<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1998
1933 ACT REGISTRATION NO. 333-42507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
ON
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM
VARIABLE LIFE ACCOUNT M
(EXACT NAME OF REGISTRANT)
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
(NAME OF DEPOSITOR)
120 Madison Street, Suite 1700, Syracuse, NY 13202
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
Depositor's Telephone Number, including Area Code
(888) 223-1860
<TABLE>
<S> <C>
Robert O. Sheppard, Esquire COPY TO:
Lincoln Life & Annuity Company of New York George N. Gingold, Esquire
120 Madison Street, Suite 1700 197 King Philip Drive
Syracuse NY 13202 West Hartford, CT 06117-1409
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
Approximate date of proposed public offering: As soon as
practicable after the effective date of the registration statement.
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE OF SECURITIES BEING REGISTERED)
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
<PAGE>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
1 Cover Page Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 LLANY
6(a) The Variable Account
6(b) *
9 Legal Proceedings
10(a)-(c) Right-to-Examine Period; Surrenders; Accumulation Value;
Reports to Policy Owners
10(d) Right to Exchange for a Fixed Benefit Policy; Policy Loans;
Surrenders; Allocation of Net Premium Payments
10(e) Lapse and Reinstatement
10(f) Voting Rights
10(g)-(h) Substitution of Securities
10(i) Premium Payments; Transfers; Death Benefit; Policy Values;
Settlement Options
11 The Funds
12 The Funds
13 Charges; Fees
14 Issuance
15 Premium Payments; Transfers
16 The Variable Account
17 Surrenders
18 The Variable Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 LLANY
24 Incontestability; Suicide; Misstatement of Age or Sex
25 LLANY
26 Fund Participation Agreements
27 The Variable Account
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
28 Directors and Officers of LLANY
29 LLANY
30 *
31 *
32 *
33 *
34 *
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 The Funds; Premium Payments
45 *
46 Surrenders
47 The Variable Account; Surrenders, Transfers
48 *
49 *
50 The Variable Account
51 Cover Page; Highlights; Premium Payments; Right to Exchange
for a Fixed Benefit Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
</TABLE>
* Not Applicable
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM
VARIABLE LIFE ACCOUNT M
<TABLE>
<S> <C> <C>
HOME OFFICE LOCATION: ADMINISTRATIVE OFFICE LOCATION: ADMINISTRATIVE OFFICE MAILING
LINCOLN LIFE & ANNUITY COMPANY OF ANNUITY AND VARIABLE LIFE SERVICES ADDRESS:
NEW YORK CENTER ANNUITY AND VARIABLE LIFE SERVICES
120 MADISON STREET METROCENTER CENTER
SUITE 1700 350 CHURCH STREET, MVL1 P.O. BOX 150482
SYRACUSE NY 13202 HARTFORD, CT 06103-1106 HARTFORD, CT 06115-0482
888-223-1860 800-552-9898
</TABLE>
- --------------------------------------------------------------------------------
THE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable life insurance
contract ("Policy") offered either in an individual or group form by Lincoln
Life & Annuity Company of New York ("LLANY"). The Policy is intended to provide
life insurance benefits. It allows flexible premium payments, a choice of
underlying funding options, and a choice of two death benefit options. Its value
will vary with the investment performance of the underlying funding options
selected, as may the death benefit payable by LLANY upon the death of the
Insured. Policy values may be used to continue the Policy in force, may be
borrowed within certain limits, and may be fully or partially surrendered. Full
surrenders are subject to a surrender charge. Annuity settlement options
equivalent to the Death Benefit are available for payment to the Beneficiary
upon the death of the Insured.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Growth Fund
AIM V.I. Value Fund
BT INSURANCE FUNDS TRUST
BT Equity 500 Index Fund
DELAWARE GROUP PREMIUM FUND, INC.
Emerging Markets Series
Small Cap Value Series
Trend Series
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Investment Grade Bond Portfolio
LINCOLN NATIONAL MONEY MARKET FUND, INC.
Money Market Fund
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
OCC ACCUMULATION TRUST
Global Equity Portfolio
Managed Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund Class 1
Templeton International Fund Class 1
Templeton Stock Fund Class 1
The fixed interest option offered under the Policy is the Fixed Account.
Amounts held in the Fixed Account are guaranteed and will earn a minimum
interest rate of 4% per year. SPECIAL LIMITS APPLY TO WITHDRAWALS AND TRANSFERS
FROM THE FIXED ACCOUNT. Unless specifically mentioned, this prospectus only
describes the variable investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with this Policy. This
entire Prospectus, and those of the Funds, should be read carefully to
understand the Policy being offered.
The Policy described in this prospectus is available only in New York.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE POLICIES OFFERED BY THIS
PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
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.
PROSPECTUS DATED: JULY , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Definitions..................................... 3
Highlights...................................... 5
Initial Choices to be Made.................... 5
Charges and Fees.............................. 6
LLANY........................................... 6
The Variable Account............................ 7
The Funds....................................... 7
Substitution of Securities.................... 11
Voting Rights................................. 11
Fund Participation Agreements................. 12
Death Benefit................................... 12
Death Benefit Options....................... 12
Changes in Death Benefit Option............. 12
Guaranteed Death Benefit Provision.......... 12
Payment of Death Benefit.................... 13
Changes in Specified Amount................. 14
Premium Payments; Transfers..................... 14
Premium Payments............................ 14
Allocation of Net Premium Payments.......... 15
Transfers................................... 16
Optional Variable Account Sub-Account
Allocation Programs........................ 16
Dollar Cost Averaging..................... 16
Automatic Rebalancing..................... 17
Charges; Fees................................... 17
Premium Load................................ 17
Monthly Deductions.......................... 17
Transaction Fee for Excess Transfers........ 19
Mortality and Expense Risk Charge and Fund
Expenses................................... 20
Surrender Charge............................ 21
The Fixed Account............................... 22
Policy Values................................... 22
Accumulation Value.......................... 22
Variable Accumulation Unit Value............ 23
Surrender Value............................. 23
Surrenders...................................... 24
Partial Surrenders.......................... 24
Full Surrenders............................. 24
Deferral of Payment and Transfers........... 24
Lapse and Reinstatement......................... 24
Lapse of a Policy; Effect of Guaranteed
Death Benefit Provision.................... 24
<CAPTION>
PAGE
-----------
<S> <C>
Reinstatement of a Lapsed Policy............ 25
Policy Loans.................................... 25
Settlement Options.............................. 26
Other Policy Provisions......................... 26
Issuance.................................... 26
Effective Date of Coverage.................. 26
Short-Term Right to Cancel the Policy....... 27
Policy Owner................................ 27
Beneficiary................................. 27
Assignment.................................. 27
Right to Exchange for a Fixed Benefit
Policy..................................... 28
Incontestability............................ 28
Misstatement of Age or Sex.................. 28
Suicide..................................... 28
Nonparticipating Policies................... 29
Tax Matters..................................... 29
Policy Proceeds............................. 29
Taxation of LLANY........................... 30
Section 848 Charges......................... 30
Other Considerations........................ 30
Other Matters................................... 31
Directors and Officers of LLANY............. 31
Principal Underwriter....................... 33
Changes of Investment Policy................ 33
Other Contracts Issued by LLANY............. 33
State Regulation............................ 34
Reports to Policy Owners.................... 34
Advertising................................. 34
Year 2000 Issues................................ 34
Experts......................................... 35
Registration Statement.......................... 36
Financial Statements............................ 36
Appendix 1...................................... 67
Illustration of Surrender Charges........... 67
Appendix 2...................................... 69
Illustrations of Accumulation Values,
Surrender Values, and Death Benefits....... 69
Appendix 3...................................... 78
Tax Information............................. 78
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION VALUE: The sum of the Fixed Account Value,
Variable Account Value and the Loan Account Value.
ACCUMULATION UNIT: A unit of measure used to calculate the
value of a Variable Account Sub-Account.
ADDITIONAL PREMIUMS: Any premium paid in addition to Planned
Premiums.
ADMINISTRATIVE OFFICE: The administrative office of Lincoln
Life and Annuity Company of New York, whose mailing address
is Annuity & Variable Life Services Center, P.O. Box 150482,
Hartford, CT 06115-0482.
CERTIFICATE: The document which evidences the participation
of a Certificate Holder in a group policy.
CODE: The Internal Revenue Code of 1986, as amended.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a
percentage of the Accumulation Value rather than by
reference to the Specified Amount to satisfy the Internal
Revenue Service definition of "life insurance."
COST OF INSURANCE: The portion of the Monthly Deduction
designed to compensate LLANY for the anticipated cost of
paying Death Benefits in excess of the Accumulation Value,
not including riders, supplemental benefits or monthly
expense charges.
COVERAGE DATE: The policy anniversary nearest the Insured's
age 100, and the date upon which the policy matures.
DEATH BENEFIT: The amount payable to the beneficiary upon
the death of the Insured in accordance with the Death
Benefit Option elected, before deduction of the amount
necessary to repay any loans in full, and overdue
deductions.
DEATH BENEFIT OPTION: Either of two methods for determining
the Death Benefit.
FIXED ACCOUNT: The account under which principal is
guaranteed and interest is credited at a rate of not less
than 4% per year. Fixed Account assets are general assets of
LLANY held in LLANY's General Account.
FIXED ACCOUNT VALUE: The portion of the Accumulation Value,
other than the Loan Account Value, held in LLANY's General
Account.
FUND(S): One or more of AIM Variable Insurance Funds, Inc.
-- AIM V.I. Capital Appreciation Fund, AIM V.I. Growth Fund,
AIM V.I. Value Fund, AIM V.I. Diversified Income Fund; BT
Insurance Funds Trust -- BT Equity 500 Index Fund; Delaware
Group Premium Fund, Inc. -- Emerging Markets Series, Small
Cap Value Series, Trend Series; Fidelity Variable Insurance
Products Fund -- Equity-Income Portfolio; Fidelity Variable
Insurance Products Fund II -- Asset Manager Portfolio,
Investment Grade Bond Portfolio; Lincoln National Money
Market Fund, Inc. -- Money Market Fund;
MFS-Registered Trademark- Variable Insurance Trust -- MFS
Emerging Growth Series; MFS Total Return Series, MFS
Utilities Series; Templeton Variable Products Series Fund
(Class 1) -- Templeton Asset Allocation Fund, Templeton
International Fund, Templeton Stock Fund; OCC Accumulation
Trust -- Global Equity Portfolio, Managed Portfolio. Each of
them is an open-end management investment company (mutual
fund) whose shares are available to fund the benefits
provided by the Policy.
GENERAL ACCOUNT: LLANY's general asset account, in which
assets attributable to the non-variable portion of Policies
are held.
GRACE PERIOD: The 61-day period following a Monthly
Anniversary Day on which the Policy's Surrender Value is
insufficient to cover the current Monthly Deduction. LLANY
will send notice at least 31 days before the end of the
Grace Period that the Policy will lapse without value unless
a sufficient payment (described in the notification letter)
is received by LLANY.
3
<PAGE>
GUARANTEED INITIAL DEATH BENEFIT PREMIUM: The Premium
Payment(s) which must be made to guarantee the Initial
Specified Amount for the first five Policy Years after
issue, regardless of investment performance, assuming there
will be no loans or partial surrenders.
GUIDELINE ANNUAL PREMIUM: The level amount required to
mature the Policy under guaranteed mortality and expense
charges and an annual interest rate of 5%.
HOME OFFICE: The headquarters of Lincoln Life & Annuity
Company of New York, located at 120 Madison Street, Suite
1700, Syracuse, New York 13202.
INITIAL SPECIFIED AMOUNT: The amount (at least $100,000),
originally chosen by the Policy Owner, initially equal to
the Death Benefit. The Initial Specified Amount may be
increased or decreased as described in this Prospectus.
INSURED: The person on whose life the Policy is issued.
ISSUE AGE: The age of the Insured, to the nearest birthday,
on the Issue Date.
ISSUE DATE: The date on which the Policy becomes effective,
as shown in the Policy Specifications.
LLANY: Lincoln Life & Annuity Company of New York.
LOAN ACCOUNT: The account in which policy indebtedness
(outstanding loans and interest) accrues once it is
transferred out of the Fixed Account and Variable Account
Sub-Accounts. The Loan Account is part of LLANY's General
Account.
LOAN ACCOUNT VALUE: An amount equal to the sum of all unpaid
Policy loans and loan interest.
MONTHLY ANNIVERSARY DAY: The day of the month as shown in
the Policy Specifications, or the next Valuation Day if that
day is not a Valuation Day or is nonexistent for that month,
when the Company makes the Monthly Deduction.
MONTHLY DEDUCTION: The monthly deduction made from the Net
Accumulation Value; this deduction includes the cost of
insurance, an administrative expense charge, and charges for
supplemental riders or benefits, if applicable.
NET ACCUMULATION VALUE: The Accumulation Value less the Loan
Account Value.
NET AMOUNT AT RISK: The Death Benefit before subtraction of
outstanding loans, if any, minus the Accumulation Value.
NET PREMIUM PAYMENT: The portion of a Premium Payment, after
deduction of 5.0% for the premium load, available for
allocation to the Fixed Account and the Variable Account
Sub-Accounts.
OWNER. The Owner on the Date of Issue will be the person
designated in the Policy Specifications as having all
ownership rights under the Policy; includes the Certificate
Holder under a group policy. If no person is designated as
Owner, the Insured will be the Owner.
PLANNED PREMIUMS: The amount of premium the Policy Owner
chooses to pay LLANY on a scheduled basis. This is the
amount for which LLANY sends a premium reminder notice.
POLICY: The life insurance contract described in this
Prospectus, i.e., either an individual Policy or a
Certificate evidencing the Owner's participation in a group
policy, under which flexible premium payments are permitted
and the death benefit and contract values may vary with the
investment performance of the funding option(s) selected.
POLICY YEAR: Each twelve-month period, beginning on the
Issue Date, during which the Policy is in effect.
PREMIUM PAYMENT: A premium payment made under the Policy.
RIGHT-TO-EXAMINE PERIOD: The period of time following the
issuance of the Policy during which the Owner may return the
Policy and receive a refund of premiums paid, the latest of
(a) 10 days after the Policy is received, (b) 10 days after
LLANY mails or
4
<PAGE>
personally delivers a Notice of Withdrawal Right to the
Owner, (c) 45 days after the application for the Policy is
signed, or (d) within 60 days if the Policy is issued as a
replacement of another life insurance policy.
SETTLEMENT OPTION(S): Several ways in which the Beneficiary
may receive a Death Benefit, or in which the Owner may
choose to receive payments upon surrender of the Policy.
SUB-ACCOUNT: That portion of the Variable Account which is
invested in shares of a specific Fund.
SURRENDER CHARGE: The amount retained by LLANY upon the full
surrender of the Policy.
SURRENDER VALUE: The amount a Policy Owner can receive in
cash by surrendering the Policy. This equals the Net
Accumulation Value minus the applicable Surrender Charge.
All of the Surrender Value may be applied to one or more of
the Settlement Options.
VALUATION DAY: Every day on which Accumulation Units are
valued; any day on which the New York Stock Exchange is
open, except any day on which trading on the Exchange is
restricted, or on which an emergency exists, as determined
by the Securities and Exchange Commission, so that valuation
or disposal of securities is not practicable.
VALUATION PERIOD: The period of time beginning on the day
following a Valuation Day and ending on the next Valuation
Day. A Valuation Period may be more than one day in length.
VARIABLE ACCOUNT: Lincoln Life & Annuity Flexible Premium
Variable Life Account M. Consists of all Sub-Accounts
invested in shares of the Funds. Variable Account assets are
kept separate from the general assets of LLANY and are not
chargeable with the general liabilities of LLANY.
VARIABLE ACCOUNT VALUE: The portion of the Accumulation
Value attributable to the Variable Account.
HIGHLIGHTS
The Policy is a flexible premium variable life insurance
policy. Its values may be accumulated on a fixed or variable
basis or a combination of fixed and variable bases.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, the Owner makes three important
choices:
1) Selecting one of the two Death Benefit Options;
2) Selecting the amount of Premium Payments to make; and
3) Selecting how Net Premium Payments will be allocated
among the available funding options.
LEVEL OR VARYING
DEATH BENEFIT
At the time of purchase, the Policy Owner (also called the
"Owner" in this Prospectus) must choose between the two
Death Benefit Options. The amount payable under either
option will be determined as of the date of the Insured's
death. Under the level Death Benefit Option, the Death
Benefit will be the greater of the Specified Amount, or the
Corridor Death Benefit. Under the varying Death Benefit
Option, the Death Benefit will be the greater of the
Specified Amount plus the Accumulation Value, or the
Corridor Death Benefit (See "Death Benefit").
The Policy also offers a Guaranteed Initial Death Benefit
Provision which ensures that for the first five Policy Years
the Death Benefit will not be less than the Initial
Specified Amount, regardless of market performance, assuming
there have been no loans or surrenders, even if the
Surrender Value is insufficient to cover the current Monthly
Deductions (See "Guaranteed Death Benefit Provision").
5
<PAGE>
AMOUNT OF
PREMIUM PAYMENT
At the time of purchase, the Policy Owner must also choose
the amount of premium to be paid. The Owner may vary Premium
Payments to some extent and still keep the Policy in force.
Premium reminder notices will be sent for Planned Premiums
and for premiums required to continue this Policy in force.
If the Policy lapses it may be reinstated (See
"Reinstatement of a Lapsed Policy"). Premium Payments are
refundable during the Right-to-Examine Period.
SELECTION OF
FUNDING
VEHICLE(S)
The Policy Owner must choose how to allocate Net Premium
Payments. Net Premium Payments allocated to the Variable
Account may be allocated to one or more Sub-Accounts of the
Variable Account, each of which invests in shares of a
particular Fund. The Initial Premium Payment will not be
allocated to the Variable Account until three days following
the expiration of the Right-to-Examine Period (see
"Short-Term Right to Cancel the Policy"). The Fixed Account
may also be elected as an allocation option. Allocations to
any Sub-Account or to the Fixed Account must be in whole
percentages. No allocation can be made which would result in
a Sub-Account Value of less than $50 or a Fixed Account
value of less than $2,500. Further, at this time, no more
than 18 Sub-Accounts may be opened during the life of the
Policy. LLANY may expand this number at a future date. The
variable portion of a Policy is supported by the Fund(s)
selected as funding vehicle(s). The portion of the Variable
Account Value attributable to a particular Fund through the
Sub-Account of the Variable Account is not guaranteed and
will vary with the investment performance of that Fund.
CHARGES
AND FEES
There is a 5.0% premium load on all Premium Payments.
Monthly deductions are made for the Cost of Insurance and
any riders.
Monthly deductions ($15 per month during the first Policy
Year and, currently, $5 per month thereafter) are also made
for administrative expenses.
Daily deductions from Variable Account Value are made for
the mortality and expense risk, currently at the annual rate
of .80% during the first twelve Policy Years and .55%
thereafter.
Investment results for each Sub-Account are affected by each
Fund's daily charge for management fees; these charges vary
by Fund and are shown at pages 10-11 of this Prospectus.
A transaction fee of $25 is imposed for each partial
surrender and for certain transfers in excess of 12 per
Policy Year.
A surrender charge will be deducted upon full surrender of a
Policy within the first ten Policy Years or within ten years
after an increase in Specified Amount.
Interest is charged on Policy loans. The net interest spread
(the amount by which interest charged exceeds interest
credited) is currently 1% per year in the first ten Policy
Years and .25% per year thereafter.
LLANY may derive a profit from its charges and may use these
profits to finance distribution of the Policies.
LLANY
LLANY is a life insurance company chartered under New York
law on June 6, 1996. LLANY's principal offices are located
at 120 Madison Street, Suite 1700, Syracuse, New York 13202.
LLANY is licensed to sell life insurance policies and
annuity contracts in New York.
LLANY is a subsidiary of The Lincoln National Life Insurance
Company. The Lincoln National Life Insurance Company is a
stock life insurance company 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.
6
<PAGE>
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 offices of The Lincoln National Life
Insurance Company are located at 1300 South Clinton Street,
Fort Wayne, Indiana 46802. Through subsidiaries, LNC engages
primarily in the issuance of life insurance and annuities,
along with other financial services.
Administrative services necessary for the operation of the
Separate Account and the Policies are currently provided by
The Lincoln National Life Insurance Company. However,
neither the assets of The Lincoln National Life Insurance
Company nor LNC support the obligations of LLANY under the
Policies.
LLANY markets the Policies through independent insurance
brokers, general agents, and registered representatives of
broker-dealers which are members of the National Association
of Securities Dealers, Inc.
On January 2, 1998, LLANY and The Lincoln National Life
Insurance Company entered into an indemnity reinsurance
transaction whereby 100% of a block of individual life and
annuity business of CIGNA Corporation was reinsured. On May
21, 1998, LLANY and The Lincoln National Life Insurance
Company announced their intentions to acquire certain
domestic individual life insurance business from Aetna, Inc.
via a 100% indemnity reinsurance transaction. The
transaction is expected to close in the fall of 1998.
THE VARIABLE ACCOUNT
Lincoln Life & Annuity Flexible Premium Variable Life
Account M (the "Separate Account" or "Variable Account") was
established pursuant to a resolution of the Board of
Directors of LLANY. Under New York insurance law, the
income, gains or losses of the Variable Account are credited
without regard to the other income, gains or losses of
LLANY. LLANY serves as the custodian of the assets of the
Variable Account. These assets are held for the Policies.
Although the assets maintained in the Variable Account equal
to its reserves and other liabilities will not be charged
with any liabilities arising out of any other business
conducted by LLANY, all obligations arising under the
Policies are general corporate liabilities of LLANY. Any and
all distributions made by the Funds with respect to shares
held by the Variable Account will be reinvested in
additional shares at net asset value. Deductions and
surrenders from the Variable Account will, in effect, be
made by surrendering shares of the Funds at net asset value.
On each Valuation Day of each Fund, the Variable Account
purchases or redeems Fund shares based on a netting of all
transactions for that day. Shares of the Funds held in the
Variable Account are held by LLANY through an open account
system, which makes unnecessary the issuance and delivery of
stock certificates.
The Variable Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act")
and is subject to the law of the state in which the Policy
is delivered. Such registration does not involve supervision
of the Variable Account or LLANY's management or investment
practices or policies by the Commission. LLANY does not
guarantee the Variable Account's investment performance.
LLANY has several other separate accounts registered as unit
investment trusts with the Commission for the purpose of
funding variable annuity contracts and other variable life
insurance policies of LLANY.
THE FUNDS
Each of the twenty Sub-Accounts of the Variable Account is
invested solely in the shares of one of the twenty Funds
available as funding vehicles under the Policies. Each of
the Funds is a series of one of nine entities, all
Massachusetts business trusts, except for three Maryland
corporations. Each such entity is registered as an open-end,
diversified management investment company under the 1940
Act. These entities are collectively referred to herein as
the "Series Funds".
7
<PAGE>
The Series Funds and their Investment advisers and
distributors are:
AIM Variable Insurance Funds, Inc. ("AIM V.I. Fund"),
managed by A I M Advisors, Inc., and distributed by
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, TX 77046-1173;
BT Insurance Funds Trust ("BT Trust"), managed by
Bankers Trust Company, Bankers Trust Plaza, New York, NY
10006, and distributed by First Data Distributors, Inc.,
4400 Computer Drive, Westborough, MA 01581;
Delaware Group Premium Fund, Inc. ("Delaware Trust"),
managed by Delaware Management Company, Inc. and
distributed by Delaware Distributors, L.P., 1818 Market
Street, Philadelphia, PA 19103;
Fidelity Variable Insurance Products Fund ("Fidelity
VIP"), and Variable Insurance Products Fund II
("Fidelity VIP II"), managed by Fidelity Management &
Research Company and distributed by Fidelity
Distributors Corporation, 82 Devonshire Street, Boston,
MA 02103;
Lincoln National Money Market Fund, Inc. ("Lincoln
Trust"), managed by Lincoln Investment Management, Inc.
and distributed by Lincoln Financial Advisors, Inc.,
1300 S. Clinton Street, Fort Wayne, IN 46802;
MFS-Registered Trademark- Variable Insurance Trust ("MFS
Trust"), managed by Massachusetts Financial Services
Company and distributed by MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116;
Templeton Variable Products Series Fund ("Templeton
Trust"), managed by Templeton Investment Counsel, Inc.
and its Templeton and Franklin affiliates and
distributed by Franklin/Templeton Distributors, Inc.,
700 Central Avenue, St. Petersburg, FL 33701;
OCC Accumulation Trust ("OCC Trust") (formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
Four Funds of AIM V.I. Fund are available under the
Policies:
AIM V.I. Capital Appreciation Fund;
AIM V.I. Diversified Income Fund;
AIM V.I. Growth Fund;
AIM V.I. Value Fund.
One Fund of BT Trust is available under the Policies:
Equity 500 Index Fund.
Three Funds of the DELAWARE Trust are available under the
Policies:
Emerging Markets Series;
Small Cap Value Series;
Trend Series.
One Fund of FIDELITY VIP is available under the Policies:
Equity-Income Portfolio ("Fidelity VIP Equity-Income
Portfolio").
Two Funds of FIDELITY VIP II are available under the
Policies:
Asset Manager Portfolio ("Fidelity VIP II Asset Manager
Portfolio");
Investment Grade Bond Portfolio ("Fidelity VIP II
Investment Grade Bond Portfolio").
One Fund of LINCOLN Trust is available under the Policies:
Money Market Fund.
Three Funds of MFS Trust are available under the Policies:
MFS Emerging Growth Series;
MFS Total Return Series;
MFS Utilities Series.
Three Funds of TEMPLETON Trust are available under the
Policies:
8
<PAGE>
Templeton Asset Allocation Fund: Class 1;
Templeton International Fund: Class 1;
Templeton Stock Fund: Class 1.
Two Funds of OCC Accumulation Trust are available under the
Policies:
Global Equity Portfolio;
Managed Portfolio.
The investment advisory fees charged the Funds by their
advisers are shown on pages 20 and 21 of this Prospectus.
There follows a brief description of the investment
objective and program of each Fund. There can be no
assurance that any of the stated investment objectives will
be achieved.
The investment objectives and policies of certain Funds are
similar to the investment objectives and policies of other
funds that may be managed by the same investment adviser.
The investment results of the Funds, however, may be higher
or lower than the results of such other funds. 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 fund, even if the other
fund has the same investment adviser.
AIM V.I. CAPITAL APPRECIATION FUND (Small Cap Stocks): Seeks
to provide capital appreciation through investments in
common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
AIM V.I. DIVERSIFIED INCOME FUND (Fixed
Income - Intermediate Term Bonds): Seeks to achieve a high
level of current income primarily by investing in a
diversified portfolio of foreign and U.S. government and
corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
AIM V.I. GROWTH FUND (Large Cap Stocks): Seeks to provide
growth of capital through investments primarily in common
stocks of leading U.S. companies considered by its adviser
to have strong earnings momentum.
AIM V.I. VALUE FUND (Large Cap Stocks): Seeks to achieve
long-term growth of capital by investing primarily in equity
securities judged by its adviser to be undervalued relative
to the current or projected earnings of the companies
issuing the securities, or relative to current market values
of assets owned by the companies issuing the securities or
relative to the equity markets generally. Income is a
secondary objective.
BT EQUITY 500 INDEX FUND (Large Cap Stocks): Seeks to
replicate as closely as possible the performance of the
Standard & Poor's 500 Composite Stock Price Index, an index
emphasizing large-capitalization stocks, before the
deduction of Fund expenses.
DELAWARE EMERGING MARKETS SERIES (International Stocks): An
international fund which seeks to achieve long-term capital
appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries. Under
normal market conditions, at least 65% of the Series assets
will be invested in equity securities of issuers organized
or having a majority of their assets or deriving a majority
of their operating income in at least three countries that
are considered to be developing or emerging.
DELAWARE SMALL CAP VALUE SERIES (Small Cap Stocks): Seeks
capital appreciation by investing primarily in small- to
mid-cap common stocks whose market value appears low
relative to their underlying value or future earnings and
growth potential. Emphasis also will be placed on securities
of companies that may be temporarily out of favor or whose
value is not yet recognized by the market.
DELAWARE TREND SERIES (Small Cap Stocks): Seeks long-term
capital appreciation by investing primarily in small-cap
common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have
been judged to be responsive to changes in the marketplace
and to have fundamental characteristics to support growth.
Income is not an objective.
9
<PAGE>
FIDELITY VIP II ASSET MANAGER PORTFOLIO (Balanced or Total
Return): 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.
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO (Fixed
Income - Intermediate Term Bonds): Seeks as high a level of
current income as is consistent with the preservation of
capital by investing in a broad range of investment-grade
fixed-income securities.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (Large Cap Stocks):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's 500 Index (S&P 500).
LINCOLN MONEY MARKET FUND (Money Market): Seeks maximum
current income consistent with the preservation of capital,
by investing in a portfolio of short-term money market
instruments maturing within one year from date of purchase.
MFS EMERGING GROWTH SERIES (Large Cap Stocks): Seeks to
provide long-term growth of capital by investing primarily
in common stocks of foreign and domestic issuers.
MFS TOTAL RETURN SERIES (Balanced or Total Return): Seeks
primarily to obtain above-average income (compared to a
portfolio invested entirely in equity securities) consistent
with the prudent employment of capital, and secondarily to
provide a reasonable opportunity for growth of capital and
income.
MFS UTILITIES SERIES (Specialty): Seeks capital growth and
current income (income above that available from a portfolio
invested entirely in equity securities) by investing, under
normal circumstances, at least 65% of its assets in equity
and debt securities of utility companies.
TEMPLETON ASSET ALLOCATION FUND -- CLASS 1 (Balanced or
Total Return): Seeks a high level of total return through a
flexible policy of investing in stocks of companies in any
nation, debt securities of companies and governments of any
nation, and in money market instruments. Assets are
allocated among different investments depending upon
worldwide market and economic conditions.
TEMPLETON INTERNATIONAL FUND -- CLASS 1 (International
Stocks): Seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of
companies and governments outside the United States.
TEMPLETON STOCK FUND -- CLASS 1 (Global Stocks): Seeks
capital growth through a policy of investing primarily in
common stocks issued by companies, large and small, in
various nations throughout the world, including the U.S.
OCC ACCUMULATION TRUST GLOBAL EQUITY PORTFOLIO
(International Stocks): Seeks long-term capital appreciation
through a global investment strategy primarily involving
equity securities.
OCC ACCUMULATION TRUST MANAGED PORTFOLIO (Balanced or Total
Return): Seeks growth of capital over time through
investment in a portfolio of common stocks, bonds and cash
equivalents, the percentage of which will vary based on
management's assessments of relative investment values.
The AIM Diversified Income Fund, Delaware Emerging Markets
Fund, Delaware Small Cap Value Fund, Fidelity VIP
Equity-Income Portfolio, Fidelity VIP II Asset Manager
Portfolio, MFS Total Return Series, MFS Utilities Series,
OCC Global Equity Portfolio, OCC Managed Portfolio,
Templeton Asset Allocation Fund, Templeton International
Fund and Templeton Stock Fund portfolios may invest in
non-investment grade, high yield, high-risk debt securities
(commonly referred to as "junk bonds"), as detailed in the
individual Fund prospectuses.
10
<PAGE>
There is no assurance that the investment objective of any
of the Funds will be met. A Policy Owner bears the complete
investment risk for Accumulation Values allocated to a
Sub-Account. Each of the Sub-Accounts involves inherent
investment risk, and such risk varies significantly among
the Sub-Accounts. Policy Owners should read each Fund's
prospectus carefully and understand the Funds' relative
degrees of risk before making or changing investment
choices. Additional Funds may, from time to time, be made
available as investments to underlie the Policies. However,
the right to make such selections will be limited by the
terms and conditions imposed on such transactions by LLANY
(See "Premium Payments").
Required premium levels will vary based on market
performance. In a prolonged market downturn, affecting all
Sub-Accounts, additional Premium Payments may be necessary
to maintain the level of coverage or to avoid lapsing of the
Policy. Review of periodic contract statements is strongly
suggested to determine appropriate premium requirements.
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
LLANY, further investment in such shares should become
inappropriate in view of the purpose of the investment
objectives of the Policies or in view of legal, regulatory
or federal income tax restrictions, LLANY may substitute
shares of another Fund. No substitution of securities in any
Sub-Account may take place without prior approval of the
Commission and under such requirements as it may impose.
VOTING RIGHTS
In accordance with its view of present applicable law, LLANY
will vote the shares of each Fund held in the Variable
Account at special meetings of the shareholders of the
particular Series Fund in accordance with written
instructions received from persons having the voting
interest in the Variable Account. LLANY will vote shares for
which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes
shares for which it has received instructions. The Series
Funds do not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Series Fund not more than sixty (60) days prior to the
meeting of the particular Series Fund. Voting instructions
will be solicited by written communication at least fourteen
(14) days prior to the meeting.
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of LLANY and other
life insurance companies. The Series Funds do not foresee
any disadvantage to Policy Owners arising out of the fact
that shares may be made available to separate accounts which
are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Series
Funds' Boards intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly
arise and to determine what action, if any, should be taken
in response thereto. If such a conflict were to occur, one
of the separate accounts might withdraw its investment in a
Fund. This might force a Fund to sell portfolio securities
at disadvantageous prices.
11
<PAGE>
FUND PARTICIPATION AGREEMENTS
With respect to a Series Fund, the adviser and/or the
distributor, or an affiliate thereof, may compensate LLANY
(or an affiliate) for administration, distribution, or other
services. It is anticipated that such compensation would be
based on assets of the particular Series Fund attributable
to the Policies along with certain other variable contracts
issued or administered by LLANY (or an affiliate).
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available. The
amount payable under either option will be determined as of
the date of the Insured's death.
Under OPTION 1 the Death Benefit will be the greater of the
Specified Amount (a minimum of $100,000 as of the date of
this Prospectus), or the applicable percentage (the
"Corridor Percentage") of the Accumulation Value required to
maintain the Policy as a "life insurance contract" for tax
purposes (the "Corridor Death Benefit"). The Corridor
Percentage is 250% through the Insured's age 40 and
decreases in accordance with the table in "Payment of Death
Benefit" to 100% at the Insured's age 95. Option 1 provides
a level Death Benefit until the Corridor Death Benefit
exceeds the Specified Amount.
Under OPTION 2 the Death Benefit will be the greater of the
Specified Amount (a minimum of $100,000 as of the date of
this Prospectus), plus the Accumulation Value, or the
Corridor Death Benefit. Option 2 provides a varying Death
Benefit which increases or decreases over time, depending on
the amount of premium paid and the investment performance of
the underlying funding options chosen.
Under both Option 1 and Option 2, the proceeds payable upon
death will be the Death Benefit, reduced by partial
surrenders and by the amount necessary to repay any loans in
full. Option 1 will be in effect unless Option 2 has been
elected in the application for the Policy or unless a change
has been allowed.
CHANGES IN DEATH BENEFIT OPTION
A Death Benefit Option change will be allowed upon the
Owner's written request to the Administrative Office in a
form satisfactory to LLANY, subject to the following
conditions:
- The change will take effect on the Monthly Anniversary
Day or on the next Valuation Day following the date of
receipt of the request.
- There will be no change in the Surrender Charge, and
evidence of insurability may be required.
- No change in the Death Benefit Option may reduce the
Specified Amount below $100,000.
- For changes from Option 1 to Option 2, the new Specified
Amount will equal the Specified Amount less the
Accumulation Value at the time of the change.
- For changes from Option 2 to Option 1, the new Specified
Amount will equal the Specified Amount plus the
Accumulation Value at the time of the change.
GUARANTEED DEATH BENEFIT PROVISION
The Guaranteed Death Benefit Provision assures that, as long
as the Guaranteed Initial Death Benefit Premium is paid, the
Death Benefit will not be less than the Initial
12
<PAGE>
Specified Amount during the first five Policy Years even if
the Surrender Value is insufficient to cover the current
Monthly Deductions, assuming there have been no loans or
partial surrenders.
Changes in Initial Specified Amount, partial surrenders, and
Death Benefit Option changes during the first five Policy
Years may affect the Guaranteed Death Benefit Premium. These
events and loans may also affect the Policy's ability to
remain in force.
PAYMENT OF DEATH BENEFIT
The Death Benefit under the Policy will be paid in a lump
sum within seven days after receipt at the Administrative
Office of due proof of the Insured's death (a certified copy
of the death certificate), unless the Owner or the
Beneficiary has elected that it be paid under one or more of
the Settlement Options (See "Settlement Options"). Payment
of the Death Benefit may be delayed if the Policy is being
contested.
While the Insured is living, the Owner may elect a
Settlement Option for the Beneficiary and deem it
irrevocable, and may revoke or change a prior election. The
Beneficiary may make or change an election within 90 days of
the death of the Insured, unless the Owner has made an
irrevocable election.
All or a part of the Death Benefit may be applied under one
or more of the Settlement Options, or such other options as
LLANY may make available in the future.
If the Policy is assigned as collateral security, LLANY will
pay any amount due the assignee in one lump sum. Any excess
Death Benefit due will be paid as elected.
The Death Benefit under the Policy at any point in time must
be at least the following "Corridor Percentage" of the
Accumulation Value based on the Insured's attained age:
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ----------- ------------- -----------
<S> <C> <C> <C>
0-40 250% 60 130%
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
-- --
-----
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
-- --
-----
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
-- --
-----
55 150 75-90 105
-- --
-----
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
-- --
-----
95-99 100
--
-----
</TABLE>
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to the Administrative Office in
form satisfactory to LLANY.
13
<PAGE>
Changes in the Specified Amount are subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required for an increase in the
Specified Amount.
- An increase in the Specified Amount will increase the
Surrender Charge.
- As of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000.
- No decrease may reduce the Specified Amount to less than
$100,000.
- No decrease may reduce the Specified Amount below the
minimum required to maintain the Policy's status under
the Code as a life insurance policy.
Decreases in Specified Amount will be effective on the
Monthly Anniversary Day on or next following receipt of the
request at our Administrative Office, if all requirements
have been met. Decreases in Specified Amount will be applied
to reduce existing Specified Amount in the following order:
first, the most recent increase in Specified Amount; then,
the next most recent increases in Specified Amount
successively; and finally, against the Specified Amount
provided at issue.
Increases in Specified Amount, if approved by LLANY and
provided the Insured is living, will be effective on (i) the
Monthly Anniversary Day on or next following receipt of the
request at our Administrative Office and (ii) the deduction
from the Accumulation Value of the first month's cost of
insurance for the increase. If the Specified Amount is
increased, a new Surrender Charge applies for ten years
following any increase in Specified Amount. (See "Charges;
Fees -- Surrender Charge".)
PREMIUM PAYMENTS; TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. Premium
Payments are payable in the frequency and in the amount
selected by the Policy Owner. The initial Premium Payment is
due on the Issue Date and is payable in advance. The minimum
payment is the amount necessary to maintain a positive
Surrender Value or Guaranteed Minimum Death Benefit. Each
subsequent Premium Payment must be at least $100. LLANY
reserves the right to decline any application or Premium
Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to the Administrative Office and will be
deemed received when actually received there.
The Policy Owner may elect to increase, decrease or change
the frequency of Premium Payments.
PLANNED PREMIUMS are Premium Payments scheduled when a
Policy is applied for. They can be billed annually,
semiannually or quarterly. Pre-authorized automatic monthly
check payments may also be arranged.
ADDITIONAL PREMIUMS are any Premium Payments ($100 minimum)
made prior to the Coverage Date in addition to Planned
Premiums. LLANY reserves the right to limit the number or
amount of such additional premium payments if such
limitation is necessary to qualify the policy as life
insurance under the Internal Revenue Code.
GUARANTEED INITIAL DEATH BENEFIT PREMIUM, if paid during
each of the first five Policy Years, enables the Policy to
remain in force regardless of investment performance,
assuming no surrenders or loans during that time. The
Guaranteed Initial Death Benefit Premium is stated in the
Policy Specifications. An increase in Specified Amount would
require a recalculation of the Guaranteed Initial Death
Benefit Premium. If this premium is not paid, or there are
partial surrenders or loans taken during the first five
Policy
14
<PAGE>
Years, the Policy will lapse during the first five Policy
Years if the Surrender Value is less than the next Monthly
Deduction, just as it would after the first five Policy
Years at any time the Surrender Value is less than the next
Monthly Deduction.
Payment of Planned Premiums or Additional Premiums in any
amount will not, except as noted above, guarantee that the
Policy will remain in force. Conversely, failure to pay
Planned Premiums or Additional Premiums will not necessarily
cause a Policy to lapse (See "Guaranteed Death Benefit
Provision").
PREMIUM INCREASES. At any time, the Owner may increase
Planned Premiums, or pay Additional Premiums, but:
- Evidence of insurability may be required if the
Additional Premium or the new Planned Premium during the
current Policy Year would increase the difference between
the Death Benefit and the Accumulation Value. If
satisfactory evidence of insurability is requested and
not provided, the increase in premium will be refunded
without interest and without participation of such
amounts in any underlying funding options.
- In no event may the total of all Premium Payments exceed
the then-current maximum premium limitations established
by federal law for a Policy to qualify as life insurance.
If, at any time, a Premium Payment would result in total
Premium Payments exceeding such maximum premium
limitation, LLANY will only accept that portion of the
Premium Payment which will make total premiums equal the
maximum. Any part of the Premium Payment in excess of
that amount will be returned or applied as otherwise
agreed and no further Premium Payments will be accepted
until allowed by the then-current maximum premium
limitations prescribed by law.
- If there is any Policy indebtedness, any additional Net
Premium Payments will be used first as a loan repayment
with any excess applied as an additional Net Premium
Payment.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of purchase of the Policy, the Owner must decide
how to allocate Net Premium Payments among the Sub-Accounts
and the Fixed Account. Allocation to any one Variable
Account Sub-Account or to the Fixed Account must be in whole
percentages. No allocation can be made which would result in
a Sub-Account Value of less than $50 or a Fixed Account
value of less than $2,500. Further, at this time, no more
than 18 Sub-Accounts may be opened during the life of the
Policy. LLANY may expand this number at a future date. For
each Variable Account Sub-Account, the Net Premium Payments
are converted into Accumulation Units. The number of
Accumulation Units credited to the Policy is determined by
dividing the Net Premium Payment allocated to each
Sub-Account by the next computed value of the Accumulation
Unit for that Sub-Account.
During the Right-to-Examine Period, the Net Premium Payment
will be allocated to the Fixed Account, and interest
credited from the Issue Date if the Premium Payment was
received on or before the Issue Date. LLANY will allocate
the initial Net Premium Payment directly to the
Sub-Account(s) selected by the Owner within three days after
expiration of the Right-to-Examine Period.
Unless LLANY is directed otherwise by the Policy Owner,
subsequent Net Premium Payments will be allocated on the
same basis as the most recent previous Net Premium Payment.
Such allocation will occur as of the next Valuation Period
after each payment is received.
15
<PAGE>
The allocation for future Net Premium Payments may be
changed at any time free of charge. Any new allocation will
apply to Premium Payments made more than one week after
LLANY receives the notice of the new allocation at its
Administrative Office. Any new allocation is subject to the
same requirements as the initial allocation. LLANY may, at
its sole discretion, waive minimum premium allocation
requirements.
TRANSFERS
Before the Insured attains age 100, values may, at any time,
be transferred ($500 minimum) from one Sub-Account to
another or from the Variable Account to the Fixed Account.
Within the 30 days after each Policy Anniversary, the Owner
may also transfer a portion of the Fixed Account Value to
one or more Sub-Accounts, until the Insured attains age 100.
Transfers from the Fixed Account are allowed in the 30-day
period after a Policy Anniversary and will be effective as
of the next Valuation Day after a request is received in
good order at the Administrative Office. The cumulative
amount of transfers from the Fixed Account within any such
30-day period cannot exceed 20% of the Fixed Account Value
on the most recent Policy Anniversary. LLANY may further
limit transfers from the Fixed Account at any time.
Subject to the above restrictions, up to 12 transfers may be
made in any Policy Year without charge, and any value
remaining in the Fixed Account or a Sub-Account after a
transfer must be at least $500. Transfers must be made in
writing.
Any transfer among the Sub-Accounts or to the Fixed Account
will result in the crediting and cancellation of
Accumulation Units based on the Accumulation Unit values
next determined after a written request is received at the
Servicing Office. Transfer requests must be received by the
Administrative Office by the close of the New York Stock
Exchange (usually 4:00 pm ET on each day the New York Stock
Exchange is open) in order to be effective that day. Any
transfer made which causes the remaining value of
Accumulation Units for a Sub-Account to be less than $500
will result in those remaining Accumulation Units being
cancelled and their aggregate value reallocated
proportionately among the other funding options chosen. The
Policy Owner should carefully consider current market
conditions and each Sub-Account's investment policies and
related risks before allocating money to the Sub-Accounts.
See pages 10-11 and pages 20-21 of this Prospectus.
LLANY, at its sole discretion, may waive minimum balance
requirements on the Sub-Accounts.
OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
The Owner may elect to enroll in either of the following
programs. However, both programs cannot be in effect at the
same time.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected by the
Owner, systematically allocates specified dollar amounts
from the Money Market Sub-Account or the Fixed Account to
one or more of the Contract's Variable Account Sub-Accounts
at regular intervals as selected by the Owner. By allocating
on a regularly scheduled basis as opposed to allocating the
total amount at one particular time, an Owner may be less
susceptible to the impact of market fluctuations. Dollar
Cost Averaging will not assure a profit or protect against a
declining market.
Dollar Cost Averaging may be elected by establishing a Money
Market Sub-Account or the Fixed Account value of at least
$1,000. The minimum amount per month to allocate is $100
(subject to the 18 Sub-Account limitation described under
"Allocation of Net Premium Payments" above). Enrollment in
this program may occur at any time by providing the
information requested on the Dollar Cost Averaging election
form to LLANY
16
<PAGE>
at its Administrative Office, provided that sufficient value
is in the Money Market Sub-Account or the Fixed Account.
Transfers to the Fixed Account are not permitted under
Dollar Cost Averaging. LLANY may, at its sole discretion,
waive Dollar Cost Averaging minimum deposit and transfer
requirements.
Dollar Cost Averaging will terminate when any of the
following occurs: (1) the number of designated transfers has
been completed; (2) the value of the Money Market Sub-
Account or the Fixed Account is insufficient to complete the
next transfer; (3) the Owner requests termination, in
writing, and such request is received at least one week
prior to the next scheduled transfer date to take effect
that month; or (4) the Policy is surrendered.
There is no current charge for Dollar Cost Averaging but
LLANY reserves the right to charge for this program.
AUTOMATIC REBALANCING
Automatic Rebalancing is an option which, if elected by the
Owner on the initial application, periodically restores to a
pre-determined level the percentage of Policy Value
allocated to each Sub-Account (e.g. 20% Money Market, 50%
Growth, 30% Utilities). This pre-determined level will be
the allocation initially selected on the application, unless
subsequently changed. The Automatic Rebalancing allocation
may be changed at any time by submitting a written request
to LLANY at its Administrative Office.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Sub-Accounts must be subject to
Automatic Rebalancing. The Fixed Account is not available
for Automatic Rebalancing.
Automatic Rebalancing may take place on either a quarterly,
semi-annual or annual basis, as selected by the Owner. Once
Automatic Rebalancing is activated, any Sub-Account
transfers executed outside of the rebalancing option will
terminate the Automatic Rebalancing. Any subsequent premium
payment or withdrawal that modifies the net account balance
within each Sub-Account may also cause termination of
Automatic Rebalancing. Any such termination will be
confirmed to the Owner. The Owner may terminate Automatic
Rebalancing or re-enroll at any time by writing LLANY at its
Administrative Office.
There is no current charge for Automatic Rebalancing but
LLANY reserves the right to charge for this program.
CHARGES; FEES
PREMIUM LOAD
A deduction of 5.0% of each Premium Payment will be made to
cover the premium load. This load represents state taxes and
federal income tax liabilities and a portion of the sales
expenses incurred by LLANY.
MONTHLY DEDUCTIONS
A Monthly Deduction is made from the Net Accumulation Value
for administrative expenses. The monthly administrative fee
is $15 during the first Policy Year and, currently, $5
during subsequent Policy Years. This charge is for items
such as premium billing and collection, policy value
calculation, confirmations and periodic reports. For
subsequent Policy Years, this monthly fee will never exceed
$10.
A Monthly Deduction is also made from the Net Accumulation
Value for the Cost of Insurance and any charges for
supplemental riders. The Cost of Insurance depends on the
attained age, risk class and gender classification (in
accordance with state law) of the Insured and the current
Net Amount at Risk.
17
<PAGE>
The Cost of Insurance is determined by dividing the Death
Benefit at the previous Monthly Anniversary Day by
1.0032737, subtracting the Accumulation Value at the
previous Monthly Anniversary Day, and multiplying the result
(the Net Amount at Risk) by the applicable Cost of Insurance
Rate as determined by LLANY. The Guaranteed Maximum Cost of
Insurance Rates, per $1,000 of Net Amount at Risk, for
standard risks are set forth in the following Table based on
the 1980 Commissioners Standard Ordinary Mortality Tables,
Age Nearest Birthday (1980 CSO); or, for unisex rates, on
the 1980 CSO-B Table.
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
0 0.34845 0.24089 0.32677
1 0.08917 0.07251 0.08667
2 0.08251 0.06750 0.07917
3 0.08167 0.06584 0.07834
4 0.07917 0.06417 0.07584
5 0.07501 0.06334 0.07251
6 0.07167 0.06084 0.06917
7 0.06667 0.06000 0.06584
8 0.06334 0.05834 0.06250
9 0.06167 0.05750 0.06084
10 0.06084 0.05667 0.06000
11 0.06417 0.05750 0.06250
12 0.07084 0.06000 0.06917
13 0.08251 0.06250 0.07834
14 0.09584 0.06887 0.09001
15 0.11085 0.07084 0.10334
16 0.12585 0.07601 0.11585
17 0.13919 0.07917 0.12752
18 0.14836 0.08167 0.13502
19 0.15502 0.08501 0.14085
20 0.15836 0.08751 0.14502
21 0.15919 0.08917 0.14585
22 0.15752 0.09084 0.14419
23 0.15502 0.09251 0.14252
24 0.15189 0.09501 0.14085
25 0.14752 0.09668 0.13752
26 0.11419 0.09918 0.13585
27 0.14252 0.10168 0.13418
28 0.14169 0.10501 0.13418
29 0.14252 0.10635 0.13585
30 0.14419 0.11251 0.13752
31 0.14836 0.11668 0.14169
32 0.15252 0.12085 0.14585
33 0.15919 0.12502 0.15252
34 0.16889 0.13168 0.15919
35 0.17586 0.13752 0.16836
36 0.18670 0.14669 0.17837
37 0.20004 0.15752 0.19170
38 0.21505 0.17003 0.20588
39 0.23255 0.18503 0.22338
40 0.25173 0.20171 0.24173
41 0.27424 0.22005 0.26340
42 0.29675 0.23922 0.28508
43 0.32260 0.25757 0.31010
44 0.34929 0.27674 0.33428
45 0.37931 0.29675 0.36263
46 0.41017 0.31677 0.39182
47 0.44353 0.33761 0.42268
48 0.47856 0.36096 0.45437
49 0.51777 0.38598 0.49107
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
50 0.55948 0.41350 0.53028
51 0.60870 0.44270 0.57533
52 0.66377 0.47523 0.62539
53 0.72636 0.51276 0.68297
54 0.79730 0.55114 0.74722
55 0.87326 0.59118 0.81566
56 0.95591 0.63123 0.88996
57 1.04192 0.66961 0.96593
58 1.13378 0.70633 1.04609
59 1.23236 0.74556 1.13211
60 1.34180 0.78979 1.22817
61 1.46381 0.84488 1.33511
62 1.60173 0.91417 1.45796
63 1.75809 1.00267 1.59922
64 1.93206 1.10539 1.75725
65 2.12283 1.21731 1.92955
66 2.32623 1.33511 2.11195
67 2.54312 1.45461 2.30614
68 2.77350 1.57247 2.50878
69 3.02328 1.69955 2.72909
70 3.30338 1.84590 2.97466
71 3.62140 2.02325 3.25640
72 3.98666 2.24419 3.58279
73 4.40599 2.51548 3.95978
74 4.87280 2.83552 4.38330
75 5.37793 3.19685 4.84334
76 5.91225 3.59370 5.33245
77 6.46824 4.01942 5.84227
78 7.04089 4.47410 6.36948
79 7.64551 4.97042 6.92851
80 8.30507 5.52957 7.54229
81 9.03761 6.17118 8.22883
82 9.86724 6.91414 9.01216
83 10.80381 7.77075 9.90124
84 11.82571 8.72632 10.87533
85 12.91039 9.76952 11.92213
86 14.03509 10.89151 13.01471
87 15.18978 12.08770 14.15507
88 16.36948 13.35774 15.33494
89 17.57781 14.70820 16.56493
90 18.82881 16.15259 17.85746
91 20.14619 17.71416 19.23699
92 21.57655 19.43814 20.76665
93 23.20196 21.40786 22.49837
94 25.28174 23.63051 24.70915
95 28.27411 27.16158 27.82758
96 33.10577 32.32378 32.78845
97 41.68476 41.21204 41.45783
98 58.01259 57.81394 57.95663
99 90.90909 90.90909 90.90909
</TABLE>
18
<PAGE>
These Monthly Deductions are deducted proportionately from
the value of each funding option. This is accomplished for
the Sub-Accounts by canceling Accumulation Units and
withdrawing the value of the canceled Accumulation Units
from each funding option in the same proportion as their
respective values have to the Net Accumulation Value. The
Monthly Deductions are made on the Monthly Anniversary Day.
If the Insured is still living at age 100 and the Policy has
not been surrendered, no further Monthly Deductions are
taken and any Variable Account Value is transferred to the
Fixed Account. The Policy will then remain in force until
surrender or the Insured's death.
TRANSACTION FEE FOR EXCESS TRANSFERS
There will be a $25 transaction fee for each transfer
between funding options in excess of 12 during any Policy
Year.
19
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE AND FUND EXPENSES
The purpose of the following Table is to help purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by purchasers assuming that all Net Premium Payments are allocated
to the Variable Account. The table reflects expenses of the Variable Account as
well as of the individual Funds underlying the Variable Sub-Accounts. The
Mortality and Expense Risk Charge shown is the currently charged rate during the
first twelve Policy Years. It currently declines to .55% per year thereafter and
is guaranteed not to exceed .90% per year.
FEE TABLE
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS, INC. BT
------------------------------------------------------ INSURANCE
AIM V.L. FUNDS TRUST
CAPITAL AIM V.I. -----------
APPRECIATION AIM V.I. AIM V.I. DIVERSIFIED EQUITY 500
FUND GROWTH FUND VALUE FUND INCOME FUND INDEX FUND
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge....... 0.80% 0.80% 0.80% 0.80% 0.80%
Total Separate Account Annual
Expenses............................... 0.80% 0.80% 0.80% 0.80% 0.80%
FUND PORTFOLIO ANNUAL EXPENSES
Management Fees......................... 0.63% 0.65% 0.62% 0.60% 0.20%
Other Expenses.......................... 0.05% 0.08% 0.08% 0.20% 0.10%(2)
Total Fund Portfolio Annual Expenses.... 0.68%(1) 0.73%(1) 0.70%(1) 0.80%(1) 0.30%(2)
<CAPTION>
DELAWARE GROUP
PREMIUM FUND LINCOLN
---------------------------------------------- NATIONAL
SMALL -------
EMERGING CAP MONEY MARKET
MARKET SERIES TREND SERIES VALUE SERIES FUND
-------------- ------- ------------ -------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Charge....... 0.80% 0.80% 0.80% 0.80%
Total Separate Account Annual
Expenses............................... 0.80% 0.80% 0.80% 0.80%
FUND PORTFOLIO ANNUAL EXPENSES
Management Fees......................... 0.30% 0.62% 0.60% 0.48%
Other Expenses.......................... 1.20% 0.23% 0.25% 0.11%
Total Fund Portfolio Annual Expenses.... 1.50%(3) 0.85%(3) 0.85%(3) 0.59%
</TABLE>
- ------------------------------
(1) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services, as described in the
accompanying prospectus for the Funds. On a current basis, the fee will
apply only to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998, and AIM will not
seek reimbursement of the cost of any service in excess of the amount
charged by a participating insurance company for providing the services
above. The amount of reimbursements that will be paid by each Fund under
this arrangement for the year ending December 31, 1998 cannot be predicted.
(2) Under the Advisory Agreement with the Advisor, the Funds will pay advisory
fees at the annual percentage rate of .20% of the average daily net assets
of the Equity 500 Index Fund. These fees are accrued daily and paid monthly.
The Advisor has voluntarily undertaken to waive the fees and to reimburse
the Fund for certain expenses so that the Equity 500 Index Fund total
operating expenses will not exceed .30%. Such expense reimbursements may be
terminated at the discretion of the Advisor. If this reimbursement were not
in place, the total operating expenses would be 2.78%. For the year ended
December 31, 1997, the Advisor waived and/or reimbursed expenses of $65,771
for the Equity 500 Index Fund.
(3) The investment adviser for the Small Cap Value Series and Trend Series is
Delaware Management Company, Inc. ("Delaware Management"). The investment
adviser for the Emerging Markets Series is Delaware International Advisers
Ltd. ("Delaware International"). Effective May 1, 1998 through October 31,
1998, the investment advisers for the Series of DGPF have agreed voluntarily
to waive their management fees and reimburse each Series for expenses to the
extent that total expenses will not exceed 1.50% for the Emerging Markets
Series and 0.85% for the Small Cap Value Series and Trend Series. The fee
ratios shown above have been restated to assume that the new voluntary
limitation took effect January 1, 1997. For the fiscal year ended December
31, 1997, before waiver and/or reimbursement by the investment adviser,
total Series expenses as a percentage of average daily net assets were 2.45%
for the Emerging Market Series, 0.90% for Small Cap Value Series (formerly
known as "Value Series"), and 0.88% for Trend Series.
Other Expenses of the Funds shown in the table are based on expenses incurred by
each Fund for the year ending December 31, 1997. The table does not reflect the
monthly deductions for the cost of insurance and any riders, nor does it reflect
the monthly deduction of $15 during the first Policy Year, and currently, $5
thereafter for administrative expenses. The information set forth should be
considered together with the information provided in this Prospectus under the
heading "Charges and Fees", and in each Fund's Prospectus. All expenses are
expressed as a percentage of average account value.
20
<PAGE>
<TABLE>
<CAPTION>
MFS-REGISTERED TRADEMARK-
FIDELITY VARIABLE INSURANCE VARIABLE TEMPLETON VARIABLE PRODUCTS OCC ACCUMULATION
PRODUCTS FUNDS INSURANCE TRUST SERIES FUND (CLASS 1) TRUST
- -------------------------------- ------------------------------- --------------------------------- -------------------
VIP II VIP I VIP II MFS MFS TEMPLETON
ASSET EQUITY- INVESTMENT EMERGING TOTAL MFS ASSET TEMPLETON TEMPLETON GLOBAL
MANAGER INCOME GRADE BOND GROWTH RETURN UTILITIES ALLOCATION INTERNATIONAL STOCK EQUITY MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES SERIES FUND FUND FUND PORTFOLIO PORTFOLIO
- --------- --------- ---------- --------- --------- --------- --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
0.55% 0.50% 0.44% 0.75% 0.75% 0.75% 0.60%(7) 0.69%(7) 0.69%(7) 0.79%(8) 0.80%(8)
0.10% 0.08% 0.14% 0.12%(6) 0.25%(6) 0.25%(6) 0.18%(7) 0.19%(7) 0.19%(7) 0.40%(9) 0.07%(9)
0.65%(4) 0.58%(4) 0.58% 0.87% 1.00%(5) 1.00%(5) 0.78% 0.88% 0.88% 1.19%(10) 0.87%(10)
</TABLE>
- ------------------------------
(4) A portion of the brokerage commissions that certain funds paid was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, Total Fund Portfolio Annual Expenses would have been 0.64%
for the VIP II Asset Manager Portfolio and 0.57% for the VIP Equity-Income
Portfolio.
(5) The Adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the Total Return Series
and Utilities Series would be 0.27% and 0.45% respectively, and "Total Fund
Portfolio Annual Expenses" would be 1.02% and 1.20% respectively, for these
Series. See "Information Concerning Shares of Each Series Expenses."
(6) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(7) Management Fees and Total Operating Expenses have been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. See fund prospectus for details. Actual Management Fees and Total Fund
Operating Expenses during 1997 were lower.
(8) Reflects management fees after taking into effect any waiver.
(9) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(10) Total Portfolio Expenses for the Managed Portfolio are limited by OpCap
Advisors so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.00% of average daily net assets. Total
Portfolio Expenses for the Global Equity Portfolio are limited to 1.25% of
average daily net assets. Without such limitation and without giving effect
to any expense offsets, the Management Fees, Other Expenses and Total
Portfolio Expenses incurred for the fiscal year ended December 31, 1997
would have been .80%, .07%, and .87%, respectively, for the Managed
Portfolio and .80%, .40%, and 1.20%, respectively, for the Global Equity
Portfolio.
SURRENDER CHARGE
Upon surrender of a Policy, a surrender charge may apply, as
described below. This charge is in part a deferred sales
charge and in part a recovery of certain first year
administrative costs. (See "Appendix 1 -- Illustration of
Surrender Charges".)
The initial Surrender Charge, as specified in the Policy, is
based on the Initial Specified Amount and the amount of
Premium Payments during the first two Policy Years. Once
determined, the Surrender Charge will remain the same dollar
amount during the third through fifth Policy Years.
Thereafter, it declines monthly at a rate of 20% per year so
that after the end of the tenth Policy Year (assuming no
increases in the Specified Amount) the Surrender Charge will
be zero. Thus, the Surrender Charge at the end of the sixth
Policy Year would be 80% of the Surrender Charge at the end
of the fifth Policy Year, at the end of the seventh Policy
Year would be 60% of the Surrender Charge at the end of the
fifth Policy Year, and so forth. However, in no event will
the Surrender Charge exceed the maximum allowed by state or
federal law.
21
<PAGE>
If the Specified Amount is increased, a new Surrender Charge
will be applicable, in addition to any existing Surrender
Charge. The Surrender Charge applicable to the increase
would be equal to the Surrender Charge on a new policy whose
Specified Amount was equal to the amount of the increase. As
of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000. LLANY may change
this at any time.
If the Specified Amount is decreased while the Surrender
Charge applies, the Surrender Charge will remain the same.
No Surrender Charge is imposed on a partial surrender, but
an administrative fee of $25 is imposed, allocated pro-rata
among the Sub-Accounts (and, where applicable, the Fixed
Account) from which the partial surrender proceeds are taken
unless the Owner instructs LLANY otherwise. The portion of
the Surrender Charge applicable to administrative expense is
$6.00 per $1,000 of Initial Specified Amount.
Based on its actuarial determination, LLANY does not
anticipate that the Surrender Charge will cover all sales
and administrative expenses which LLANY will incur in
connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution
expenses, would be available for recovery from the General
Account of LLANY, which supports insurance and annuity
obligations.
THE FIXED ACCOUNT
Premium Payments allocated to the Fixed Account become part
of LLANY's General Account, and do not participate in the
investment experience of the Variable Account. The General
Account is subject to regulation and supervision by the New
York Insurance Department.
IN RELIANCE ON CERTAIN EXEMPTIONS, EXCLUSIONS AND RULES,
LLANY HAS NOT REGISTERED INTERESTS IN THE FIXED ACCOUNT AS A
SECURITY UNDER THE SECURITIES ACT OF 1933 AND HAS NOT
REGISTERED THE FIXED ACCOUNT AS AN INVESTMENT COMPANY UNDER
THE 1940 ACT. ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY
INTERESTS THEREIN ARE SUBJECT TO REGULATION UNDER THE 1933
ACT OR THE 1940 ACT. LLANY 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 LLANY'S
GENERAL ACCOUNT AND TO THE FIXED ACCOUNT UNDER THE POLICY.
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 DOCUMENT ONLY FOR ASPECTS OF THE
POLICY INVOLVING THE VARIABLE ACCOUNT, AND THEREFORE
CONTAINS ONLY SELECTED INFORMATION REGARDING THE FIXED
ACCOUNT. COMPLETE DETAILS REGARDING THE FIXED ACCOUNT ARE IN
THE POLICY.
Premium Payments allocated to the Fixed Account are
guaranteed to be credited with a minimum interest rate,
specified in the Policy, of at least 4.0%. Interest in
excess of 4.0% may be credited in LLANY's sole discretion.
Such interest rate will be established on a prospective
basis in LLANY's sole discretion and may vary by the Policy
issue year and duration. LLANY may vary the way in which it
credits interest to the Fixed Account from time to time.
ANY INTEREST IN EXCESS OF 4.0% WILL BE DECLARED IN ADVANCE
IN LLANY'S SOLE DISCRETION. POLICY OWNERS BEAR THE RISK THAT
NO INTEREST IN EXCESS OF 4.0% WILL BE DECLARED.
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Variable Account is
credited in the form of Accumulation Units, representing the
22
<PAGE>
Fund in which assets of that Sub-Account are invested. Each
Net Premium Payment will be credited to the Policy as of the
end of the Valuation Period in which it is received at the
Administrative Office (or portion thereof allocated to a
particular Sub-Account). The number of Accumulation Units
credited is determined by dividing the Net Premium Payment
by the value of an Accumulation Unit next computed after
receipt. Since each Sub-Account has a unique Accumulation
Unit value, a Policy Owner who has elected a combination of
funding options will have Accumulation Units credited from
more than one source.
The Accumulation Value of a Policy is determined by: (a)
multiplying the total number of Accumulation Units credited
to the Policy for each applicable Sub-Account by its
appropriate current Accumulation Unit value; (b) if a
combination of Sub-Accounts is elected, totaling the
resulting values; and (c) adding any values attributable to
the General Account (i.e., the Fixed Account Value and the
Loan Account Value).
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of an
Accumulation Unit. Such value may vary from Valuation Period
to Valuation Period to reflect the investment experience of
the Fund used in a particular Sub-Account.
The Fixed Account Value reflects amounts allocated to the
General Account through payment of premiums or transfers
from the Variable Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Variable
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Variable Account.
Each Policy Owner will be advised at least annually as to
the number of Accumulation Units which remain credited to
the Policy, the current Accumulation Unit values, the
Variable Account Value, the Fixed Account Value and the Loan
Account Value.
Accumulation Value will be affected by Monthly Deductions.
VARIABLE ACCUMULATION UNIT VALUE
The Accumulation Unit value for each Sub-Account was or will
be arbitrarily 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 any later Valuation Period is determined
as follows:
(1)The total value of Fund shares held in the Sub-Account
is calculated by multiplying the number of Fund shares
owned by the Sub-Account at the beginning of the
Valuation Period by the net asset value per share of
the Fund at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund
if an ex-dividend date occurs during the Valuation
Period; minus
(2)The liabilities of the Sub-Account at the end of the
Valuation Period; such 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 Lincoln Life
determines result from the operations of the Variable
Account; and
(3)The result of (2) is divided by the number of
Sub-Account units outstanding at the beginning of the
Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation
Period are equal to the daily mortality and expense risk
charge plus any applicable daily administrative charge
multiplied by the number of calendar days in the Valuation
Period.
SURRENDER VALUE
The Surrender Value of a Policy is the amount the Owner can
receive in cash by surrendering the Policy. All or part of
the Surrender Value may be applied to one or more of the
Settlement Options. (See "Surrender Charge.")
23
<PAGE>
SURRENDERS
There may be adverse tax consequences associated with
surrenders from the Policy. (See "Tax Matters--Policy
Proceeds.")
PARTIAL SURRENDERS
A partial surrender may be made at any time during the
lifetime of the Insured and before the Coverage Date by
written request to the Administrative Office during the
lifetime of the Insured and while the Policy is in force. A
$25 transaction fee is charged.
The amount of a partial surrender may not exceed 90% of the
Surrender Value at the end of the Valuation Period in which
the election becomes or would become effective, and may not
be less than $500.
For an Option 1 Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value, Death Benefit,
and Specified Amount. The Specified Amount and Accumulation
Value will be reduced by equal amounts and will reduce any
past increases in the reverse order in which they occurred.
For an Option 2 Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value and the Death
Benefit, but it will not reduce the Specified Amount.
The Specified Amount remaining in force after a partial
surrender may not be less than $100,000. Any request for a
partial surrender that would reduce the Specified Amount
below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding
decrease in the Specified Amount, the Policy would not
comply with the maximum premium limitations required by
federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
If, at the time of a partial surrender, the Net Accumulation
Value is attributable to more than one funding option, the
$25 transaction charge and the amount paid upon the
surrender will be taken proportionately from the values in
each funding option, unless the Policy Owner and LLANY agree
otherwise.
FULL SURRENDERS
A full surrender may be made at any time during the lifetime
of the Insured and before the Coverage Date. LLANY will pay
the Surrender Value next computed after receiving the
Owner's written request at the Administrative Office in a
form satisfactory to LLANY. Payment of any amount from the
Variable Account on a full surrender will usually be made
within seven calendar days thereafter. All coverage under
the Policy will automatically terminate if the Owner makes a
full surrender.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of transferred or surrendered amounts from the
Variable Account may be postponed when the New York Stock
Exchange is closed and for such other periods as the
Commission may require. Payment or transfer from the Fixed
Account may be deferred up to six months at LLANY's option.
If LLANY exercises its right to defer such payment or
transfer, interest will be added as required by law.
LAPSE AND REINSTATEMENT
LAPSE OF A POLICY; EFFECT OF GUARANTEED DEATH BENEFIT
PROVISION
A Policy will not lapse during the five-year period after
its Issue Date regardless of investment performance if, on
each Monthly Anniversary Day within that period, the sum of
premiums paid equals or exceeds the required amount of the
Guaranteed Initial Death Benefit Premium for that period,
assuming there have been no loans or partial surrenders. If
there have been any loans or partial surrenders, the Policy
may lapse unless there is sufficient Surrender Value to
cover the Monthly Deduction.
24
<PAGE>
After the five-year period expires, and depending on the
investment performance of the funding options, the
Accumulation Value may be insufficient to keep this Policy
in force, and payment of an additional premium may be
necessary.
A lapse occurs, and all coverage under the policy
automatically terminates, if a Monthly Deduction is greater
than the Surrender Value and no payment to cover the Monthly
Deduction is made within the Grace Period. LLANY will send
the Owner a lapse notice at least 31 days before the Grace
Period expires.
REINSTATEMENT OF A LAPSED POLICY
The Owner can apply for reinstatement at any time during the
Insured's lifetime, prior to the Coverage Date, if the
Policy was not surrendered for cash. To reinstate a Policy,
LLANY will require satisfactory evidence of insurability and
an amount sufficient to pay for the current Monthly
Deduction plus two additional Monthly Deductions.
If the Policy is reinstated within five years of the Issue
Date, all values including the Loan Account Value will be
reinstated to the point they were on the date of lapse.
However, the Guaranteed Initial Death Benefit Option will
not be reinstated.
If the Policy is reinstated after five years following the
Issue Date, it will be reinstated on the Monthly Anniversary
Day following LLANY's approval. The Accumulation Value at
reinstatement will be the Net Premium Payment then made less
the Monthly Deduction due that day.
If the Accumulation Value is not sufficient to cover the
full Surrender Charge at the time of lapse, the remaining
portion of the Surrender Charge will also be reinstated at
the time of Policy reinstatement.
POLICY LOANS
A Policy loan requires that a loan agreement be executed and
that the Policy be assigned to LLANY. The loan may be for
any amount up to 100% of the Surrender Value; however, LLANY
may limit the amount of such loan so that total Policy
indebtedness will not exceed 90% of an amount equal to the
Accumulation Value less the Surrender Charge which would be
imposed on a full surrender. The minimum loan amount is
$500. The amount of a loan, together with subsequent accrued
but not paid interest on the loan, becomes part of the Loan
Account Value. If Policy values are held in more than one
funding option, withdrawals from each funding option will be
made in proportion to the assets in each funding option at
the time of the loan for transfer to the Loan Account,
unless LLANY is instructed otherwise in writing at the
Administrative Office.
Interest on loans will accrue at an annual rate of 8%, and
net loan interest (interest charged less interest credited
as described below) is payable once a year in arrears on
each anniversary of the loan, or earlier upon full surrender
or other payment of proceeds of a Policy. Any interest not
paid when due becomes part of the loan and the net interest
will be withdrawn proportionately from the values in each
funding option.
LLANY will credit interest on the Loan Account Value. During
the first ten Policy Years, LLANY's current practice is that
interest will be credited at an annual rate equal to the
interest rate charged on the loan minus 1% (guaranteed not
to exceed 2%). Beginning with the eleventh Policy Year,
LLANY's current practice is that interest will be credited
at an annual rate equal to the interest rate charged on the
loan, less .25% annually (guaranteed not to exceed 1%). In
no case will the annual credited interest rate be less than
6% in each of the first ten Policy Years and 7% thereafter.
Repayments on the loan will be allocated among the funding
options according to current Net Premium Payment
allocations. The Loan Account Value will be reduced by the
amount of any loan repayment.
25
<PAGE>
A Policy loan, whether or not repaid, will affect the
proceeds payable upon the Insured's death and the
Accumulation Value because the investment results of the
Variable Account or the Fixed Account will apply only to the
non-loaned portion of the Accumulation Value. The longer a
loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account
or the Fixed Account while the loan is outstanding, the
effect could be favorable or unfavorable.
If at any time the total indebtedness against the Policy,
including interest accrued but not due, equals or exceeds
the then current Accumulation Value less surrender charge,
the Policy will terminate without value subject to the
conditions in the Grace Period provision.
If a Policy lapses while a loan is outstanding, adverse tax
consequences may result. (See "Tax Matters--Policy
Proceeds.")
SETTLEMENT OPTIONS
Proceeds in the form of Settlement Options are payable by
LLANY at the Beneficiary's election upon the Insured's
death, or while the Insured is alive upon election by the
Owner of one of the Settlement Options.
A written request may be made to elect, change, or revoke a
Settlement Option before payments begin under any Settlement
Option. This request must be in form satisfactory to LLANY,
and will take effect upon its receipt at the Administrative
Office. The first payment under the Settlement Option
selected will become payable on the date proceeds are
settled under the option. Payments after the first payment
will be made on the first day of each month. Once payments
have begun, the Policy cannot be surrendered and neither the
payee nor the Settlement Option may be changed.
FIRST OPTION -- Payments for the lifetime of the payee.
SECOND OPTION -- Payments for the lifetime of the payee,
guaranteed for 60, 120, 180, or 240 months;
THIRD OPTION -- Payment for a stated number of years, at
least five but no more than thirty;
FOURTH OPTION -- Payment of interest annually on the sum
left with LLANY at a rate of at least 3% per year, and upon
the payee's death the amount on deposit will be paid.
ADDITIONAL OPTIONS -- Policy proceeds may also be settled
under any other method of settlement offered by LLANY at the
time the request is made.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only where the
Insured is below the age of 80.
EFFECTIVE DATE OF COVERAGE
The effective date of this Policy will be the Issue Date,
provided the initial premium has been paid while the Insured
is alive and prior to any change in the health and
insurability of the Insured as represented in the
application.
26
<PAGE>
SHORT-TERM RIGHT TO CANCEL THE POLICY
A Policy may be returned for cancellation and a full refund
of premium within 10 days after the Policy is received,
within 10 days after LLANY mails or personally delivers a
Notice of Withdrawal Right to the Owner, within 45 days
after the application for the Policy is signed, or within 60
days if the Policy is issued as a replacement of another
life insurance policy, whichever occurs latest. The Initial
Premium Payment made when the Policy is issued will be held
in the Fixed Account and not allocated to the Variable
Account even if the Policy Owner may have so directed until
three business days following the expiration of the
Right-to-Examine Period. If the Policy is returned for
cancellation in a timely fashion, the refund of premiums
paid, without interest, will usually occur within seven days
of notice of cancellation, although a refund of premiums
paid by check may be delayed until the check clears.
POLICY OWNER
While the Insured is living, all rights in this Policy are
vested in the Policy Owner named in the application or as
subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Policy Owner while the
Insured is living. Any such change in ownership must be in a
written form satisfactory to LLANY and recorded at the
Administrative Office. Once recorded, the change will be
effective as of the date signed; however, the change will
not affect any payment made or action taken by LLANY before
it was recorded. LLANY may require that the Policy be
submitted for endorsement before making a change.
If the Policy Owner is other than the Insured, names no
contingent Policy Owner and dies before the Insured, the
Policy Owner's rights in this Policy belong to the Policy
Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or
as subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the
Insured is living. Any change must be in a written form
satisfactory to LLANY and recorded at the Administrative
Office. Once recorded, the change will be effective as of
the date signed; however, the change will not affect any
payment made or action taken by LLANY before it was
recorded.
If any Beneficiary predeceases the Insured, that
Beneficiary's interest passes to any surviving
Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise
provided. If no named Beneficiary survives the Insured, the
death proceeds shall be paid to the Policy Owner or the
Policy Owner's executor(s), administrator(s) or assigns.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his
or her rights in the Policy. The assignment must be in
writing, signed by the Policy Owner and recorded at the
Administrative Office. No assignment will affect any payment
made or action taken by LLANY before it was recorded. LLANY
is not responsible for any assignment not submitted for
recording, nor is LLANY responsible for the sufficiency or
validity of any assignment. The assignment will be subject
to any indebtedness owed to LLANY before it was recorded.
27
<PAGE>
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may, within the first two Policy Years,
exchange the Policy for a permanent life insurance policy
then being offered by LLANY. The benefits for the new policy
will not vary with the investment experience of a separate
account. The exchange must be elected within 24 months from
the Issue Date. No evidence of insurability will be
required.
The Policy Owner, the Insured and the Beneficiary under the
new policy will be the same as those under the exchanged
Policy on the effective date of the exchange. The
Accumulation Value under the new Policy will be equal to the
Accumulation Value under the old Policy on the date the
exchange request is received. The new policy will have a
Death Benefit on the exchange date not more than the Death
Benefit of the original Policy immediately prior to the
exchange date. If the Accumulation Value is insufficient to
support the Death Benefit, the Policy Owner will be required
to make additional Premium Payments in order to effect the
exchange. The new policy will have the same Issue Date and
Issue Age as the original Policy. The initial Specified
Amount and any increases in Specified Amount will have the
same rate class as those of the original Policy. Any
indebtedness may be transferred to the new policy.
The exchange may be subject to an equitable adjustment in
rates and values to reflect variances, if any, in the rates
and values between the two Policies. After adjustment, if
any excess is owed the Policy Owner, LLANY will pay the
excess to the Policy Owner in cash. The exchange may be
subject to federal income tax withholding.
INCONTESTABILITY
LLANY will not contest payment of the death proceeds based
on the Initial Specified Amount after the Policy has been in
force during the Insured's lifetime for two years from the
Issue Date. For any increase in Specified Amount requiring
evidence of insurability, LLANY will not contest payment of
the death proceeds based on such an increase after it has
been in force during the Insured's lifetime for two years
from its effective date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the
affected benefits will be adjusted. The amount of the Death
Benefit will be 1. multiplied by 2. and then the result
added to 3. where:
1. is the Net Amount at Risk at the time of the Insured's
death;
2. is the ratio of the monthly cost of insurance applied in
the policy month of death to the monthly cost of
insurance that should have been applied at the true age
and sex in the policy month of death; and
3. is the Accumulation Value at the time of the Insured's
death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Issue Date, LLANY will pay no more than
the sum of the premiums paid, less any indebtedness and the
amount of any partial surrenders. If the Insured dies by
suicide, while sane or insane, within two years from the
date an application is accepted for an increase in the
Specified Amount, LLANY will pay no more than a refund of
the monthly charges for the cost of such additional benefit.
28
<PAGE>
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends
are payable. These Policies do not share in the profits or
surplus earnings of LLANY.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are
met, a Policy will be treated as a life insurance policy for
federal tax purposes. LLANY will monitor compliance with
these tests. LLANY reserves the right to make changes in
this Policy or to make distributions from the Policy to the
extent it deems necessary, in its sole discretion, to
continue to qualify this Policy as life insurance. The
Policy should thus receive the same federal income tax
treatment as fixed benefit life insurance. As a result, the
death proceeds payable under a Policy are excludable from
gross income of the Beneficiary under Section 101 of the
Code.
Section 7702A of the Code defines modified endowment
contracts as those policies issued or materially changed on
or after June 21, 1988 on which the total premiums paid
during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits
after seven level annual premiums. The Code provides for
taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions
from modified endowment contracts in the same way annuities
are taxed. Modified endowment contract distributions are
defined by the Code as amounts not received as an annuity
and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into
the policy. A 10% tax penalty generally applies to the
taxable portion of such distributions unless the Policy
Owner is over age 59 1/2 or disabled.
It may not be advantageous to replace existing insurance
with Policies described in this Prospectus. It may also be
disadvantageous to purchase a Policy to obtain additional
insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this Prospectus may or may not be
issued as modified endowment contracts. LLANY will monitor
premiums paid and will notify the Policy Owner when the
Policy's non-modified endowment contract status is in
jeopardy. If a Policy is not a modified endowment contract,
a cash distribution during the first 15 years after a Policy
is issued which causes a reduction in death benefits may
still become fully or partially taxable to the Owner
pursuant to Section 7702(f)(7) of the Code. The Policy Owner
should carefully consider this potential effect and seek
further information before initiating any changes in the
terms of the Policy. Under certain conditions, a Policy may
become a modified endowment contract as a result of a
material change or a reduction in benefits as defined by
Section 7702A(c) of the Code.
In addition to meeting the tests required under Section 7702
and Section 7702A, Section 817(h) of the Code requires that
the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the
Secretary of the Treasury set the standards for measuring
the adequacy of this diversification. A variable life
insurance policy that is not adequately diversified under
these regulations would not be treated as life insurance
under Section 7702 of the Code. To be adequately
diversified, each Sub-Account of the Variable Account must
meet certain tests. LLANY believes the Variable Account
investments meet the applicable diversification standards.
Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of funds, transfers
between funds, exchanges of funds or changes in investment
29
<PAGE>
objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code,
LLANY will take whatever steps are available to remain in
compliance.
LLANY will monitor compliance with these regulations and, to
the extent necessary, will change the objectives or assets
of the Sub-Account investments to remain in compliance.
A total surrender or termination of the Policy by lapse may
have adverse tax consequences. If the amount received by the
Policy Owner plus total Policy indebtedness exceeds the
premiums paid into the Policy, the excess will generally be
treated as taxable income, regardless of whether or not the
Policy is a modified endowment contract.
Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or
Beneficiary.
TAXATION OF LLANY
LLANY is taxed as a life insurance company under the Code.
Since the Variable Account is not a separate entity from
LLANY and its operations form a part of LLANY, it will not
be taxed separately as a "regulated investment company"
under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account
are reinvested and taken into account in determining the
value of Accumulation Units.
LLANY does not initially expect to incur any Federal income
tax liability that would be chargeable to the Variable
Account. Based upon these expectations, no charge is
currently being made against the Variable Account for
federal income taxes. If, however, LLANY determines that on
a separate company basis such taxes may be incurred, it
reserves the right to assess a charge for such taxes against
the Variable Account.
LLANY may also incur state and local taxes in addition to
premium taxes in New York. At present, these taxes are not
significant. If they increase, however, additional charges
for such taxes may be made.
SECTION 848 CHARGES
The 5.0% premium load is assessed to cover state taxes,
federal income tax liabilities and a portion of the sales
expenses incurred by LLANY. This load includes 1.15% for the
additional federal income tax burden under Section 848 of
the Code relating to the tax treatment of deferred
acquisition costs.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as
tax advice. Counsel and other competent advisers should be
consulted for more complete information. This discussion is
based on LLANY's understanding of Federal income tax laws as
they are currently interpreted by the Internal Revenue
Service. No representation is made as to the likelihood of
continuation of these current laws and interpretations.
30
<PAGE>
OTHER MATTERS
DIRECTORS AND OFFICERS OF LLANY
The following persons are Directors and Officers of LLANY.
Except as indicated below, the address of each is 120
Madison Street, Suite 1700, Syracuse, New York 13202 and
each has been employed by LLANY or its affiliates for more
than five years.
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
- ----------------------------------------------------------------------------------------
ROLAND C. BAKER President [1/95-present], First Penn-Pacific Life
DIRECTOR Insurance Co. Formerly: Chairman and CEO
1801 S. Meyers Road [7/88-1/95], Baker, Rakish, Shipley & Politzer, Inc.
Oakbrook Terrace, IL 60181
J. PATRICK BARRETT Chairman and Chief Executive Officer, CARPAT
DIRECTOR Investments
4605 Watergap
Manlius, NY 13104
DAVID N. BECKER Vice President and Chief Actuarial Officer, The
SECOND VICE PRESIDENT AND Lincoln National Life Insurance Company.
APPOINTED ACTUARY
1300 South Clinton Street
Fort Wayne, IN 46802
THOMAS D. BELL, JR. President and Chief Executive Officer
DIRECTOR [4/95-present], Burson-Marstellar. Formerly: Vice
230 Park Avenue, South Chairman [3/94-5/95], Gulfstream Aerospace Corp.;
New York, NY 10003 Vice Chairman and Chief Executive Officer
[6/89-3/94], Burson-Marstellar
JON A. BOSCIA President, Lincoln National Corp. [1/98-present],
DIRECTOR Formerly: President and Chief Executive Officer
1300 South Clinton Street [10/96-1/98] and Chief Operating Officer
Fort Wayne, IN 46802 [5/94-10/96], The Lincoln National Life Insurance
Co. Formerly: President [7/91-5/94] Lincoln
Investment Management Inc.
KATHLEEN R. GORMAN Assistant Vice President, Lincoln Life & Annuity
ASSISTANT VICE PRESIDENT Company of New York [9/96-present]; Director of
Group Universal Life Operations, Mutual of New York
[10/91-9/96]
JOHN H. GOTTA Senior Vice President and General Manager
SECOND VICE PRESIDENT [1/98-present], The Lincoln National Life Insurance
900 Cottage Grove Rd. Co. Formerly: Senior Vice President, Connecticut
Bloomfield, CT 06152 General Life Insurance Company [3/96-12/97]; Vice
President, Connecticut Mutual Life Insurance Company
[8/94-3/96]; Vice President, Connecticut General
Life Insurance Company [3/93-8/94]
PHILIP L. HOLSTEIN President and Treasurer, Lincoln Life & Annuity
PRESIDENT AND DIRECTOR Company of New York [7/96-Present] Formerly:
President, [1/82-7/96] The Holstein Company, Inc.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- ----------------------------------------------------------------------------------------
<S> <C>
HARRY L. KAVETAS Executive Vice President and Chief Financial Officer
DIRECTOR [2/94-present], Eastman Kodak Company. Formerly:
343 State Street Vice President [9/61-12/93], IBM Corporation
Rochester, NY 14650-0235
BARBARA S. KOWALCZYK Senior Vice President, Corporation Planning
DIRECTOR [5/94-present], Lincoln National Corp.; Formerly:
200 East Berry Street Senior Vice President [7/92-5/94], Lincoln
Fort Wayne, Ind. 46802 Investment Management Co.
MARGEURITE L. LACHMAN Managing Director, Schroder Real Estate Associates
DIRECTOR
437 Madison Avenue, 18th Floor
New York, NY 10022
LOUIS G. MARCOCCIA Senior Vice President, Business, Finance and
DIRECTOR Administrative Services, Syracuse University
Skytop Office Building
Skytop Road
Syracuse, NY 13244-5300
TROY D. PANNING Second Vice President and Chief Financial Officer
SECOND VICE PRESIDENT AND [11/96-present], Lincoln Life & Annuity Company of
CHIEF FINANCIAL OFFICER New York Formerly: Accountant [9/90-11/96], Ernst &
Young LLP
JOHN M. PIETRUSKI Chairman of Board,
DIRECTOR Texas Biotechnology Corp.
One Penn Plaza
Suite 3408
New York, NY 10119
LAWRENCE T. ROWLAND President [97-present] Lincoln Reinsurance,
DIRECTOR Formerly: Senior Vice President (96), Vice President
One Reinsurance Place [94-95] Lincoln Reinsurance.
1700 Magnavox Way
Fort Wayne, IN 46804
GABRIEL L. SHAHEEN President, Chief Executive Officer and Director
DIRECTOR [1/98-present], The Lincoln National Life Insurance
1300 South Clinton Street Co. Formerly: Managing Director, Lincoln National
Fort Wayne, IN 46802 (UK) PLC [12/96-1/98]; President, Lincoln National
Reassurance Company [7/95-12/96]; Senior Vice
President, Lincoln National Life Reinsurance Company
[1/93-7/95]
ROBERT O. SHEPPARD, ESQ. Assistant Vice President, Lincoln Life & Annuity
ASSISTANT VICE PRESIDENT Company of New York [7/97-present]; Second Vice
President, Unity Mutual Life Insurance Company
[2/86-7/97]
RICHARD C. VAUGHAN Executive Vice President and Chief Financial Officer
DIRECTOR [1/95-present] Formerly: Senior Vice President
200 East Berry Street [5/92-1/95], Lincoln National Corp.
Fort Wayne, IN 46802
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- ----------------------------------------------------------------------------------------
<S> <C>
C. SUZANNE WOMACK Secretary, Lincoln Life & Annuity Company of New
SECRETARY York [7/96-present]; Second Vice President and
200 East Berry Street Secretary, Lincoln National Corporation
Fort Wayne, IN 46802 [5/97-present]; Second Vice President and Secretary,
The Lincoln National Life Insurance Company
[5/97-present]; Secretary, Lincoln Financial
Advisors Corporation [6/87-present].
</TABLE>
PRINCIPAL UNDERWRITER
LLANY intends to offer the Policies in New York. Lincoln
Financial Advisors Corporation ("LFA"), the principal
underwriter for the Policies, is registered with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers. The
principal business address of Lincoln Financial Advisors
Corporation is 3811 Illinois Road, Suite 205, Fort Wayne, IN
46804-1202.
The Policy will be sold by individuals who, in addition to
being licensed as life insurance agents for LLANY, are also
registered representatives of The Lincoln National Life
Insurance Company. Gross first year commissions paid by
LLANY, including expense reimbursement allowances, on the
sale of these Policies are not more than 95% of Premium
Payments. Gross renewal commissions paid by LLANY will not
exceed 10% of Premium Payments. The local agency receives
additional compensation on the first year required premium
and all additional premiums, plus a small percentage of
Accumulation Values. In some situations, the local agency
may elect to share its commission with the registered
representative. Selling representatives are also eligible
for bonuses and non-cash compensation if certain production
levels are reached. All compensation is paid from LLANY's
resources, which include certain charges made under the
Policy.
CHANGES OF INVESTMENT POLICY
LLANY may materially change the investment policy of the
Variable Account. LLANY must inform the Policy Owners and
obtain all necessary regulatory approvals. Any change must
be submitted to the New York State Insurance Department
which shall disapprove it if deemed detrimental to the
interests of the Policy Owners or if it renders LLANY
operations hazardous to the public. If a Policy Owner
objects, the Policy may be converted to a substantially
comparable fixed benefit life insurance policy then offered
by LLANY on the life of the Insured. The Policy Owner has
the later of 60 days from the date of the investment policy
change or 60 days from being informed of such change to make
this conversion. LLANY will not require evidence of
insurability for this conversion.
The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
OTHER CONTRACTS ISSUED BY LLANY
LLANY does presently and will, from time to time, offer
other variable annuity contracts and variable life insurance
policies with benefits which vary in accordance with the
investment experience of a separate account of LLANY.
33
<PAGE>
STATE REGULATION
LLANY is subject to the laws of New York governing insurance
companies and to regulation by the New York Insurance
Department. An annual statement in a prescribed form is
filed with the Insurance Department each year covering the
operation of LLANY for the preceding year and its financial
condition as of the end of such year. Regulation by the
Insurance Department includes periodic examination to
determine LLANY's contract liabilities and reserves so that
the Insurance Department may certify the items are correct.
LLANY's books and accounts are subject to review by the
Insurance Department at all times and a full examination of
its operations is conducted periodically by the New York
Department of Insurance. Such regulation does not, however,
involve any supervision of management or investment
practices or policies.
A blanket bond with a per event limit of $25 million and an
annual policy aggregate limit of $50 million covers all of
the officers and employees of LLANY.
REPORTS TO POLICY OWNERS
LLANY maintains Policy records and will mail to each Policy
Owner, at the last known address of record, an annual
statement showing the amount of the current Death Benefit,
the Accumulation Value, and Surrender Value, premiums paid
and monthly charges deducted since the last report, the
amounts invested in the Fixed Account and in the Variable
Account and in each Sub-Account of the Variable Account, and
any Loan Account Value.
Policy Owners will also be sent annual reports containing
financial statements for the Variable Account and annual and
semi-annual reports of the Funds as required by the 1940
Act.
In addition, Policy Owners will receive statements of
significant transactions, such as changes in Specified
Amount, changes in Death Benefit Option, changes in future
premium allocation, transfers among Sub-Accounts, Premium
Payments, loans, loan repayments, reinstatement and
termination, and any information required by the New York
Superintendent of Insurance.
ADVERTISING
LLANY is also ranked and rated by independent financial
rating services, including Moody's, Standard & Poor's, Duff
& Phelps and A.M. Best Company. The purpose of these ratings
is to reflect the financial strength or claims-paying
ability of LLANY. The ratings are not intended to reflect
the investment experience or financial strength of the
Separate Account. LLANY may advertise these ratings from
time to time. In addition, LLANY may include in certain
advertisements, endorsements in the form of a list of
organizations, individuals or other parties which recommend
LLANY or the Policies. Furthermore, LLANY may occasionally
include in advertisements comparisons of currently taxable
and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles
and general economic conditions.
YEAR 2000 ISSUES
LLANY, as part of its year 2000 updating process and in
conjunction with its parent company, The Lincoln National
Life Insurance Company ("Lincoln Life"), is responsible for
the updating of the Variable Account 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
34
<PAGE>
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 LLANY, Delaware Service Company (Delaware),
provides substantially all of the necessary accounting and
valuation services for the Variable Account. Delaware, for
its part, is responsible for updating all of its computer
systems, including those which service the Variable Account,
to accommodate the year 2000. LLANY, Lincoln Life, and
Delaware (the Companies) 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 Account
beginning in the year 2000.
The Year 2000 issue is pervasive and complex and affects
virtually every aspect of the businesses of the Companies.
The computer systems of the Companies and their interfaces
with the computer systems of vendors, suppliers, customers
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 Account. 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 accomodate 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 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 the Companies.
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 LLANY,
Lincoln Life, 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.
EXPERTS
The statutory-basis financial statements and schedules of
LLANY as of December 31, 1997 and 1996, and for the year
ended December 31, 1997 and the period from June 6, 1996
(date of incorporation) to December 31, 1996, appearing in
this prospectus and registration statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in
their report which also appears elsewhere in this
35
<PAGE>
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 report
given on their authority as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been
examined by Michael J. Roscoe, FSA, as stated in the opinion
filed as an exhibit to the registration statement.
Legal matters in connection with the Policies described
herein are being passed upon by Robert O. Sheppard, Esquire,
as stated in the opinion filed as an exhibit to the
registration statement.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered hereby. This
Prospectus does not contain all the information set forth in
the Registration Statement and amendments thereto and
exhibits filed as a part thereof, to all of which reference
is hereby made for further information concerning the
Variable Account, LLANY, and the Policies offered hereby.
Statements contained in this Prospectus as to the content of
Policies and other legal instruments are summaries. For a
complete statement of the terms thereof, reference is made
to such instruments as filed.
FINANCIAL STATEMENTS
On the following pages appear the audited statutory-basis
financial statements and schedules of LLANY as of and for
the periods ended December 31, 1997 and 1996. Also, the
unaudited statutory-basis financial statements of LLANY as
of and for the three months ended March 31, 1998 are
included.
36
<PAGE>
Financial Statements -- Statutory Basis
and Other Financial Information
LINCOLN LIFE & ANNUITY
COMPANY OF NEW YORK
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM JUNE 6,
1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1996
WITH REPORT OF INDEPENDENT AUDITORS
37
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
FINANCIAL STATEMENTS -- STATUTORY BASIS
AND OTHER FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM JUNE 6, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................................ 39
AUDITED FINANCIAL STATEMENTS
Balance Sheets -- Statutory Basis..................................................................... 40
Statements of Operations -- Statutory Basis........................................................... 41
Statements of Changes in Capital and Surplus -- Statutory Basis....................................... 42
Statements of Cash Flows -- Statutory Basis........................................................... 43
Notes to Financial Statements -- Statutory Basis...................................................... 44
OTHER FINANCIAL INFORMATION
Report of Independent Auditors on Other Financial Information......................................... 54
Supplemental Schedule of Selected Financial Data -- Statutory Basis................................... 55
Note to Supplemental Schedule of Selected Financial Data -- Statutory Basis........................... 56
</TABLE>
38
<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.
[LOGO]
March 12, 1998
39
<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.
40
<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. 41
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
UNASSIGNED
COMMON PAID-IN SURPLUS -- TOTAL CAPITAL
STOCK SURPLUS DEFICIT AND 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 valuation 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 valuation 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.
42
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations 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 activities (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 activities 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 beginning 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. 43
<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.
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
44
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
YEAR ENDED JUNE 6, 1996
DECEMBER 31, 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 reserve 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>
45
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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.
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.
46
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 6, 1996
DECEMBER TO DECEMBER
31, 1997 31, 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>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
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
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1996:
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.
47
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (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 FAIR
COST 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
48
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
4. ANNUITY RESERVES (CONTINUED)
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>
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 $169,000,000 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.
49
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
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 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>
ASSETS CARRYING
(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>
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.
50
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
9. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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
with the modification of existing
51
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
12. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
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.
52
<PAGE>
OTHER FINANCIAL INFORMATION
53
<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.
[LOGO]
March 12, 1998
54
<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>
55
<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.
56
<PAGE>
Financial Statements -- Statutory Basis (Unaudited)
LINCOLN LIFE & ANNUITY
COMPANY OF NEW YORK
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
57
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
FINANCIAL STATEMENTS -- STATUTORY BASIS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
CONTENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Balance Sheet -- Statutory Basis (Unaudited).......................................................... 59
Statements of Operations -- Statutory Basis (Unaudited)............................................... 60
Statements of Changes in Capital and Surplus -- Statutory Basis (Unaudited)........................... 61
Statements of Cash Flows -- Statutory Basis (Unaudited)............................................... 62
Notes to Financial Statements -- Statutory Basis (Unaudited).......................................... 63
</TABLE>
58
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
BALANCE SHEET -- STATUTORY BASIS (UNAUDITED)
MARCH 31, 1998
<TABLE>
<S> <C>
ADMITTED ASSETS
CASH AND INVESTED ASSETS:
Bonds $1,081,072,420
- ------------------------------------------------------------------------------------------
Mortgage loans on real estate 200,891,350
- ------------------------------------------------------------------------------------------
Policy loans 40,975,893
- ------------------------------------------------------------------------------------------
Cash and short-term investments 59,713,851
- ------------------------------------------------------------------------------------------
Receivable for securities 929,557
- ------------------------------------------------------------------------------------------ --------------
Total cash and invested assets 1,383,583,071
- ------------------------------------------------------------------------------------------
Premiums and fees in course of collection 10,666,544
- ------------------------------------------------------------------------------------------
Accrued investment income 21,745,014
- ------------------------------------------------------------------------------------------
Data processing equipment 261,287
- ------------------------------------------------------------------------------------------
Other admitted assets 63,138,570
- ------------------------------------------------------------------------------------------
Separate account assets 192,088,461
- ------------------------------------------------------------------------------------------ --------------
Total admitted assets $1,671,482,947
- ------------------------------------------------------------------------------------------ --------------
--------------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Policyholders' funds $ 751,558,672
- ------------------------------------------------------------------------------------------
Future policy benefits and claims 623,642,101
- ------------------------------------------------------------------------------------------
Other liabilities 17,666,745
- ------------------------------------------------------------------------------------------
Federal income taxes 2,996,008
- ------------------------------------------------------------------------------------------
Asset valuation reserve 4,642,461
- ------------------------------------------------------------------------------------------
Interest maintenance reserve 2,449,766
- ------------------------------------------------------------------------------------------
Net transfers due from separate accounts (6,172,605)
- ------------------------------------------------------------------------------------------
Separate account liabilities 192,088,461
- ------------------------------------------------------------------------------------------ --------------
Total liabilities 1,588,871,609
- ------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------
Paid-in surplus 227,407,481
- ------------------------------------------------------------------------------------------
Unassigned surplus -- deficit (146,796,143)
- ------------------------------------------------------------------------------------------ --------------
Total capital and surplus 82,611,338
- ------------------------------------------------------------------------------------------ --------------
Total liabilities and capital and surplus $1,671,482,947
- ------------------------------------------------------------------------------------------ --------------
--------------
</TABLE>
See accompanying notes.
59
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
1998 1997
------------- ------------
<S> <C> <C>
REVENUES:
Premiums and deposits $ 816,637,545 $130,589,000
- -----------------------------------------------------------------------------
Net investment income 25,053,059 11,140,862
- -----------------------------------------------------------------------------
Surrender charges 538,380 339,892
- -----------------------------------------------------------------------------
Amortization of the interest maintenance reserve (274,446) 127,725
- -----------------------------------------------------------------------------
Other revenues 3,714 31,519
- ----------------------------------------------------------------------------- ------------- ------------
Total revenues 841,958,252 142,228,998
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits paid or provided to policyholders 824,140,895 21,093,787
- -----------------------------------------------------------------------------
Commissions 127,060,808 675,655
- -----------------------------------------------------------------------------
General expenses 6,178,564 1,255,672
- -----------------------------------------------------------------------------
Insurance taxes, licenses and fees 1,331,384 60,898
- -----------------------------------------------------------------------------
Net transfers to separate accounts 8,144,219 117,699,461
- ----------------------------------------------------------------------------- ------------- ------------
Total benefits and expenses 966,855,870 140,785,473
- ----------------------------------------------------------------------------- ------------- ------------
Gain (loss) from operations before dividends to policyholders, federal income
taxes and net realized capital gains (124,897,618) 1,443,525
- -----------------------------------------------------------------------------
Dividends to policyholders 323,154 --
- ----------------------------------------------------------------------------- ------------- ------------
Gain (loss) from operations before federal income taxes and net realized
capital gains (125,220,772) 1,443,525
- -----------------------------------------------------------------------------
Federal income taxes 3,297,183 341,399
- ----------------------------------------------------------------------------- ------------- ------------
Gain (loss) from operations before net realized capital gains (128,517,955) 1,102,126
- -----------------------------------------------------------------------------
Net realized capital gains 387,449 2
- ----------------------------------------------------------------------------- ------------- ------------
Net income (loss) $(128,130,506) $ 1,102,128
- ----------------------------------------------------------------------------- ------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
60
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS-- CAPITAL AND
STOCK SURPLUS DEFICIT SURPLUS
----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balances at January 1, 1998 $ 2,000,000 $ 227,407,481 $ (16,555,254) $ 212,852,227
- --------------------------------------------
ADD (DEDUCT):
Net loss -- -- (128,130,506) (128,130,506)
- --------------------------------------------
Decrease in nonadmitted assets -- -- 181,667 181,667
- --------------------------------------------
Increase in asset valuation reserve -- -- (2,292,050) (2,292,050)
- -------------------------------------------- ----------- -------------- --------------- ---------------
Balances at March 31, 1998 $ 2,000,000 $ 227,407,481 $ (146,796,143) $ 82,611,338
- -------------------------------------------- ----------- -------------- --------------- ---------------
----------- -------------- --------------- ---------------
Balances at January 1, 1997 $ 2,000,000 $ 69,000,000 $ (20,824,003) $ 50,175,997
- --------------------------------------------
ADD (DEDUCT):
Net income -- -- 1,102,128 1,102,128
- --------------------------------------------
Increase in nonadmitted assets -- -- (93,385) (93,385)
- --------------------------------------------
Increase in asset valuation reserve -- -- (215,893) (215,893)
- -------------------------------------------- ----------- -------------- --------------- ---------------
Balances at March 31, 1997 $ 2,000,000 $ 69,000,000 $ (20,031,153) $ 50,968,847
- -------------------------------------------- ----------- -------------- --------------- ---------------
----------- -------------- --------------- ---------------
</TABLE>
See accompanying notes.
61
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 812,264,625 $ 130,589,000
- ----------------------------------------------------------------------------
Investment income received 14,181,918 11,095,864
- ----------------------------------------------------------------------------
Benefits paid (39,023,842) (28,529,868)
- ----------------------------------------------------------------------------
Insurance expenses paid (143,976,536) (122,071,655)
- ----------------------------------------------------------------------------
Federal income taxes paid -- (72,551)
- ----------------------------------------------------------------------------
Dividends to policyholders (320,853) --
- ----------------------------------------------------------------------------
Other income received and expenses paid, net 974,119 371,411
- ---------------------------------------------------------------------------- ------------- -------------
Net cash provided by (used in) operating activities 644,099,431 (8,617,799)
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 63,304,006 142,472,088
- ----------------------------------------------------------------------------
Purchase of investments (751,836,058) (131,720,366)
- ----------------------------------------------------------------------------
Net increase in policy loans (1,920,966) (403,647)
- ---------------------------------------------------------------------------- ------------- -------------
Net cash provided by (used in) investing activities (690,453,018) 10,348,075
- ----------------------------------------------------------------------------
FINANCING AND MISCELLANEOUS ACTIVITIES
Other (57,706,156) (17,727,274)
- ---------------------------------------------------------------------------- ------------- -------------
Net cash used in financing activities (57,706,156) (17,727,274)
- ---------------------------------------------------------------------------- ------------- -------------
Decrease in cash and short-term investments (104,059,743) (15,996,998)
- ----------------------------------------------------------------------------
Total cash and short-term investments at beginning of period 163,773,594 19,335,007
- ---------------------------------------------------------------------------- ------------- -------------
Total cash and short-term investments at end of period $ 59,713,851 $ 3,338,009
- ---------------------------------------------------------------------------- ------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
62
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying statutory-basis financial statements of Lincoln Life &
Annuity of New York (the "Company") have been prepared in accordance with
accounting practices prescribed or permitted by the New York Insurance
Department (the "Department"), except that they do not contain complete
notes. "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. These financial statements are unaudited and include
all adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results, in accordance with the accounting basis
described above. For further information, refer to the statutory-basis
financial statements and notes as of December 31, 1997 and 1996 and for the
year ended December 31, 1997 and the period from June 6, 1996 to December
31, 1996, included in this registration statement.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998.
The following footnotes are included due to significant changes in
circumstances since December 31, 1997. The majority of these changes are
caused by the acquisition of certain individual life and annuity business
from CIGNA Corporation.
2. ACQUISITIONS
On January 2, 1998, the Company and The Lincoln National Life Insurance
Company ("Lincoln Life" -- an affiliate) entered into 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 for the three month period ended March 31, 1998 have been
included in the Company's financial statements as of and for the three month
period ended March 31, 1998. 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.
On May 21, 1998, the Company and Lincoln Life announced their intentions to
acquire certain domestic individual life insurance business from Aetna, Inc.
via a 100% indemnity reinsurance transaction. The transaction is expected to
close in the fall of 1998. Under the terms of the agreement, the Company
will pay approximately $125 million to acquire the business and assume
liabilities of approximately $426.9 million. Cash equal to such liabilities
will also be received by the Company.
3. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Existing statutory accounting practices differ from generally accepted
accounting principles ("GAAP"). The more significant variances from GAAP are
as follows:
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For
universal life insurance, annuity and other investment-type products,
deferred policy acquisition costs, to the extent recoverable from future
gross profits, are amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
PREMIUMS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type
63
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (UNAUDITED) (CONTINUED)
3. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contracts are reported as premiums and deposits revenues; whereas under
GAAP, such premiums and deposits are treated as liabilities and policy
charges represent revenues.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Death benefits paid, policy and contract withdrawals, and the change in
policy reserves on universal life policies, annuity and other
investment-type contracts are reported as benefits and settlement expenses
in the accompanying statements of income; whereas, under GAAP, withdrawals
are treated as a reduction of the policy or contract liabilities and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported
in the accompanying financial statements net of reinsurance amounts. For
GAAP, all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
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)
------------- -------------------------
THREE MONTHS ENDED MARCH
MARCH 31, 31,
------------- -------------------------
1998 1998 1997
------------- -------------------------
<S> <C> <C> <C>
Amounts as reported on a statuary basis $ 82,611,338 $(128,130,506) $1,102,128
- -------------------------------------------------------
Add (deduct):
Net unrealized gain on bonds 17,057,577 -- --
----------------------------------------------------
Interest maintenance reserve 2,449,766 274,446 (127,725)
----------------------------------------------------
Net realized loss on investments -- (419,232) (574,288)
----------------------------------------------------
Asset valuation reserve 4,642,461 -- --
----------------------------------------------------
Difference between GAAP and statutory-basis
policyholders' funds (80,062,385) 7,589,009 40,354
----------------------------------------------------
Present value of future profits and deferred
acquisition costs 136,751,975 122,359,145 113,780
----------------------------------------------------
Deferred federal income taxes 17,159,157 1,539,085 (174,046)
----------------------------------------------------
Goodwill 69,567,274 -- --
----------------------------------------------------
Nonadmitted assets 1,000,153 -- --
---------------------------------------------------- ------------- ------------- ----------
Amounts on a GAAP basis $ 251,177,316 $ 3,211,947 $ 380,203
- ------------------------------------------------------- ------------- ------------- ----------
------------- ------------- ----------
</TABLE>
64
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (UNAUDITED) (CONTINUED)
3. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments.
PREMIUMS
Life insurance and individual annuity premiums are recognized as revenue
when due. Accident and health premiums are earned pro rata over the contract
term of the policies.
BENEFITS
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Department. The Company waives deduction of deferred fractional premiums on
the death of life and annuity policy insureds and returns any premium beyond
the date of death, except for policies issued prior to March 1977. Surrender
values on policies do not exceed the corresponding benefit reserves.
Additional reserves are established when the results of cash flow testing
under various interest rate scenarios indicate the need for such reserves.
If net premiums exceed the gross premiums on any insurance in-force,
additional reserves are established. Benefit reserves for policies
underwritten on a substandard basis are determined using the multiple table
reserve method.
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Unpaid claims and claim adjustment expenses on accident and health policies
represent the estimated ultimate net cost of all reported and unreported
claims incurred during the year. The Company does not discount claims and
claim adjustment expense reserves. The reserves for unpaid claims and claim
adjustment expenses are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends
in claim severity and frequency. Although considerable variability is
inherent in such estimates, management believes that the reserves for claims
and claim adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums and claims and claim adjustment expenses are accounted
for on bases consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts. Certain business
is transacted on a funds withheld basis and investment income on funds
withheld are reported in net investment income.
65
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (UNAUDITED) (CONTINUED)
4. INVESTMENTS
The cost or amortized cost, gross unrealized gains and
losses and the fair value of investments in bonds as of
March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate $ 859,049,567 $13,936,716 $(2,055,297) $ 870,930,986
- ---------------------
U.S. government 24,961,394 194,735 (29) 25,156,100
- ---------------------
Foreign government 16,144,312 814,184 (120,261) 16,838,235
- ---------------------
Mortgage-backed 173,970,322 4,134,353 (65,469) 178,039,206
- ---------------------
State and municipal 6,946,825 218,645 -- 7,165,470
- --------------------- -------------- ----------- ----------- --------------
$1,081,072,420 $19,298,633 $(2,241,056) $1,098,129,997
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
</TABLE>
During 1998, the minimum and maximum lending rates for
mortgage loans were 6.75% and 10.29%, respectively. At the
issuance of a loan, the percentage of loan to value on any
one loan does not exceed 75%. At March 31, 1998, the Company
did not hold any mortgages with interest overdue beyond one
year. All properties covered by mortgage loans have fire
insurance at least equal to the excess of the loan over the
maximum loan that would be allowed on the land without the
building.
5. FEDERAL INCOME TAXES
The effective income tax rate for financial reporting
purposes differs from the prevailing statutory tax rate
principally due to tax-exempt investment income,
dividends-received tax deductions and differences in ceding
commissions and policy acquisition costs for tax return and
financial statement purposes.
66
<PAGE>
APPENDIX 1
ILLUSTRATION OF SURRENDER CHARGES
The Surrender Charge is calculated as (a) times (b), where
(a) is the sum of (i) a Deferred Sales Charge and (ii) a
Deferred Administrative Charge and (b) is the applicable
Surrender Charge Grading Factor. If the Specified Amount is
increased, a new Surrender Charge will be applicable, in
addition to any existing Surrender Charge.
Below are examples of Surrender Charge calculations, one
involving a level Specified Amount and one involving an
increase in the Specified Amount, followed by Definitions
and Tables used in the calculations.
EXAMPLE 1: A male nonsmoker, age 35, purchases a Policy with
a Specified Amount of $100,000 and a scheduled annual
premium of $1100. He now wants to surrender the Policy at
the end of the sixth Policy Year.
The Surrender Charge computed is as follows:
Sum of the premiums paid through the end of the second
Policy Year = $2200.00
Guideline Annual Premium Amount (Male, Age 35, $100,000
Specified Amount) = $1195.63
Surrender Charge =
<TABLE>
<S> <C>
(.285 X $1195.63) + (.085 X ($2200-$1195.63)) = $340.75 + $85.37 = $ 426.12(i)
$6.00 per $1000 of Specified Amount $ 600.00(ii)
--------
$1026.12(a)
</TABLE>
The total Surrender Charge is $1026.12(a), times the
surrender charge grading factor,(b): ($1026.12 X 80%) =
$820.90.
EXAMPLE 2: A female nonsmoker, age 45, purchases a Policy
with an Initial Specified Amount of $200,000 and a scheduled
annual premium of $1500. She pays the scheduled annual
premium for the first five Policy Years. At the start of the
sixth Policy Year, she increases the Specified Amount to
$250,000 and continues to pay the scheduled annual premium
of $1500. She now wants to surrender the Policy at the end
of the eighth Policy Year. Separate Surrender Charges must
be calculated for the Initial Specified Amount and for the
increase in Specified Amount.
The Surrender Charges are computed as follows:
For the Initial Specified Amount,
Sum of the premiums paid through the end of the second
Policy Year = $3000.00
Guideline Annual Premium Amount (Female, Age 45, $200,000
Specified Amount = $2966.81
<TABLE>
<CAPTION>
Surrender Charge for Initial Specified Amount =
<S> <C>
(.285 X $2966.81) +(.085 X ($3000.00-$2966.81)) = $845.54 + $2.82 = $ 848.36(i)
$6.00 per $1000 of Initial Specified Amount $1200.00(ii)
--------
$2048.36(a)
</TABLE>
The total Surrender Charge for the Initial Specified Amount
is $2048.36,(a), times the applicable surrender charge
grading factor,(b): ($2048.36 X 40%) = $819.34.
67
<PAGE>
For the increase in Specified Amount;
Sum of the premiums in the first two years following the
increase in Specified Amount, applicable to the increase in
Specified Amount =
($1500 X 2) X ($50,000 / $250,000) = $600.00.
Guideline Annual Premium Amount (Female, Age 50, $50,000
Specified Amount) = $993.68.
<TABLE>
<CAPTION>
Surrender Charge for the increase in Specified Amount =
<S> <C>
(.285 X $600.00) $ 171.00(i)
$6.00 per $1000 of increase in Specified Amount $ 300.00(ii)
--------
$ 471.00(a)
</TABLE>
The total Surrender Charge for the increase in the Specified
Amount is $471.00,(a), times the applicable surrender charge
grading factor,(b): ($471.00 X 100%) = $471.00
The overall Surrender Charge for the Policy is ($819.34 +
$471.00) = $1290.34.
DEFINITIONS AND TABLES
(a)(i) The Deferred Sales Charge is based on the actual
premium paid and the applicable Guideline Annual
Premium Amount, and is calculated assuming the
following:
<TABLE>
<S> <C>
DURING POLICY YEAR:
1 and 2 28.5% of the sum of the
premiums paid up to an amount
equal to the Guideline Annual
Premium Amount,* plus 8.5% of
the sum of the premiums paid
between one and two times the
Guideline Annual Premium
Amount, plus 7.5% of the sum
of the premiums paid in excess
of two times the Guideline
Annual Premium Amount.
3 through 10 same dollar amount as of the
end of Policy Year 2.
</TABLE>
In no event will the Deferred Sales Charge exceed the
maximum permitted under federal or state law.
(ii) The Deferred Administrative Charge is $6.00 per
$1,000 of Specified Amount.
(b) SURRENDER CHARGE GRADING FACTORS
<TABLE>
<S> <C>
Policy Years**
1-5 100%
Policy Year 6 80%
Policy Year 7 60%
Policy Year 8 40%
Policy Year 9 20%
Policy Year 10 0%
</TABLE>
If a Surrender Charge becomes effective at other than the
end of a Policy Year, any applicable Surrender Charge
grading factor will be applied on a pro rata basis as of
such effective date.
* Guideline Annual Premium Amount is the level annual
amount that would be payable through the latest maturity
date permitted under the Policy but not less than 20
years after date of issue or (if earlier) age 95 for the
future benefits under the Policy, subject to the
following provisions: (A) the payments were fixed by the
Life Insurer as to both timing and amount; and (B) the
payments were based on the 1980 Commissioners Standard
Ordinary Mortality Table, net investment earnings at the
greater of an annual effective of 5% or rate or rates
guaranteed at issue of the policy, the sales load under
the policy, and the fees and charges specified in the
policy. A new Guideline Annual Premium Amount is
determined for each increase in Specified Amount under
the policy; in such event, "Policy Years" are measured
from the effective date(s) of such increase(s).
** Number of Policy Years elapsed since the Date of Issue or
since the effective date(s) of any increase(s) in
Specified Amount.
68
<PAGE>
APPENDIX 2
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this Prospectus have been prepared to
help show how values under the Policies change with
investment performance. The illustrations show how
Accumulation Values, Surrender Values and Death Benefits
under a Policy would vary over time if the hypothetical
gross investment rates of return were a uniform annual
effective rate of either 0%, 6% or 12%. If the hypothetical
gross investment rate of return averages 0%, 6%, or 12% over
a period of years, but fluctuates above or below those
averages for individual years, the Accumulation Values,
Surrender Values and Death Benefits may be different. The
illustrations also assume there are no Policy loans or
partial surrenders, no additional Premium Payments are made
other than shown, no Accumulation Values are allocated to
the Fixed Account, and there are no changes in the Specified
Amount or Death Benefit Option.
The amounts shown for the Accumulation Value, Surrender
Value and Death Benefit as of each Policy Anniversary
reflect the fact that charges are made and expenses applied
which lower investment return on the assets held in the
Sub-Accounts. Daily charges are made against the assets of
the Sub-Accounts for assuming mortality and expense risks.
The current mortality and expense risk charges are
equivalent to an annual effective rate of 0.80% of the daily
net asset value of the Variable Account. On each Policy
Anniversary beginning with the 13th, the mortality and
expense risk charge is reduced to 0.55% on an annual basis
of the daily net assets of the Variable Account. The
mortality and expense risk charge is guaranteed never to
exceed an annual effective rate of 0.90% of the daily net
asset value of the Variable Account. In addition, the
amounts shown also reflect the deduction of Fund investment
advisory fees and other expenses which will vary depending
on which funding vehicle is chosen but which are assumed for
purposes of these illustrations to be equivalent to an
annual effective rate of 0.81% of the daily net asset value
of the Variable Account. This rate reflects an arithmetic
average of total Fund portfolio annual expenses for the year
ending December 31, 1997.
Considering current charges for mortality and expense risks
and the assumed Fund expenses, gross annual rates of return
of 0%, 6%, and 12% correspond to net investment experience
at constant annual rates of -1.61%, 4.39% and 10.39%.
Considering guaranteed charges for mortality and expense
risks and the assumed Fund expenses, gross annual rates of
0%, 6% and 12% correspond to net investment experience at
constant annual rates of -1.71%, 4.29% and 10.29%.
The illustrations also reflect the fact that LLANY makes
monthly charges for providing insurance protection. Current
values reflect current Cost of Insurance charges and
guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for
Policies which are issued as standard. Policies issued on a
substandard basis would result in lower Accumulation Values
and Death Benefits than those illustrated.
The illustrations also reflect the fact that LLANY deducts a
premium load from each Premium Payment. Current and
guaranteed values reflect a deduction of 5.0% of each
Premium Payment.
The Surrender Values shown in the illustrations reflect the
fact that LLANY will deduct a Surrender Charge from the
Policy's Accumulation Value for any Policy surrendered in
full during the first ten years.
In addition, the illustrations reflect the fact that LLANY
deducts a monthly administrative charge at the beginning of
each Policy Month. This monthly administrative expense
charge is $15 per month in the first year. Current values
reflect a current monthly administrative expense charge of
$5 in renewal years, and guaranteed values reflect the $10
maximum monthly administrative charge under the Policy in
renewal years.
Upon request, LLANY will furnish a comparable illustration
based on the proposed insured's age, gender classification,
smoking classification, risk classification and premium
payment requested.
69
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $6,576 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,905 500,000 500,000 500,000 3,738 4,033 4,328 0 0 0
2 14,155 500,000 500,000 500,000 7,310 8,132 8,992 1,305 2,127 2,987
3 21,767 500,000 500,000 500,000 10,644 12,228 13,953 4,639 6,223 7,948
4 29,761 500,000 500,000 500,000 13,739 16,313 19,235 7,734 10,308 13,230
5 38,153 500,000 500,000 500,000 16,574 20,366 24,855 10,569 14,361 18,850
6 46,966 500,000 500,000 500,000 19,140 24,375 30,839 14,336 19,571 26,035
7 56,219 500,000 500,000 500,000 21,402 28,299 37,189 17,799 24,696 33,586
8 65,935 500,000 500,000 500,000 23,331 32,104 43,921 20,929 29,702 41,519
9 76,136 500,000 500,000 500,000 24,891 35,748 51,042 23,690 34,547 49,841
10 86,848 500,000 500,000 500,000 26,040 39,179 58,561 26,040 39,179 58,561
15 148,996 500,000 500,000 500,000 24,723 51,856 103,375 24,723 51,856 103,375
20 228,314 500,000 500,000 500,000 7,187 51,193 164,581 7,187 51,193 164,581
25 329,546 0 500,000 500,000 0 20,460 252,182 0 20,460 252,182
30 458,747 0 0 500,000 0 0 396,203 0 0 396,203
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.81% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
70
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $6,576 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,905 500,000 500,000 500,000 4,552 4,872 5,194 0 0 319
2 14,155 500,000 500,000 500,000 9,066 9,994 10,963 3,071 3,999 4,968
3 21,767 500,000 500,000 500,000 13,401 15,233 17,220 7,406 9,238 11,225
4 29,761 500,000 500,000 500,000 17,586 20,619 24,045 11,591 14,624 18,050
5 38,153 500,000 500,000 500,000 21,649 26,188 31,526 15,654 20,193 25,531
6 46,966 500,000 500,000 500,000 25,614 31,973 39,760 20,818 27,177 34,964
7 56,219 500,000 500,000 500,000 29,461 37,962 48,805 25,864 34,365 45,208
8 65,935 500,000 500,000 500,000 33,077 44,050 58,636 30,679 41,652 56,238
9 76,136 500,000 500,000 500,000 36,629 50,408 69,504 35,430 49,209 68,305
10 86,848 500,000 500,000 500,000 40,048 56,982 81,457 40,048 56,982 81,457
15 148,996 500,000 500,000 500,000 53,039 91,522 160,787 53,039 91,522 160,787
20 228,314 500,000 500,000 500,000 58,092 128,750 290,338 58,092 128,750 290,338
25 329,546 500,000 500,000 593,529 55,505 170,828 511,663 55,505 170,828 511,663
30 458,747 500,000 500,000 940,891 37,943 215,658 879,338 37,943 215,658 879,338
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.81% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
71
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $10,465 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- ------------ -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,988 500,000 500,000 500,000 4,498 4,921 5,346 0 0 0
2 22,526 500,000 500,000 500,000 8,545 9,671 10,854 575 1,701 2,884
3 34,640 500,000 500,000 500,000 12,073 14,169 16,469 4,103 6,199 8,499
4 47,361 500,000 500,000 500,000 15,058 18,377 22,180 7,088 10,407 14,210
5 60,717 500,000 500,000 500,000 17,470 22,249 27,972 9,500 14,279 20,002
6 74,741 500,000 500,000 500,000 19,255 25,710 33,806 12,879 19,334 27,430
7 89,466 500,000 500,000 500,000 20,347 28,674 39,628 15,565 23,892 34,846
8 104,928 500,000 500,000 500,000 20,658 31,029 45,365 17,470 27,841 42,177
9 121,163 500,000 500,000 500,000 20,083 32,638 50,922 18,489 31,044 49,328
10 138,209 500,000 500,000 500,000 18,517 33,360 56,198 18,517 33,360 56,198
15 237,111 0 500,000 500,000 0 18,049 74,561 0 18,049 74,561
20 363,337 0 0 500,000 0 0 58,040 0 0 58,040
25 524,437 0 0 0 0 0 0 0 0 0
30 730,047 0 0 0 0 0 0 0 0 0
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.81% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
72
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $10,465 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- ------------ -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,988 500,000 500,000 500,000 7,074 7,579 8,086 1,089 1,594 2,101
2 22,526 500,000 500,000 500,000 13,859 15,312 16,828 5,899 7,352 8,868
3 34,640 500,000 500,000 500,000 20,267 23,112 26,204 12,307 15,152 18,244
4 47,361 500,000 500,000 500,000 26,395 31,081 36,383 18,435 23,121 28,423
5 60,717 500,000 500,000 500,000 32,199 39,182 47,414 24,239 31,222 39,454
6 74,741 500,000 500,000 500,000 37,818 47,561 59,535 31,450 41,193 53,167
7 89,466 500,000 500,000 500,000 43,277 56,261 72,897 38,501 51,485 68,121
8 104,928 500,000 500,000 500,000 48,560 65,281 87,626 45,376 62,097 84,442
9 121,163 500,000 500,000 500,000 53,507 74,482 103,729 51,915 72,890 102,137
10 138,209 500,000 500,000 500,000 58,045 83,805 121,306 58,045 83,805 121,306
15 237,111 500,000 500,000 500,000 74,257 132,949 240,186 74,257 132,949 240,186
20 363,337 500,000 500,000 500,000 74,612 184,600 443,222 74,612 184,600 443,222
25 524,437 500,000 500,000 833,353 42,983 231,880 793,669 42,983 231,880 793,669
30 730,047 0 500,000 1,431,189 0 275,754 1,363,037 0 275,754 1,363,037
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.81% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
73
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,242 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,504 500,000 500,000 500,000 2,973 3,207 3,443 0 0 0
2 11,283 500,000 500,000 500,000 5,849 6,504 7,189 484 1,139 1,824
3 17,352 500,000 500,000 500,000 8,565 9,828 11,205 3,200 4,463 5,840
4 23,723 500,000 500,000 500,000 11,111 13,169 15,505 5,746 7,804 10,140
5 30,414 500,000 500,000 500,000 13,480 16,519 20,113 8,115 11,154 14,748
6 37,438 500,000 500,000 500,000 15,663 19,867 25,049 11,371 15,575 20,757
7 44,814 500,000 500,000 500,000 17,652 23,203 30,342 14,433 19,984 27,123
8 52,559 500,000 500,000 500,000 19,433 26,511 36,015 17,287 24,365 33,869
9 60,691 500,000 500,000 500,000 20,981 29,764 42,085 19,908 28,691 41,012
10 69,230 500,000 500,000 500,000 22,295 32,956 48,596 22,295 32,956 48,596
15 118,771 500,000 500,000 500,000 25,406 47,936 89,838 25,406 47,936 89,838
20 181,998 500,000 500,000 500,000 21,092 59,353 152,018 21,092 59,353 152,018
25 262,695 500,000 500,000 500,000 1,896 58,623 246,411 1,896 58,623 246,411
30 365,686 0 500,000 500,000 0 31,847 402,095 0 31,847 402,095
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.81% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
74
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,242 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,504 500,000 500,000 500,000 3,644 3,900 4,157 0 0 0
2 11,283 500,000 500,000 500,000 7,309 8,052 8,828 1,954 2,697 3,473
3 17,352 500,000 500,000 500,000 10,875 12,345 13,941 5,520 6,990 8,586
4 23,723 500,000 500,000 500,000 14,344 16,787 19,543 8,989 11,432 14,188
5 30,414 500,000 500,000 500,000 17,719 21,384 25,689 12,364 16,029 20,334
6 37,438 500,000 500,000 500,000 20,954 26,098 32,387 16,670 21,814 28,103
7 44,814 500,000 500,000 500,000 24,052 30,934 39,700 20,839 27,721 36,487
8 52,559 500,000 500,000 500,000 27,017 35,902 47,694 24,875 33,760 45,552
9 60,691 500,000 500,000 500,000 29,897 41,056 56,494 28,826 39,985 55,423
10 69,230 500,000 500,000 500,000 32,694 46,405 66,187 32,694 46,405 66,187
15 118,771 500,000 500,000 500,000 44,453 75,606 131,416 44,453 75,606 131,416
20 181,998 500,000 500,000 500,000 51,112 108,332 237,644 51,112 108,332 237,644
25 262,695 500,000 500,000 500,000 53,505 146,744 416,737 53,505 146,744 416,737
30 365,686 500,000 500,000 768,801 49,197 191,337 718,505 49,197 191,337 718,505
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.81% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
75
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $8,225 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,636 500,000 500,000 500,000 4,043 4,391 4,741 0 0 0
2 17,704 500,000 500,000 500,000 7,871 8,822 9,819 1,071 2,022 3,019
3 27,226 500,000 500,000 500,000 11,442 13,248 15,222 4,642 6,448 8,422
4 37,223 500,000 500,000 500,000 14,769 17,683 21,002 7,969 10,883 14,202
5 47,721 500,000 500,000 500,000 17,845 22,117 27,192 11,045 15,317 20,392
6 58,743 500,000 500,000 500,000 20,644 26,524 33,813 15,204 21,084 28,373
7 70,316 500,000 500,000 500,000 23,111 30,847 40,859 19,031 26,767 36,779
8 82,468 500,000 500,000 500,000 25,173 35,004 48,307 22,453 32,284 45,587
9 95,228 500,000 500,000 500,000 26,726 38,887 56,107 25,366 37,527 54,747
10 108,626 500,000 500,000 500,000 27,698 42,409 64,238 27,698 42,409 64,238
15 186,358 500,000 500,000 500,000 22,739 52,879 111,049 22,739 52,879 111,049
20 285,566 0 500,000 500,000 0 41,350 170,743 0 41,350 170,743
25 412,183 0 0 500,000 0 0 240,313 0 0 240,313
30 573,782 0 0 500,000 0 0 329,642 0 0 329,642
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.81% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
76
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $8,225 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,636 500,000 500,000 500,000 5,722 6,124 6,527 377 779 1,182
2 17,704 500,000 500,000 500,000 11,289 12,452 13,665 4,499 5,662 6,875
3 27,226 500,000 500,000 500,000 16,609 18,896 21,380 9,819 12,106 14,590
4 37,223 500,000 500,000 500,000 21,744 25,525 29,798 14,954 18,735 23,008
5 47,721 500,000 500,000 500,000 26,667 32,318 38,968 19,877 25,528 32,178
6 58,743 500,000 500,000 500,000 31,466 39,371 49,063 26,034 33,939 43,631
7 70,316 500,000 500,000 500,000 36,149 46,706 60,192 32,075 42,632 56,118
8 82,468 500,000 500,000 500,000 40,715 54,333 72,465 37,999 51,617 69,749
9 95,228 500,000 500,000 500,000 45,047 62,152 85,898 43,689 60,794 84,540
10 108,626 500,000 500,000 500,000 49,114 70,140 100,590 49,114 70,140 100,590
15 186,358 500,000 500,000 500,000 65,660 113,594 200,125 65,660 113,594 200,125
20 285,566 500,000 500,000 500,000 74,428 163,528 367,408 74,428 163,528 367,408
25 412,183 500,000 500,000 687,703 65,446 215,276 654,266 65,446 215,276 654,266
30 573,782 500,000 500,000 1,183,686 21,617 264,446 1,125,692 21,617 264,446 1,125,692
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.81% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
77
<PAGE>
APPENDIX 3
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the
Treasury published a "Report to the Congress on the Taxation
of Life Insurance Company Products" in March 1990. Page 4 of
this report is Table 1.1, a "Comparison of Tax Treatment of
Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax
characteristics of these products and plans, it is reprinted
here, with footnotes to reflect exceptions to the general
rules.
------------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
--------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income included in First No* Yes Yes Yes
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by Age 70 1/2 No No Yes Yes
Maximum Annual Distribution Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- ------------------------
Department of the Treasury March 1990
Office of Tax Analysis
*If the Policy is not a modified endowment contract.
**If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not deductible.
***There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You
should consult with your own tax advisor for more complete
information.
78
<PAGE>
PART II
FEES AND CHARGES REPRESENTATION
Lincoln Life & Annuity Company of New York represents that the fees and
charges deducted under the Contracts, 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.
UNDERTAKING
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
INDEMNIFICATION
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of Lincoln Life & Annuity
Company of New York (LLANY) provides that LLANY will indemnify
certain persons against expenses, judgments and certain other
specified costs incurred by any such person if he/she is made a party
or is threatened to be made a party to a suit or proceeding because
he/she was a director, officer, or employee of LLANY, as long as
he/she acted in good faith and in a manner he/she reasonably believed
to be in the best interests of, or not opposed to the best interests
of, LLANY. Certain additional conditions apply to indemnification in
criminal proceedings.
In particular, separate conditions govern indemnification of
directors, officers, and employees of LLANY in connection with suits
by, or in the right of, LLANY.
Please refer to Article VII of the By-Laws of LLANY (Exhibit No. 6(b)
hereto) for the full text of the indemnification provisions.
Indemnification is permitted by, and is subject to the requirements
of, New York law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities
Act of 1933.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 28(a) above or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of
any such action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
A cross-reference sheet (reconciliation and tie);
The prospectus, consisting of 78 pages;
The undertaking to file reports;
The signatures
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of Lincoln Life & Annuity
Company of New York and related documents authorizing establishment
of the Account.
(2) Not applicable.
(3) (a) Underwriting Agreement between Lincoln Financial Advisors
Corporation and Lincoln Life & Annuity Company of New York*
(b) Form of Selling Group Agreement.*
(c) Commission Schedule for Variable Life Policies.*
(4) Not applicable.
(5) (a) Proposed Form of Policy and Application.
(b) Riders.
(6) (a) Articles of Incorporation of Lincoln Life & Annuity Company of
New York are incorporated herein by reference to Registration on
Form N-4 (File No. 333-38007) filed on October 16, 1997.
(b) Bylaws of Lincoln Life & Annuity Company of New York are
incorporated herein by reference to Registration on Form N-4
(File No. 333-38007) filed on October 16, 1997.
<PAGE>
(7) Not applicable.
(8) Fund Participation Agreements.
Agreements between Lincoln Life & Annuity Company of New York and:
(a) AIM Variable Insurance Funds, Inc.*
(b) BT Insurance Funds Trust.*
(c) Delaware Group Premium Fund, Inc.*
(d) Fidelity Variable Insurance Products Fund.*
(e) Fidelity Variable Insurance Products Fund II.*
(f) Lincoln National Money Market Fund, Inc.*
(g) MFS-Registered Trademark- Variable Insurance Trust.*
(h) Templeton Variable Products Series Fund.*
(i) OCC Accumulation Trust.*
(9) Not applicable.
(10) See Exhibit 1(5).
2. See Exhibit 1(5).
3. Opinion and Consent of Robert O. Sheppard, Esq.
4. Not applicable.
5. Not applicable.
6. Opinion and consent of Michael J. Roscoe, FSA
7. Consent of Ernst & Young LLP, Independent Auditors.
8. Not applicable.
* To be filed by amendment
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the registrant has duly caused
this Pre-Effective Amendment No. 1 to its Registration Statement on Form S-6 to
be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Syracuse and State of New York, on the 1st day of July, 1998.
LINCOLN LIFE & ANNUITY FLEXIBLE
PREMIUM VARIABLE LIFE ACCOUNT M
(Name of Registrant)
By: /s/ PHILIP L. HOLSTEIN
-----------------------------------
Philip L. Holstein
PRESIDENT AND DIRECTOR
LINCOLN LIFE & ANNUITY COMPANY OF
NEW YORK
LINCOLN LIFE & ANNUITY COMPANY OF NEW
YORK
(Name of Depositor)
By: /s/ PHILIP L. HOLSTEIN
-----------------------------------
Philip L. Holstein
PRESIDENT AND DIRECTOR
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to its Registration Statement has been signed
below on July 1, 1998 by the following persons, as officers and directors of the
Depositor, in the capacities indicated:
SIGNATURE TITLE
- -------------------------------------------------- -------------------------
/s/ PHILIP L. HOLSTEIN President, Treasurer and
------------------------------------------- Director (Principal
Philip L. Holstein Executive Officer)
/s/ JON A. BOSCIA
------------------------------------------- Director
Jon A. Boscia
/s/ RICHARD C. VAUGHAN
------------------------------------------- Director
Richard C. Vaughan
Second Vice President and
/s/ TROY D. PANNING Chief Financial Officer
------------------------------------------- (Principal Financial
Troy D. Panning Officer and Principal
Accounting Officer)
/S/ THOMAS D. BELL, JR.
------------------------------------------- Director
Thomas D. Bell, Jr.
/s/ ROLAND C. BAKER
------------------------------------------- Director
Roland C. Baker
/s/ HARRY L. KAVETAS
------------------------------------------- Director
Harry L. Kavetas
/s/ BARBARA STEURY KOWALCZYK
------------------------------------------- Director
Barbara Steury Kowalczyk
/s/ MARGUERITE LEANNE LACHMAN
------------------------------------------- Director
Marguerite Leanne Lachman
/s/ JOHN M. PIETRUSKI
------------------------------------------- Director
John M. Pietruski
/s/ LAWRENCE T. ROLAND
------------------------------------------- Director
Lawrence T. Roland
<PAGE>
SIGNATURE TITLE
- -------------------------------------------------- -------------------------
------------------------------------------- Director
J. Patrick Barrett
/s/ LOUIS G. MARCOCCIA
------------------------------------------- Director
Louis G. Marcoccia
/s/ GABRIEL L. SHAHEEN
------------------------------------------- Director
Gabriel L. Shaheen
<PAGE>
LINCOLN
- ---------------
Financial Group
Lincoln Life & Annuity
Company of New York
ROBERT O. SHEPPARD
Corporate Counsel
Lincoln Life & Annuity
Company of New York
120 Madison St., Suite 1700
June 29, 1998 Syracuse, NY 13202-2802
phone 315 428-8420
toll free 888 ABE-1860
Securities and Exchange Commission fax 315 428-8419
450 Fifth Street, N.W. [email protected]
Washington, D.C. 20549
Re: Lincoln Life & Annuity Flexible Premium
Variable Life Account M ("Account")
Pre-Effective Amendment Number 1
(File No. 333-42507)
Dear Sirs:
As Corporate Counsel of Lincoln Life & Annuity Company of New York
("LLANY"), I am familiar with the actions of the Board of Directors of LLANY,
establishing the Account and its method of operation and authorizing the
filing of a Registration Statement under the Securities Act of 1933, (and
amendments thereto) for the securities to be issued by the Account and the
Investment Company Act of 1940 for the Account itself.
In the course of preparing the opinion, I have reviewed the Charter
and the By-Laws of the Company, the Board actions with respect to the
Account, and such other matters as I deemed necessary or appropriate. Based
on such review, I am of the Opinion that the variable life insurance policies
(and interests therein) which are the subject of the Registration Statement
under the Securities Act of 1933, as amended, for the Account will, when
issued, be legally issued and will represent binding obligations of the
Company, the depositor of the Account.
I further consent to the use of this opinion as an Exhibit to
Pre-Effective Amendment No. 1 to said Registration Statement and to the
reference to me under the heading "Experts" in said Registration Statement,
as amended.
Very truly yours,
Robert O. Sheppard
-------------------
Robert O. Sheppard
ROS/jlk
<PAGE>
LINCOLN LIFE
- ----------------------
900 Cottage Grove Road
Hartford, CT 06152
July 2, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Lincoln Life and Annuity Flexible Premium
Variable Life Account M ("Account")
Pre-Effective Amendment Number 1, File No. 333-42507
----------------------------------------------------
Commissioners:
This opinion is furnished in connection with Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-6 filed by Lincoln Life & Annuity
Company of New York under the Securities Act of 1993 recorded as File No.
333-42507. The prospectus included in said Pre-Effective Amendment describes
flexible premium variable universal life insurance policies (the "Policies").
The forms of Policies were prepared under my direction.
In my opinion, the illustrations of benefits under the Policies included in
the Section entitled "Illustrations" in the prospectus, based on assumptions
stated in the illustrations, are consistent with the provisions of the forms
of the Policies. The ages selected in the illustrations are representative of
the manner in which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to me under the heading "Experts" in the
prospectus.
Very truly yours,
/s/ Michael J. Roscoe
- ----------------------------
Michael J. Roscoe, FSA, MAAA
<PAGE>
Exhibit 7
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-6 No.
333-42507) pertaining to the Lincoln Life & Annuity Flexible Premium Variable
Life Account M, and to the use therein of our report dated March 12, 1998, with
respect to the statutory-basis financial statements of Lincoln Life & Annuity
Company of New York.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
June 29, 1998
