees, agents and control persons have been indemnified by the
Funds against any losses, claims or liabilities that arise out of any untrue
statement or alleged untrue statement or omission of a material fact in the
Funds' registration statements, prospectuses or sales literature. In addition,
the Funds will indemnify Lincoln Life against any liability, loss, damages,
costs or expenses which Lincoln Life may incur as a result of the Funds'
incorrect calculations, incorrect reporting and/or untimely reporting of the
Funds' net asset values, dividend rates or capital gain distribution rates.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriter
(a) LNC Equity Sales Corporation also acts as the principal underwriter for
Lincoln National Variable Annuity Account L , the VA-I Separate Account
of UNUM Life Insurance Company of America, and the VA-I Separate Account
of First UNUM Life Insurance Company.
(b)(1) The following table sets forth certain information regarding the officers
and directors of LNC Equity Sales Corporation:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH LINCOLN
NAME AND ADDRESS FINANCIAL ADVISORS CORPORATION
- ---------------- ----------------------------------
<S> <C>
J. Michael Hemp* President and Director
Priscilla S. Brown* Chief Operating Officer, Sales and Marketing and Director
John M. Behrendt* Vice President and Director
Richard C. Boyles*** Chief Financial Officer and Administrative Officer
Kenneth Ehinger*** Chief Operating Officer and Director
Gary D. Giller**** Director
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Secretary
</TABLE>
* Principal business address of each person is 1300 S. Clinton Street,
Fort Wayne, Indiana 46802
** Principal business address of each person is 200 East Berry Street,
Fort Wayne, Indiana 46802-2706
*** Principal business address of each person is 3811 Illinois Road,
Suite 205, Fort Wayne, Indiana 46804-1202
**** 7650 Rivers Edge Dr., Suite 250, Columbus, Ohio 43235.
(c)
C-4
<PAGE>
<TABLE>
<CAPTION>
Name of Net Underwriting
Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
- ----------- ---------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Lincoln Financial
Advisors
Corporation $0 N/A N/A N/A
</TABLE>
Item 30. Location of Accounts and Records
Exhibit 15(b) is hereby expressly incorporated herein by this reference.
Item 31. Management Services
None
Item 32. Undertakings and Representations
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in this registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be accepted,
unless otherwise permitted.
(b) to include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
(d) The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American
Council of Life Insurance concerning the redeemability of Section 403(b)
annuity contracts and the Registrant has complied with the provisions of
paragraphs (1)-(4) thereof.
(e) Lincoln Life & Annuity Company of New York hereby represents that the fees
and charges deducted under the Contract, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by Lincoln Life & Annuity Company of New York.
C-5
<PAGE>
SIGNATURES
(a) As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Amendment and has caused
this Amendment to the Registration Statement to be signed on its behalf, in the
City of Syracuse, and State of New York on this 30th day of April, 1998.
Lincoln Life & Annuity Variable Annuity Account L
(Group Variable Annuity III) (Registrant)
By: Lincoln Life & Annuity Company of New York
By: /s/ Philip L. Holstein
--------------------------------------------
Philip L. Holstein, President
Lincoln Life & Annuity Company of New York
(Depositor)
By: /s/ Philip L. Holstein
--------------------------------------------
Philip L. Holstein, President
(b) As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed for the Depositor by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Philip L. Holstein
- ------------------------------------- April 30, 1998
Philip L. Holstein President, Treasurer and Director
(Principal Executive Officer)
/s/ Troy D. Panning
- ------------------------------------- April 30, 1998
Troy D. Panning Second Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ Roland C. Baker
- ------------------------------------- April 27, 1998
Roland C. Baker Director
/s/ J. Patrick Barrett
- ------------------------------------- April 30, 1998
J. Patrick Barrett Director
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Thomas D. Bell, Jr.
- ------------------------------------- April 30, 1998
Thomas D. Bell, Jr. Director
/s/ Jon A. Boscia
- ------------------------------------- April 30, 1998
Jon A. Boscia Director
/s/ Harry L. Kavetas
- ------------------------------------- April 30, 1998
Harry L. Kavetas Director
/s/ Barbara S. Kowalczyk
- ------------------------------------- April 30, 1998
Barbara S. Kowalczyk Director
/s/ M. Leanne Lachman
- ------------------------------------- April 28, 1998
M. Leanne Lachman Director
/s/ Louis G. Marcoccia
- ------------------------------------- April 27, 1998
Louis G. Marcoccia Director
/s/ John M. Pietruski
- ------------------------------------- April 30, 1998
John M. Pietruski Director
/s/ Lawrence T. Rowland
- ------------------------------------- April 30, 1998
Lawrence T. Rowland Director
/s/ Gabriel L. Shaheen
- ------------------------------------- April 30, 1998
Gabriel L. Shaheen Director
/s/ Richard C. Vaughan
- ------------------------------------- April 30, 1998
Richard C. Vaughan Director
</TABLE>
<PAGE>
Exhibit 10(a)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Post Effective Amendment No. 2 to the Registration Statement (Form N-4
No. 333-10861) and the related Statement of Additional Information appearing
therein and pertaining to Lincoln Life & Annuity Variable Annuity Account L, and
to the use therein of our reports dated (a) March 12, 1998, with respect to the
statutory-basis financial statements of Lincoln Life & Annuity Company of New
York, and (b) April 20, 1998, with respect to the financial statements of
Lincoln Life & Annuity Variable Annuity Account L.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 27, 1998
<PAGE>
EXHIBIT 13(b)
LLANY -VA III (SEC, subacct inception date)
<TABLE>
<CAPTION>
====================================================================================================================================
One Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Value $942.15
Fee $2.20
- ------------------------------------------------------------------------------------------------------------------------------------
Surr Charge $0.00
Final Value $939.95
Cumulative Return -6.005%
Annualized Return -21.940%
- ------------------------------------------------------------------------------------------------------------------------------------
Calculation of Previous Quarter's Return
Final Value Quarter One = 1,000 * (31-Dec-97 Unit Value/30-Sep-97 Unit Value) - Annual Fee - Surrender Charge
Cumulative Return = Final Value Quarter One/1,000 - 1
Annualized Return = (Final Value Quarter One/1,000) * 4 - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Date Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/97 18.714800
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 17.632200
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Separate Account L - Standardized Lifetime Returns
- ------------------------------------------------------------------------------------------------------------------------------------
Lifetime
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Prior $1089.46
Fee $2.07
Period (Years) 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Surr Charge $0.00
Final Value $1087.38
Cumulative Return 8.738%
Annualized Return 9.587%
- ------------------------------------------------------------------------------------------------------------------------------------
Calculation of Lifetime Return
Final Value Year One = 1,000 * (31-Dec-97 Unit Value/ 31-Jan-97 Unit Value) - Annual Fee Year One - Surrender Charge
Cumulative Return = Final Value for Last Year/1,000 - 1
Annualized Return = (Final Value for Last Year/1,000) * (1/Period) - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Date Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date 01/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Inception Date Unit Value 15.522600
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 17.632200
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of, Delaware Distributors, L.P and Founders CBO, L.P.
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------
|--| City Financial Planners, Ltd. |
| | 100% - Englad/Wales - Distribution of life|
| | assurance & pension products |
| --------------------------------------------
| -------------------------------
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
| -------------------------------
| ------------------------------------------------
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
| ------------------------------------------------
| ------------------------------------------------
|--| Lincoln Funds Corporation |
| | 100% - Delaware - Intermediate Holding Company |
| ------------------------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ---------------------------------
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| | ---------------------------------
| | ---------------------------------------
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| | ---------------------------------------
| | -----------------------------------------
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | -----------------------------------------------
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------------
| | -----------------------------------------
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| | -----------------------------------------
| | -------------------------------------------
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| | -------------------------------------------
| | -----------------------------------------
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| | -----------------------------------------
| | --------------------------------------
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| | --------------------------------------
| | --------------------------------------
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| | --------------------------------------
<PAGE>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| ---------------------------------------------------
|--|Lincoln National Financial Institutions Group, Inc.|
| |(fka The Richard Leahy Corporation) |
| | 100% - Indiana - Insurance Agency |
| ---------------------------------------------------
| | ------------------------------------
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| | ------------------------------------
| | ----------------------------------------
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| ----------------------------------------
| -------------------------------------------
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
| -------------------------------------------
|
| ----------------------------------------------
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| ----------------------------------------------
| | ----------------------------------------
| |--| Lincoln Financial Advisors Corporation |
| | | (formerly LNC Equity Sales Corporation)|
| | | 100% - Indiana - Broker-Dealer |
| | ----------------------------------------
| | -------------------------------------------------------------
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance |
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| | -------------------------------------------------------------
| |
| | ------------------------------------------------
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
| ------------------------------------------------
| ---------------------------------------
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
| ---------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
| -----------------------------------------------
|
| -----------------------------------------------
|--| Lincoln National (India) Inc. |
| | 100% - Indiana - India Representative Office |
| -----------------------------------------------
| ---------------------------------------------
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
| ---------------------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
-------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
-------------------------------
| --------------------------------------------------
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | ----------------------------------------
| | | |--| Delaware International Advisers Ltd. |
| | | | | 81.1% - England - Investment Advisor |
| | | | ----------------------------------------
| | | | --------------------------------------
| | | |--| Delaware Management Trust Company |
| | | | | 100% - Pennsylvania - Trust Service |
| | | | --------------------------------------
| | | | ------------------------------------------------
| | | |--| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Investment Advisor |
| | | | ------------------------------------------------
| | | | | | --------------------------------------
| | | | | --| Delaware International Advisers, Ltd.|
| | | | | | 18.9% - England - Investment Advisor |
| | | | | --------------------------------------
| | | | -------------------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------------------
| | | | ---------------------------------------
| | | | |--| Delaware Management Company, Inc. |
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | ---------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-MutualFund Distributor & Broker/Dealer |
| | | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | | |
| | | | | | -------------------------------------------------------
| | | | | | ------------------------------------
| | | | | |--| Founders Holdings, Inc. |
| | | | | | | 100% - Delaware - General Partner |
| | | | | | ------------------------------------
| | | | | | | -----------------------------------------
| | | | | | | | Founders CBO, L.P. |
| | | | | | --| 1% - Delaware - Investment Partnership |
| | | | | | | 99% held by outside investors |
| | | | | | -----------------------------------------
| | | | | | | ------------------------------------------
| | | | | | --|Founders CBO Corporation |
| | | | | | |100%-Delaware-Co-Issuer with Founders CBO |
------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | --------------------------------------------
| | | ----------------------------------
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | ----------------------------------
| | | | -----------------------------------
| | | |--| DMH Corp. |
| | | | 100% - Delaware - Holding Company |
| | | -----------------------------------
| | | | -------------------------------------
| | | |--| Delvoy, Inc. |
| | | | | 100% - Minnesota - Holding Company |
| | | | -------------------------------------
| | | | | ------------------------------------
| | | | |---| Delaware Distributors, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | ------------------------------------
| | | | | | ------------------------------------------------------
| | | | | |--| Delaware Distributors, L.P. |
| | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | 1% Equity-Delaware Capital Management, Inc. |
| | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | ------------------------------------------------------
| | | | | -----------------------------------------------
| | | | |---| Delaware Capital Management, Inc. |
| | | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | | 100% - Delaware - Investment Advisor |
| | | | | -----------------------------------------------
| | | | | | -------------------------------------------------------
| | | | | |-- | Delaware Distributors, L.P. |
| | | | | | | 98%-Delaware-Mutual Fund Distributor & Broker/Dealer |
| | | | | | |1% Equity-Delaware Capital Management, Inc. |
| | | | | | | 1% Equity-Delaware Distributors, Inc. |
| | | | | | -------------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Service Company, Inc. |
| | | | | | 100%-Delaware-Shareholder Services & Transfer Agent |
| | | | | -----------------------------------------------------
| | | | | -----------------------------------------------------
| | | | |---| Delaware Investment & Retirement Services, Inc. |
| | | | | 100% - Delaware - Registered Transfer Agent |
| | | | -----------------------------------------------------
| | | -----------------------------------------
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | -----------------------------------------
| | | | -----------------------------------------
| | | |--| Lynch & Mayer Asia, Inc. |
| | | | | 100% - Delaware - Investment Management |
| | | | -----------------------------------------
| | | | ----------------------------------------
| | | |--| Lynch & Mayer Securities Corp. |
| | | | 100% - Delaware - Securities Broker |
| | | ----------------------------------------
| | | ----------------------------------------------------
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
| | | ----------------------------------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| --------------------------------------------------
|--| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| --------------------------------------------------
| | -----------------------------------------------------------
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| -----------------------------------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------
| |--| AnnuityNet, Inc. |
| | | 100% - Indiana - Distribution of annuity products|
| | --------------------------------------------------
| | -------------------------------------------
| |--| Cigna Associates, Inc. |
| | | 100% - Connecticut - Insurance Agency |
| | -------------------------------------------
| | | ----------------------------------------------------------
| | |--| Cigna Associates of Massachusetts, Inc. |
| | | | 100% - Massachusetts - Insurance Agency |
| | ----------------------------------------------------------
| | -------------------------------------------
| |--|Cigna Financial Advisors, Inc. |
| | | 100% - Connecticut - Broker Dealer |
| | -------------------------------------------
| | -------------------------------------------
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| | -------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| | -----------------------------------------------
| |
| | ------------------------------------------------
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
| | -----------------------------------
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------
| | --------------------------------------------------
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------------
| | --------------------------------------------
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | ------------------------------------------------------
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------------
| | ------------------------------------------------
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| | ------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------------
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| -----------------------------------------------
| | --------------------------------------------------------
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| --------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 1% Argentina - General Business Corp |
| | | (Remaining 99% owned by Lincoln National |
| | | Reassurance Company) |
| -----------------------------------------------
| -------------------------------------------
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | | -------------------------------------------
| | ---------------------------------------
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | ---------------------------------------
| | --------------------------------------------
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | --------------------------------------------
| | -----------------------------------------------
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------
| | -----------------------------------------------------
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| | -----------------------------------------------------
| | ------------------------------------------------------
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| ------------------------------------------------------
| | -----------------------------------------------
| |--| Lincoln Re, S.A. |
| | | 99% Argentina - General Business Corp |
| | | (Remaining 1% owned by Lincoln National Health|
| | | & Casualty Insurance Company) |
| | -----------------------------------------------
| | -----------------------------------------------
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
| -----------------------------------------------
| ---------------------------------------------------------
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
| ---------------------------------------------------------
| ---------------------------------------
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
| ---------------------------------------
| -----------------------------------------------------------
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
| -----------------------------------------------------------
|
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | -------------------------------------------------------
| |--| Lincoln European Reinsurance S.A. |
| | | 79% - Belgium |
| | | (Remaining 21% owned by Lincoln National Underwriting |
| | | Services, Ltd. |
| | -------------------------------------------------------
<PAGE>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| ----------------------------------------------
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| ----------------------------------------------
| | ---------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | ---------------------------------------------------------
| | | ------------------------------------------------------
| | |--| Lincoln European Reinsurance S.A. |
| | | | 21% - Belgium |
| | | |(Remaining 79% owned by Lincoln National Reinsurance |
| | | | Company Limited |
| | | ------------------------------------------------------
| | --------------------------------------------------------
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | | (Remaining 49% owned by Lincoln National Corp.) |
| | --------------------------------------------------------
| ---------------------------------------------
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
| ---------------------------------------------
| ------------------------------------------------
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
| ------------------------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | -------------------------------------------------------
| |--| Allied Westminster & Company Limited |
| | | (formerly One Olympic Way Financial Services Limited) |
| | | 100% - England/Wales - Sales Services |
| | -------------------------------------------------------
| | -----------------------------------
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | --------------------------------------------------------
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| | --------------------------------------------------------
| | ---------------------------------------------------------
| |--| HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| | ---------------------------------------------------------
| |
| | --------------------------------------------
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| | --------------------------------------------
| | ------------------------------------------------
| |--| Lincoln Financial Advisers Limited |
| | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | 100% - England/Wales - Sales Company |
| | ------------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ----------------------------------------------------
| | |--| Lincoln Unit Trust Management Limited |
| | | |(formerly: Laurentian Unit Trust Management Limited)|
| | | | 100% - England/Wales - Unit Trust Management |
| | | ----------------------------------------------------
| | | | --------------------------------------------------
| | | |--| LUTM Nominees Limited |
| | | | | 100% - England/Wales - Nominee Services (Dormat) |
| | | | --------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | --------------------------------------------------
| |--| Lincoln Financial Group PLC |
| | | (formerly: Laurentian Financial Group PLC) |
| | | 100% - England/Wales - Holding Company |
| | --------------------------------------------------
| | | ---------------------------------------
| | |--| Lincoln Milldon Limited |
| | | |(formerly: Laurentian Milldon Limited) |
| | | | 100% - England/Wales - Sales Company |
| | | ---------------------------------------
| | | -----------------------------------------------------------
| | |--| Laurtrust Limited |
| | | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | | -----------------------------------------------------------
| | | --------------------------------------------------
| | |--| Lincoln Management Services Limited |
| | | |(formerly: Laurentian Management Services Limited)|
| | | | 100% - England/Wales - Management Services |
| | | --------------------------------------------------
| | | | ------------------------------------------------
| | | |--|Laurit Limited |
| | | | |100% - England/Wales - Data Processing Systems |
| | | | ------------------------------------------------
| | --------------------------------------------------------
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund (Dormat) |
| | --------------------------------------------------------
| | ----------------------------------------------------------
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services (Dormat) |
| | ----------------------------------------------------------
| | | -----------------------------------
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| | -----------------------------------
| | ------------------------------------------
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| ------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
--------------------------------
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln General Insurance Co. Ltd. |
| | | 100% - Accident & Health Insurance |
| | ----------------------------------------------
| | --------------------------------------------
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| | --------------------------------------------
| | | |
| | | | ---------------------------------------------
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Property Management Co|
| | | | ---------------------------------------------
| | | | | ------------------------------------------
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | | ------------------------------------------
| | | | |
| | | | | --------------------------------------------
| | | | |--| Barnwood Properties Limited |
| | | | | | 100% - England/Wales - Property Investment |
| | | | --------------------------------------------
| | | | -----------------------------------------------------
| | | |--|IMPCO Properties G.B. Ltd. |
| | | | |100% - England/Wales - Property Investment (Inactive)|
| | | | -----------------------------------------------------
| | | | ----------------------------------------------------
| | | |--| Lincoln Insurance Services Limited |
| | | | 100% - Holding Company |
| | | ----------------------------------------------------
| | | | ---------------------------------
| | | |--| British National Life Sales Ltd.|
| | | | | 100% - Inactive |
| | | | ---------------------------------
| | | |
| | | | ----------------------------------------------------------
| | | |--| BNL Trustees Limited |
| | | | | 100% - England/Wales - Corporate Pension Fund (Inactive) |
| | | | ----------------------------------------------------------
| | | | -------------------------------------
| | | |--| Chapel Ash Financial Services Ltd. |
| | | | | 100% - Direct Insurance Sales |
| | | | -------------------------------------
| | | | --------------------------
| | | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | | | 100% - Inactive |
--------------------------
</TABLE>
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
|
| -----------------------------------------
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| -----------------------------------------
| | ----------------------------------------------
| |--| Lincoln Unit Trust Managers Limited |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ----------------------------------------------------------
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | ----------------------------------------------------------
| | | -----------------------------------------------
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| | -----------------------------------------------
| | -----------------------------------------------------------
| |--| Lincoln Independent Limited |
| | |(formerly: Laurentian Independent Financial Planning Ltd.) |
| | | 100% - England/Wales - Independent Financial Adviser |
| | -----------------------------------------------------------
| | ----------------------------------------------
| |--| Lincoln Investment Management Limited |
| | |(formerly: Laurentian Fund Management Ltd.) |
| | | 100% - England/Wales - Investment Management |
| | ----------------------------------------------
| | ------------------------------------------
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| | ------------------------------------------
| |
| | ---------------------------------------------
| |--| Niloda Limited |
| | | 100% - England/Wales - Investment Company |
| | ---------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| | --------------------------------------------------
| | -------------------------------------------------
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| | -------------------------------------------------
| |
| | --------------------------------------------------
| |--| Lincoln National (Jersey) Limited |
| | | 100% - England/Wales - Dormat |
| | --------------------------------------------------
| |
| | -------------------------------------------------
| |--| Lincoln National (Guernsey) Limited |
| | | 100% - England/Wales - Dormat |
| | -------------------------------------------------
| |
| | -------------------------------------------------
| |--| Lincoln SBP Trustee Limited |
| | 100% - England/Wales |
--------------------------------------------------
<PAGE>
--------------------------------
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
--------------------------------
| -------------------------------------------------
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
| -------------------------------------------------
|
| ------------------------------------
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| ------------------------------------
| | --------------------------------------------------------
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
| | --------------------------------------------------------
| | ---------------------------------------------------
| | | Solutions Holdings, Inc. |
| |--| 100% - Delaware - General Business Corporation |
| | ---------------------------------------------------
| | | ----------------------------------------
| | |--|Solutions Reinsurance Limited |
| | | 100% - Bermuda - Class III Insurance Co|
| ----------------------------------------
| ----------------------------------------------------------
| | Seguros Serfin Lincoln, S.A. |
|--| 49% - Mexico - Insurance |
| ----------------------------------------------------------
| ----------------------------------------------------------
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
| ----------------------------------------------------------
| --------------------------------------------
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
--------------------------------------------
FOOTNOTES:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
<PAGE>
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport, LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln Financial Services and Insurance Brokerage of New England, Inc
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
12) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
12a) Financial Consultants of Michigan, Inc. (Troy, MI)
13) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
14) Beardslee & Associates, Inc. (Clifton, NJ)
15) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.
(Albuquerque, NM)
16) Lincoln Cascades, Inc. (Portland, OR)
17) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
<PAGE>
Summary of Changes to Organizational Chart:
JANUARY 1, 1995-DECEMBER 31, 1995
SEPTEMBER 1995
a. Lincoln National (Jersey) Limited was incorporated on September 18,
1995. Company is dormat and was formed for tax reasons per Barbara
Benoit, Assistant Corporate Secretary at Lincoln UK.
JANUARY 1, 1996-DECEMBER 1, 1996
MARCH 1996
a. Delaware Investment Counselors, Inc. changed its name to Delaware
Capital Management, Inc. effective March 29, 1996.
AUGUST 1996
a. Lincoln National (Gernsey) Limited was incorporated on August 9, 1996;
company is dormat and was formed for tax reasons.
SEPTEMBER 1996
a. Morgan Financial Group, Inc. changed its name to Lincoln National
Sales Corporation of Maryland effective September 23, 1996.
OCTOBER 1996
a. Addition of Lincoln National (India) Inc., incorporated as an Indiana
corporation on October 17, 1996.
NOVEMBER 1996
a. Lincoln National SBP Trustee Limited was bought "off the shelf" and
was incorporated on November 26, 1996; it was formed to act ast
Trustee for Lincoln Staff Benefits Plan.
DECEMBER 1996
a. Addition of Lincoln National Investments, Inc., incorporated as an
Indiana corporation on December 12, 1996.
JANUARY 1, 1997-DECEMBER 31, 1997
JANUARY 1997
a. Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and Vantage
Global Advisors, Inc. were transferred via capital contribution to
Lincoln National Investments, Inc. effective January 2, 1997.
b. Lincoln National Investments, Inc. changed its name to Lincoln
National Investment Companies, Inc. effective January 24, 1997.
c. Lincoln National Investment Companies, Inc. changed its named to
Lincoln National Investments, Inc. effective January 24, 1997.
<PAGE>
JANUARY 1997 CON'T
d. The following Lincoln National (UK) subsidiaries changed their name
effective January 1, 1997: Lincoln Financial Group PLC (formerly
Laurentian Financial Group PLC); Lincoln Milldon Limited (formerly
Laurentian Milldon Limited); Lincoln Management Services Limited
(formerly Laurentian Management Services Limited).
FEBRUARY 1997
a. Removal of Lincoln National Financial Group of Philadelphia, Inc.
which was dissolved effective February 25, 1997.
MARCH 1997
a. Removal of Lincoln Financial Services, Inc. which was dissolved
effective March 4, 1997.
APRIL 1997
a. Acquisition of Dougherty Financial Group, Inc. on April 30, 1997.
Company then changed its name to Delvoy, Inc. The acquisition
included the mutual fund group of companies as part of the Voyager
acquisition. The following companies all then were moved under the
newly formed holding company, Delvoy, Inc. effective April 30, 1997:
Delaware Management Company, Inc., Delaware Distributors, Inc.,
Delaware Capital Management, Inc., Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
b. Acquisition of Voyager Fund Managers, Inc. and Voyager Fund
Distributors, Inc. on April 30, 1997; merger is scheduled for May 31,
1997 for Voyager Fund Managers, Inc. into Delaware Management Company,
Inc. and Voyager Fund Distributors, Inc. is to merge into Delaware
Distributors, L.P.
c. Removal of Aseguradora InverLincoln, S.A. Compania de Seguros y
Reaseguros, Grupo Financiero InverMexico. Stock was sold to Grupo
Financiero InverMexico effective April 18, 1997.
MAY 1997
a. Name change of The Richard Leahy Corporation to Lincoln National
Financial Institutions Group, Inc. effective May 6, 1997.
b. Voyager Fund Managers, Inc. merged into Delaware Management Company,
Inc. effective May 30, 1997 at 10:00 p.m. with Delaware Management
Company, Inc. surviving.
c. On May 31, 1997 at 2:00 a.m., Voyager Fund Distributors, Inc. merged
into a newly formed company Voyager Fund Distributors (Delaware),
Inc., incorporated as a Delaware corporation on May 23, 1997. Voyager
Fund Distributors (Delaware), Inc. then merged into Delaware
Distributors, L.P. effective May 31, 1997 at 2:01 a.m. Delaware
Distributors, L.P. survived.
JUNE 1997
a. Removal of Lincoln National Sales Corporation of Maryland -- company
dissolved June 13, 1997.
b. Addition of Lincoln Funds Corporation, incorporated as a Delaware
corporation on June 10, 1997 at 2:00 p.m.
<PAGE>
c. Addition of Lincoln Re, S.A., incorporated as an Argentina company on
June 30, 1997.
JULY 1997
a. LNC Equity Sales Corporation changed its name to Lincoln Financial
Advisors Corporation effective July 1, 1997.
b. Addition of Solutions Holdings, Inc., incorporated as a Delaware
corporation on July 27, 1997.
SEPTEMBER 1997
a. Addition of Solutions Reinsurance Limited, incorporated as a Bermuda
corporation on September 29, 1997.
OCTOBER 1997
a. Removal of the following companies: American States Financial
Corporation, American States Insurance Company, American Economy
Insurance Company, American States Insurance Company of Texas,
American States Life Insurance Company, American States Lloyds
Insurance Company, American States Preferred Insurance Company, City
Insurance Agency, Inc. And Insurance Company of Illinois -- all were
sold 10-1-97 to SAFECO Corporation.
b. Liberty Life Assurance Limited was sold to Liberty International
Holdings PLC effective 10-6-97.
c. Addition of Seguros Serfin Lincoln, S.A., acquired by LNC on 10-15-97.
DECEMBER 1997
a. Addition of City Financial Planners, Ltd. as a result of its
acquisition by Lincoln National Corporation on December 22, 1997.
This company will distribute life assurance and pension products of
Lincoln Assurance Limited.
JANUARY 1998
a. Addition of Cigna Associates, Inc., Cigna Financial Advisors, Inc. and
Cigna Associates of Massachusetts, Inc., acquired by The Lincoln
National Life Insurance Company on January 1, 1998. Cigna Associates
of Massachusetts is 100% owned by Cigna Associates, Inc.
b. Removal of Lincoln National Mezzanine Corporation and Lincoln National
Mezzanine Fund, L.P. Lincoln National Mezzanine Corporation was
dissolved on January 12, 1998 and Lincoln National Mezzanine Fund,
L.P. was cancelled January 12, 1998.
c. Corporate organizational changes took place in the UK group of
companies on January 21, 1998: Lincoln Insurance Services Limited and
its subsidiaries were moved from Lincoln National (UK) PLC to Lincoln
Assurance Limited; Lincoln General Insurance Co. Ltd. was moved from
Lincoln Insurance Services Limited to Lincoln National (UK) PLC.
d. Addition of AnnuityNet, Inc., incorporated as an Indiana corporation
on January 16, 1998 and a wholly-owned subsidiary of The Lincoln
National Life Insurance Company.
<PAGE>
Exhibit 15(b)
BOOKS AND RECORDS
LINCOLN LIFE & ANNUITY VARIABLE ANNUITY ACCOUNT L
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain Majority-
Owned Subsidiaries Thereof, and Other Persons Having Transactions with
Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's reports
relating thereto.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Annual Reports F&RM Eric Jones Permanently, the first two
To Shareholders years in an easily
accessible place
Semi-Annual Not applicable.
Reports
Form N-SAR F&RM Eric Jones Permanently, the first two
years in an easily
accessible place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
Purchases and Sales Journals
- ----------------------------
Daily reports CSRM Kathleen Gorman Permanently, the first two
of securities years in an easily
transactions F&RM Eric Jones accessible place
Portfolio Securities
- --------------------
C-Port Purchase/ F&RM Eric Jones Permanently, the first two
Sales Reports years in an easily
accessible place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Receipts and Deliveries of Securities (units)
- ---------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
Not Applicable.
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
Daily Journals CSRM Kathleen Gorman Permanently, the first two
years in an easily
F&RM Eric Jones accessible place
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of
the collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
General Ledger
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LLANY trial F&RM Eric Jones Permanently, the first two
Balance (5000 years in an easily
series) accessible place
Securities in Transfer
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Not Applicable.
Securities in Physical Possession
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Not Applicable.
Securities Borrowed and Loaned
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Not Applicable.
Monies Borrowed and Loaned
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Not Applicable.
Dividends and Interest Received
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<PAGE>
LLANY Trial Controllers Eric Jones Permanently, the first two
Balance (5000 years in an easily
series) accessible place
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Dividends Receivable and Interest Accrued
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LLANY Trial F&RM Eric Jones Permanently, the first two
Balance (5000 years in an easily
series) accessible place
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
Ledger Account for each portfolio Security
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Not Applicable
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Not Applicable.
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held. in
respect of share accumulation accounts (arising from periodic investment plans,
dividend reinvestment plans, deposit of issued shares by the owner thereof,
etc.), details shall be available as to the dates and number of shares of each
accumulation, and except with respect to already issued shares deposited by the
owner thereof, prices of each such accumulation.
Shareholder Accounts
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Master file F&RM Eric Jones Permanently, the first two
Record CSRM Kathleen Gorman years in an easily
accessible place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
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LN-Record Location Person to Contact Retention
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Not Applicable.
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
Corporate Documents
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Not Applicable.
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
Order Tickets
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UIT applica- CSRM Kathleen Gorman Six years, the first two
tions and years in an easily
daily reports accessible place
of securities
transactions
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
Commercial Paper
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Not Applicable.
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<PAGE>
LN-Record Location Person to Contact Retention
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Trial Balance
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LLANY Trial F&RM Eric Jones Permanently, the first two
Balance (5000 years in an easily
series) place accessible
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identifies of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
Not Applicable.
(10) A record in the form of an appropriate memorandum identifying the person
or persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Advisory Law Division Not applicable.
Agreements
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence CSRM Kathleen Gorman Six years, the first two
years in an easily
accessible place
<PAGE>
LN-Record Location Person to Contact Retention
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Proxy State- CSRM Kathleen Gorman Six years, the first two
ments and years in an easily
Proxy Cards accessible place
Pricing Sheets F&RM Eric Jones Permanently, the first two
years in an easily
accessible place
Bank State- Treasurers Troy Panning
ments
March 12, 1998
