<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1999
1933 ACT REGISTRATION NO. 333-42507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
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: Continuous.
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE OF SECURITIES BEING REGISTERED)
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24F-2 under the Investment
Company Act of 1940. The first Form 24F-2 for Registrant is not yet due, as
Registrant has not commenced operations.
It is proposed that this filing will become effective:
/ / immediately on filing pursuant to Rule 485(b)
/X/ on May 13, 1999, pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)
<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
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<S> <C>
1 Cover Page; Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 LLANY, the Separate Account and the General Account
6(a) LLANY, the Separate Account and the General Account
6(b) *
9 Legal Proceedings
10(a)-(c) Right-to-Examine Period; Surrenders; Accumulation Value;
Reports to Owners
10(d) Right to Exchange the Policy; Policy Loans; Surrender of the
Policy; 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 The Policy
15 Premium Payments; Transfers
16 LLANY, the Separate Account and the General Account
17 Surrender of the Policy
18 LLANY, the Separate Account and the General Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 LLANY, the Separate Account and the General Account
24 Incontestability; Suicide; Misstatement of Age or Gender
25 LLANY, the Separate Account and the General Account
26 Fund Participation Agreements
27 LLANY, the Separate Account and the General Account
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
28 Directors and Officers of LLANY
29 LLANY, the Separate Account and the General Account
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 Surrender of the Policy
47 LLANY, the Separate Account and the General Account; Surrender
of the Policy, Transfers
48 *
49 *
50 LLANY, the Separate Account and the General Account
51 Cover Page; Highlights; Premium Payments; Right to Exchange
the Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
</TABLE>
* Not Applicable
<PAGE>
PROSPECTUS 1
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE
ACCOUNT M
<TABLE>
<S> <C>
HOME OFFICE LOCATION: ADMINISTRATIVE OFFICE:
120 MADISON STREET PERSONAL SERVICE CENTER - MVLI
SUITE 1700 350 CHURCH STREET
SYRACUSE, NY 13202 HARTFORD, CT 06103-1106
(888) 223-1860 (800) 552-9898 (5/99-7/99)
(800) 444-2363 (8/99 AND LATER)
</TABLE>
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A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance
contract (the "Policy"), offered by Lincoln Life & Annuity Company of New York
("LLANY", "we", "our" or "us").
The Policy features:
- flexible premium payments;
- a choice of one of two death benefit options;
- a choice of underlying investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance contract with the Policy. This
Prospectus and the Prospectuses of the Funds, furnished with this Prospectus,
should be read carefully to understand the Policy being offered.
The Policy described in this prospectus is available only in New York.
The mutual funds ("Funds") available through LLANY's Separate Account M
("Separate Account") are:
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
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 -- Initial Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio -- Initial Class
Investment Grade Bond Portfolio -- Initial Class
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
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPOVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
PROSPECTUS DATED: MAY 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Highlights..................................... 3
Initial Choices to be Made................... 3
Level or Varying Death Benefit............... 3
Amount of Premium Payment.................... 4
Selection of Funding Vehicles................ 4
Charges and Fees............................. 5
Changes in Specified Amount.................. 5
LLANY, the Separate Account and
The General Account........................... 6
Buying Variable Life Insurance................. 7
Replacements................................. 8
The Funds...................................... 8
Substitution of Securities................... 12
Voting Rights................................ 12
Fund Participation Agreements................ 13
Death Benefit.................................. 13
Death Benefit Options...................... 13
Changes in Death Benefit Option............ 13
Guaranteed Death Benefit Provision......... 14
Payment of Death Benefit................... 14
Changes in Specified Amount................ 14
Premium Payments; Transfers.................... 15
Premium Payments........................... 15
Allocation of Net Premium Payments......... 16
Transfers.................................. 17
Optional Sub-Account Allocation Programs... 17
Dollar Cost Averaging.................... 17
Automatic Rebalancing.................... 18
Charges; Fees.................................. 18
Premium Load............................... 18
Monthly Deductions......................... 18
Transaction Fee for Excess Transfers....... 19
Mortality and Expense Risk Charge and Fund
Expenses.................................. 20
Surrender Charge........................... 22
Reduction of Charges--
Purchases on a Case Basis................. 22
Policy Values.................................. 23
Accumulation Value......................... 23
Variable Accumulation Unit Value........... 23
Surrender Value............................ 24
Surrenders..................................... 24
Partial Surrenders......................... 24
Full Surrenders............................ 24
Deferral of Payment and Transfers.......... 25
Lapse and Reinstatement........................ 25
Lapse of a Policy; Effect of Guaranteed
Death Benefit Provision................... 25
<CAPTION>
PAGE
---------
<S> <C>
Reinstatement of a Lapsed Policy........... 25
Policy Loans................................... 25
Settlement Options............................. 26
Other Policy Provisions........................ 27
Issuance................................... 27
Effective Date of Coverage................. 27
Short-Term Right to Cancel the Policy...... 27
Policy Owner............................... 27
Beneficiary................................ 28
Assignment................................. 28
Right to Exchange for a Fixed Benefit
Policy.................................... 28
Incontestability........................... 29
Misstatement of Age or Sex................. 29
Suicide.................................... 29
Nonparticipating Policies.................. 29
Riders..................................... 29
Tax Matters.................................... 29
Policy Proceeds............................ 29
Taxation of LLANY ......................... 31
Other Considerations....................... 31
Other Matters.................................. 31
Directors and Officers of LLANY............ 31
Distribution of Policies................... 34
Changes of Investment Policy............... 34
Other Contracts Issued by LLANY............ 34
State Regulation........................... 34
Reports to Policy Owners................... 35
Advertising................................ 35
Preparing for Year 2000.................... 35
Legal Proceedings.......................... 37
Experts.................................... 37
Registration Statement..................... 37
Appendix 1..................................... 38
Corridor Percentages....................... 38
Appendix 2..................................... 39
Guaranteed Maximum Cost of Insurance
Rates..................................... 39
Appendix 3..................................... 40
Illustration of Surrender Charges.......... 40
Appendix 4..................................... 42
Illustration of Accumulation Values,
Surrender Values, and Death Benefit
Proceeds.................................. 42
Financial Statements...........................
Lincoln Life & Annuity Company of New
York...................................... S-1
</TABLE>
2
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features. Your
Policy is a flexible premium variable life insurance policy
under which flexible premium payments are permitted and the
Death Benefit and Policy values may vary with the investment
performance of the funding option(s) selected. Its value may
change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
Review your personal financial objectives and discuss them
with a qualified financial counselor before you buy a
variable life insurance policy. This Policy may, or may not,
be appropriate for your individual financial goals. The
value of the Policy and, under one option, the Death Benefit
amount depend on the investment results of the funding
options you select.
At all times, your Policy must qualify as life insurance
under the Internal Revenue Code of 1986 (the "Code") to
receive favorable tax treatment under Federal law. If these
requirements are met, you may benefit from such tax
treatment. LLANY reserves the right to return your premium
payments if they result in your Policy failing to meet Code
requirements.
INITIAL CHOICES TO BE MADE
The Policy Owner (the "Owner" or "you") is the person named
in the "Policy Specifications" who has all of the Policy
ownership rights. If no Owner is named, the Insured (the
person whose life is insured under the Policy) will be the
Owner of the Policy. You, as the Owner, have three important
choices to make when the Policy is first purchased. You need
to choose:
1) one of the two Death Benefit Options;
2) the amount of premium you want to pay; and
3) the amount of your Net Premium Payment to be placed in
each of the funding options you select. The Net Premium
Payment is the balance of your Premium Payment that
remains after certain charges are deducted from it.
LEVEL OR VARYING DEATH BENEFIT
The Death Benefit is the amount LLANY pays to the
Beneficiary(ies) when the Insured dies. Before we pay the
Beneficiary(ies), any outstanding loan account balances or
outstanding amounts due are subtracted from the Death
Benefit. We calculate the Death Benefit payable as of the
date on which the Insured died.
When you purchase your Policy, you must choose one of two
Death Benefit Options:
1) a level death benefit; or
2) a varying death benefit.
If you choose the level Death Benefit Option, the Death
Benefit will be the greater of:
1) the "Specified Amount", which is the amount of the death
benefit in effect for the Policy when the Insured died
(the Specified Amount may be found on the Policy's
Specification Page); or
2) the "Corridor Death Benefit", which is the Death Benefit
calculated as a percentage of the Accumulation Value.
3
<PAGE>
If you choose the varying Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount plus the "Net Accumulation Value"
when the Insured died. The Net Accumulation Value is the
total of the balances in the Fixed Account, and the
Separate Account minus any outstanding Loan Account
amounts; or
2) the Corridor Death Benefit. See page 13.
This policy contains a Guaranteed Initial Death Benefit
Premium. This means that the Death Benefit will not be lower
than the Initial Specified Amount regardless of the gains or
losses of the Funds you select as long as you pay that
Premium. Therefore, the Initial Death Benefit under your
Policy would be guaranteed for five years even though your
Net Accumulation Value is insufficient to pay your current
Monthly Deductions.
If you have borrowed against your Policy or surrendered a
portion of your Policy, your Initial Death Benefit will be
reduced by the Loan Account balance and any surrendered
amount.
AMOUNT OF PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 15.
You may use the value of the Policy to pay the premiums due
and continue the Policy in force if sufficient values are
available for premium payments. Be careful; if the
investment options you choose do not do as well as you
expect, there may not be enough value to continue the Policy
in force without more premium payments. Charges against
Policy values for the cost of insurance (see page 19)
increase as the Insured gets older.
If your Policy lapses because your Monthly Premium Deduction
is larger than the Net Accumulation Value, you may reinstate
your Policy. See page 25.
When you first receive your Policy you will have 10 days to
look it over, unless state law requires a greater time. This
is called the "Right-to-Examine" period. Use this time to
review your Policy and make sure it meets your needs. During
this period your Initial Premium Payment will be deposited
in the Fixed Account. If you then decide you do not want
your Policy, we will return all Premium Payments with no
interest paid. See page 27.
SELECTION OF FUNDING VEHICLES
This Prospectus focuses on the Separate Account investment
information that makes up the "variable" part of the
contract. If you put money into the variable funding
options, you assume all the investment risk on that money.
This means that if the mutual fund(s) you select go up in
value, the value of your Policy, net of charges and
expenses, also goes up. If those funds lose value, so does
your Policy. Each fund has its own investment objective. You
should review each fund's Prospectus before making your
decision.
You must choose the Fund(s) in which you want to place each
Net Premium Payment. The Sub-Accounts make up the Separate
Account. Each Sub-Account invests in shares of a certain
Fund. You may also choose to place your Net Premium Payment
or part of it into the Fixed Account. A Sub-Account is not
guaranteed and will increase or decrease in value according
to the particular Fund's investment performance. See page 8.
4
<PAGE>
You may also use LLANY's Fixed Account to fund your Policy.
Net Premium payments put into the Fixed Account:
- become part of LLANY's General Account;
- do not share the investment experience of the Separate
Account; and
- have a guaranteed minimum interest rate of 4% per year.
Interest beyond 4% is credited at LLANY's discretion. For
additional information on the Fixed Account, see page 7.
CHARGES AND FEES
We deduct a premium charge of 5% from each Premium Payment.
We make Monthly deductions for administrative expenses
(currently, $15 per month for the first Policy Year and $5
per month afterwards, guaranteed not to exceed $7.50 after
the first Policy Year) along with the Cost of Insurance and
any riders that are placed on your Policy. We make daily
charges against the Separate Account for mortality and
expense risk. This charge is currently at an annual rate of
.80% for Policy Years 1-12, 0.55% for Policy Year 13 and
beyond. The charge is guaranteed not to exceed .90% per year
through Policy Year 12 and .65% in Policy Years 13 and
beyond.
Each Fund has its own management fee charge, also deducted
daily. Each Fund's expense levels will affect its investment
results. The table on pages 20-21 shows you current expense
levels for each Fund.
Each Policy Year you may make 12 transfers between funding
options without charge. Beyond 12, a $25 fee may apply.
The Surrender Charge is the amount retained by us if the
Policy is surrendered. We charge you $25, but not more than
2% of the amount withdrawn, each time you request a partial
surrender of your Policy. If you totally surrender your
Policy within the first 10 years, a Surrender Charge will be
deducted in computing what will be paid you. If you
surrender your Policy within the first 10 years after an
increase in the Specified Amount, a Surrender Charge will
also be imposed in addition to any existing Surrender
Charges. See page 22.
You may borrow within described limits against your Policy.
If you borrow against your Policy, interest will be charged
to the Loan Account Value. The annual interest rate is 8%.
LLANY will credit interest on the Loan Account Value. For
the first ten Policy Years, interest will be credited at a
current annual rate equal to the interest rate charged minus
1%, guaranteed not to exceed 2%. For Policy Years eleven and
beyond, the credited annual rate will be equal to the
interest rate charged minus .25%, guaranteed not to exceed
1%. See page 25.
Charges and fees may be reduced in some circumstances where
Policies are purchased by corporations and other groups or
sponsoring organizations on a case basis. See page 22.
LLANY may derive a profit from its charges and may use these
profits to finance distribution of the Policies.
CHANGES IN SPECIFIED AMOUNT
The Initial Specified Amount is chosen by the Policy Owner
and is initially equal to the Death Benefit.
Within certain limits, you may decrease or, with
satisfactory evidence of insurability, increase the
Specified Amount. The minimum Specified Amount is currently
$100,000. Such changes will affect other aspects of your
Policy. See page 14.
5
<PAGE>
LLANY, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT
Lincoln Life & Annuity Company of New York is a life
insurance company chartered under New York law on June 6,
1996. Wholly-owned by Lincoln National Corporation ("LNC"),
a publicly held Indiana insurance holding company
incorporated in 1968, it is licensed to sell life insurance
policies and annuity contracts in New York and its principal
office is at 120 Madison Street, Suite 1700, Syracuse, NY
13202. LLANY, LNC and their affiliates comprise the "Lincoln
Financial Group" which provides a variety of wealth
accumulation and protection products and services.
Lincoln Life & Annuity Flexible Premium Variable Life
Account M ("Account M") is a "separate account" of the
company established pursuant to a resolution of the Board of
Directors of LLANY. Under New York law, the assets of
Account M attributable to the Policies, through our
property, are not chargeable with liabilities of any other
business of LLANY and are available first to satisfy our
obligations under the Policies. Account M income, gains, and
losses are credited to or charged against Account M without
regard to our other income, gains, or losses. Its values and
investment performance are not guaranteed. It is registered
with the Securities and Exchange Commission (the
"Commission") as a "unit investment trust" under the 1940
Act and meets the 1940 Act's definition of "separate
account". Such registration does not involve supervision by
the Commission of Account M's or LLANY's management,
investment practices, or policies. We have other registered
separate accounts which fund other variable life insurance
policies and variable annuity contracts.
Account M is divided into Sub-Accounts, each of which is
invested solely in the shares of one of the mutual funds
available as funding vehicles under the Policies. On each
Valuation Day (any day on which the New York Stock Exchange
is open), Net Premium Payments allocated to Account M will
be invested in Fund shares at net asset value, and monies to
pay for deductions, charges, transfers and surrenders from
Account M are raised by selling Fund shares at net asset
value.
The Funds and their investment objectives, which they may or
may not achieve, are on pages 20-21. More Fund information
is in the Funds' prospectuses, which must accompany or
precede this prospectus and should be read carefully. Some
Funds have investment objectives and policies similar to
those of other funds managed by the same investment adviser.
Their investment results may be higher or lower than those
of the other funds, and there can be no assurance, and no
representation is made, that a Fund's investment results
will be comparable to those of any other fund.
We reserve the right to add, withdraw or substitute Funds,
subject to the conditions of the Policy and to compliance
with regulatory requirements, if, in our sole discretion
legal, regulatory, marketing, tax or investment
considerations so warrant or in the event a particular Fund
is no longer available for investment by the Sub-Accounts.
No substitution will take place without prior approval of
the Commission, to the extent required by law.
Shares of the Funds may be used by us and other insurance
companies to fund both variable annuity contracts and
variable life insurance policies. While this is not
perceived as problematic, the Funds' governing bodies
(Boards of Directors/Trustees) have agreed to monitor events
to identify any material irreconcilable conflicts which
might arise and to decide what responsive action might be
appropriate. If a Sub-Account were to withdraw its
investment in a Fund because of a conflict, a Fund might
have to sell portfolio securities at unfavorable prices.
6
<PAGE>
A Policy may also be funded in whole or in part through the
"Fixed Account", part of LLANY's General Account supporting
its insurance and annuity obligations. We will credit
interest on amounts held in the Fixed Account as we
determine from time to time, but not less than 4% per year.
Interest, once credited, and Fixed Account principal are
guaranteed. Interests in the Fixed Account have not been
registered under the 1933 Act in reliance on exemptive
provisions. The Commission has not reviewed Fixed Account
disclosures, but they are subject to securities law
provisions relating to accuracy and completeness.
BUYING VARIABLE LIFE INSURANCE
The Policies this Prospectus offers are variable life
insurance policies which provide death benefit protection.
Investors not needing death benefit protection should
consider other forms of investment, as there are extra costs
and expenses of providing the insurance feature. Further,
life insurance purchasers who are risk-aversive or want more
predictable premium levels and benefits may be more
comfortable buying more traditional, non-variable life
insurance. However, variable life insurance is a flexible
tool for financial and investment planning for persons
needing death benefit protection and willing to assume
investment risk and to monitor investment choices they have
made.
Flexibility starts with the ability to make differing levels
of premium payments. A young family just starting out may
only be able to pay modest premiums initially but hope to
increase premium payments over time. At first, this family
would be paying primarily for the insurance feature (perhaps
at ages where the insurance cost is relatively low) and
later use a Policy more as a savings vehicle. A customer at
peak earning capacity may wish to pay substantial premiums
for a limited number of years prior to retirement, after
which Policy values may suffice, based on future expected
return results, though not guaranteed, to keep the Policy
inforce for the expected lifetime and to provide, through
loans, supplemental retirement income. A customer may be
able to pay a large single premium, using the Policy
primarily as a savings and investment vehicle for potential
tax advantages. A parent or grandparent may find a policy on
the life of a child or grandchild a useful gifting
opportunity over a period of years and the basis of an
investment program for the donee. A business may be able to
use a Policy to fund non-qualified executive compensation or
business continuation plans.
Sufficient premiums must always be paid to keep a policy
inforce, and there is a risk of lapse if premiums are too
low in relation to the insurance amount and if investment
results are less favorable than anticipated. The Guaranteed
Death Benefit Provision, if elected, may help to assure a
death benefit even if investment results are unfavorable.
Flexibility also results from being able to select, monitor
and change investment choices within a Policy. With the wide
variety of fund options available, it is possible to fine
tune an investment mix and change it to meet changing
personal objectives or investment conditions. Policy owners
should be prepared to monitor their investment choices on an
ongoing basis.
Variable life insurance has significant tax advantages under
current tax law. A transfer of values from one fund to
another within the Policy generates no taxable gain or loss.
And any investment income and realized capital gains within
a fund are automatically reinvested without being taxed to
the Policy owner. Policy values therefore accumulate on a
tax-deferred basis. These situations would normally result
in immediate tax liabilities in the case of direct
investment in mutual funds.
While these tax deferral features also apply to variable
annuities, liquidity (the ability of Policy owners to access
Policy values) is normally more easily achieved with
variable life insurance. Unless a policy has become a
"modified endowment contract" (see
7
<PAGE>
page 30), an owner can borrow Policy values tax-free,
without surrender charges and at very low net interest cost.
Policy loans can be a source of retirement income. Variable
annuity withdrawals are generally taxable to the extent of
accumulated income, may be subject to surrender charges, and
will result in penalty tax if made before age 59 1/2.
Depending on the death benefit option chosen, accumulated
Policy values may also be part of the eventual death benefit
payable. If a Policy is heavily funded and investment
performance is very favorable, the death benefit may
increase even further because of tax law requirements that
the death benefit be a certain multiple of Policy value,
depending on the Insured's age (see page 13). The death
benefit is income-tax free and may, with proper estate
planning, be estate-tax free. A tax advisor should be
consulted.
There are costs and expenses of variable life insurance
ownership which are directly related to Policy values (i.e.
asset based costs), as is true with investment in mutual
funds or variable annuities. A significant additional cost
of variable life insurance is the "cost of insurance" charge
which is imposed on the "amount at risk" (the death benefit
less Policy value) and increases as the insured grows older.
This charge varies by age, underwriting classification,
smoking status and in most states by gender. The effect of
its increase can be seen in illustrations in this Prospectus
(see Appendix 4) or in personalized illustrations available
upon request. Surrender Charges, which decrease over time,
are another significant additional cost if the Policy is not
retained.
REPLACEMENTS
Before purchasing the Policy to replace, or to be funded
with proceeds borrowed or withdrawn from, an existing life
insurance policy, an applicant should consider a number of
matters. Will any commission will be paid to an agent or any
other person with respect to the replacement? Are coverages
and comparable values are available from the Policy, as
compared to his or her existing policy? The Insured may no
longer be insurable, or the contestability period may have
elapsed with respect to the existing policy, while the
Policy could be contested. The Owner should consider similar
matters before deciding to replace the Policy or withdraw
funds from the Policy for the purchase of funding a new
policy of life insurance.
THE FUNDS
Each of the Sub-Accounts of the Separate Account is invested
solely in the shares of one of the 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 AIM Variable Insurance Funds, Inc.,
Delaware Group Premium Fund, Inc. and Lincoln National Money
Market Fund, Inc., which are Maryland Corporations. Each
such entity is registered as an open-end, diversified
management investment company (national fund) under the 1940
Act. These entities are collectively referred to herein as
the "Trusts".
The Trusts 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;
8
<PAGE>
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 02109;
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.,
100 Fountain Parkway, St. Petersburg, FL 33716;
OCC Accumulation Trust ("OCC Trust"), managed by OpCap
Advisors and distributed by OCC 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 -- Initial Class ("Fidelity VIP
Equity-Income Portfolio").
Two Funds of FIDELITY VIP II are available under the
Policies:
Asset Manager Portfolio -- Initial Class ("Fidelity VIP
II Asset Manager Portfolio");
Investment Grade Bond Portfolio -- Initial Class
("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:
Templeton Asset Allocation Fund -- Class 1;
Templeton International Fund -- Class 1;
Templeton Stock Fund -- Class 1.
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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
growth of capital through investment in common stocks, with
emphasis on medium and small-sized growth companies. The
investment advisor will be particularly interested in
companies that are likely to benefit from new or innovative
products, services or processes that should enhance such
companies' prospects for future growth in earnings.
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 growth of
capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings
momentum. Current income will not be a criterion of
investment selection, and any such income should be
considered incidental.
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 investment advisor to be
undervalued relative to the investment advisor's appraisal
of 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 and would be satisfied principally from
the interest (interest and dividends) generated by the
common stocks, convertible bonds and convertible preferred
stocks that make up the Fund's portfolio.
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
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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.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- INITIAL CLASS
(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 -- INITIAL
CLASS (Fixed Income - Intermediate Term Bonds): Seeks as
high a level of current income as is consistent with the
preservation of capital by investing in U.S.
dollar-denominated investment-grade bonds.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- INITIAL CLASS (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.
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).
TEMPLETON ASSET ALLOCATION FUND -- CLASS 1 (Balanced or
Total Return): Seeks a high level of total return. Invests
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. It invests
primarily in stocks of companies outside the United States,
including emerging markets. Any income realized will be
incidental.
TEMPLETON STOCK FUND -- CLASS 1 (Global Stocks): Seeks
long-term capital growth. It invests primarily in equity
securities issued by companies, large and small, in various
nations throughout the world, including the United States
and emerging markets.
OCC ACCUMULATION TRUST GLOBAL EQUITY PORTFOLIO
(International Stocks): Seeks long-term capital appreciation
through a global investment strategy primarily involving
equity securities.
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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.
Several of the 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. Please review the Funds prospectuses
carefully.
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 Separate 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 Separate
Account at special meetings of the shareholders of the
particular Trust in accordance with written instructions
received from persons having the voting interest in the
Separate 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 in the
Separate Account for which it has received instructions. The
Trusts 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
Trust not more than sixty (60) days prior to the meeting of
the particular Trust. 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 Trusts 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
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insurance products. Nevertheless, the Trusts' 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.
FUND PARTICIPATION AGREEMENTS
LLANY has entered in to agreements with the various Trusts
and their advisers or distributors under which LLANY makes
the Funds available under the Policies and performs certain
administrative services. In some cases, the advisers or
distributors may compensate LLANY at annual rates of between
.10% and .25% of assets in a particular fund attributable to
the Policies.
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available for
determining the Death Benefit. 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 Appendix I 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 our Administrative Office in form
satisfactory to LLANY, subject to the following conditions:
- The change will take effect on the Monthly Anniversary
Day (the day of the month as shown in the Policy
Specifications) 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.
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- 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 Specified
Amount during the first five Policy Years even if the Net
Accumulation 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 is the amount payable to the Beneficiary
upon the death of the Insured in accordance with the Death
Benefit Option elected. Any outstanding loan amounts or
overdue deductions are deducted prior to payment of the
proceeds.
The Death Benefit under the Policy will be paid in a lump
sum within seven days after receipt at our 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 "Corridor Percentage" of the Accumulation
Value based on the Insured's attained age. The table of
Corridor Percentages is in Appendix 1.
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to our Administrative Office in
form satisfactory to us.
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.
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- 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 Net
Accumulation Value or Guaranteed Minimum Death Benefit. Each
subsequent Premium Payment must be at least $100. We reserve
the right to decline any application or Premium Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to our 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. This is the amount for which we send
a premium reminder notice. They can be billed annually,
semiannually or quarterly. Pre-authorized automatic monthly
check payments may also be arranged.
ADDITIONAL PREMIUMS are any Premium Payments made ($100
minimum) in addition to Planned Premiums. We reserve 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
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Years, the Policy will lapse during the first five Policy
Years if the Net Accumulation Value is less than the next
Monthly Deduction, just as it would after the first five
Policy Years at any time the Net Accumulation 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, we will refund the increase in premium
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, we 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, unless the Owner specifies otherwise.
ALLOCATION OF NET PREMIUM PAYMENTS
The Net Premium Payment is the portion of a Premium Payment,
after deduction of 5.0% for the premium load, available for
allocation to the Funds you selected.
When you purchase a Policy, you must decide how to allocate
Net Premium Payments among the Sub-Accounts and the Fixed
Account. Allocation to any one 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. For each
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. We will allocate the
initial Net Premium Payment directly to the Sub-Account(s)
you selected within three days after expiration of the
Right-to-Examine Period.
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Unless directed otherwise by the Policy Owner, we will
allocate subsequent Net Premium Payments 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.
You may change the allocation for future Net Premium
Payments at any time free of charge effective for Premium
Payments made more than one week after we receive the notice
of the new allocation at our Administrative Office. Any new
allocation is subject to the same requirements as the
initial allocation. We may, at our sole discretion, waive
minimum premium allocation requirements.
TRANSFERS
Before the Insured attains age 100, Policy values may, at
any time, be transferred ($500 minimum) from one Sub-Account
to another or from the Separate Account to the Fixed
Account. Within the 30 days after each Policy Anniversary,
you 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 our 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 by us at
our Administrative 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. You 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 20-21 of this Prospectus.
LLANY, at its sole discretion, may waive minimum balance
requirements on the Sub-Accounts.
OPTIONAL SUB-ACCOUNT ALLOCATION PROGRAMS
You may elect to enroll in either of the following programs
currently free of charge (though we reserve the right to
charge for them). However, both programs cannot be in effect
at the same time. Transfers under these programs do not
count against the 12 transfers per year without charge.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected,
systematically allocates specified dollar amounts from the
Money Market Sub-Account to one or more of the Policy's
other Sub-Accounts at regular intervals as you select. By
allocating on a regularly
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scheduled basis as opposed to allocating the total amount at
one particular time, you may be less susceptible to the
impact of market fluctuations. Dollar cost averaging will
not assure a profit or protect against a declining market.
You may elect Dollar Cost Averaging by establishing a Money
Market Sub-Account value of at least $1,000. The minimum
amount per month to allocate is $100. Enrollment in this
program may occur at any time by providing the information
requested on the Dollar Cost Averaging election form to
LLANY at our Administrative Office, provided that sufficient
value is in the Money Market Sub-Account. Transfers to the
Fixed Account are not permitted under Dollar Cost Averaging.
We may, at our 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 is insufficient to complete the next transfer; (3)
you request termination by telephone or 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.
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 our 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.
You may select Automatic Rebalancing to take place on either
a quarterly, semi-annual or annual basis. 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. You may terminate Automatic Rebalancing or re-enroll
at any time by writing our Administrative Office.
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
We make a Monthly Deduction from the Net Accumulation Value
for administrative expenses of $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
and will not exceed our costs. For subsequent Policy Years,
this monthly fee may be changed, but will never exceed
$7.50.
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We also make a Monthly Deduction from the Net Accumulation
Value for the Cost of Insurance and any charges for
supplemental riders. The Cost of Insurance compensates LLANY
for the anticipated cost of paying Death Benefits in excess
of the Accumulation Value. 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.
The Cost of Insurance is determined by dividing the Death
Benefit at the beginning of the Policy Month by 1.0032737,
subtracting the Accumulation Value at the beginning of the
Policy Month, 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 are
in Appendix 2.
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 a Policy's Surrender Value is insufficient to cover the
current Monthly Deduction, a 61-day Grace Period begins, and
you will be notified. We will send a notice at least 31 days
before the end of the Grace Period that the Policy will
lapse without value unless sufficient payment (described in
the notification letter) is received.
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 Separate Account. The table reflects expenses of the Separate Account as
well as of the individual Funds underlying the Sub-Accounts. The Mortality and
Expense Risk Charge shown is the currently charged rate during the first 12
Policy Years. It currently declines to .55% per year thereafter and is
guaranteed not to exceed .90% per year during the first 12 Policy Years, and
.65% in Policy Years 13 and beyond.
FEE TABLE
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS, INC.
-------------------------------------------------------------- BT INSURANCE
AIM V.I. FUNDS TRUST
CAPITAL AIM V.I. AIM V.I. ----------------
APPRECIATION DIVERSIFIED GROWTH AIM V.I. VALUE EQUITY 500 INDEX
FUND INCOME FUND FUND FUND FUND(1)
-------------- ------------- ---------- ---------------- ----------------
<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......................... 0.62% 0.60% 0.64% 0.61% 0.20%
12(b)1 Fees -- -- -- -- --
Other Expenses.......................... 0.05% 0.17% 0.08% 0.05% 0.99%
Total Fund Operating Expenses Without
Waivers or Reductions.................. 0.67% 0.77% 0.72% 0.66% 1.19%
Total Waivers and Reductions............ -- -- -- -- (0.89%)
Total Fund Operating Expenses With
Waivers or Reductions.................. 0.67% 0.77% 0.72% 0.66% 0.30%
<CAPTION>
DELAWARE GROUP
PREMIUM FUND
---------------------------------------------- LINCOLN
SMALL NATIONAL
EMERGING CAP -------
MARKET TREND VALUE MONEY MARKET
SERIES(2) SERIES(3) SERIES(3) 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......................... 1.25% 0.75% 0.75% 0.48%
12(b)1 Fees -- -- -- --
Other Expenses.......................... 0.42% 0.10% 0.10% 0.11%
Total Fund Operating Expenses Without
Waivers or Reductions.................. 1.67% 0.85% 0.85% 0.59%
Total Waivers and Reductions............ (0.17%) (0.04%) -- --
Total Fund Operating Expenses With
Waivers or Reductions.................. 1.50% 0.81% 0.85% 0.59%
</TABLE>
- ------------------------------
(1) Under the Advisory Agreement with Bankers Trust Company (the "Advisor"), the
Fund will pay an advisory fee at an annual percentage rate of 0.20% of the
average daily net assets of the Fund. These fees are accrued daily and paid
monthly. The Advisor has voluntarily undertaken to waive its fees and to
reimburse the Fund for certain expenses so the Fund's total operating
expenses will not exceed 0.30% of average daily net assets.
(2) The investment advisor for the Emerging Markets Series is Delaware
International Advisors, Limited ("DIAL"). Effective May 1, 1999 through
October 31, 1999, DIAL has voluntarily agreed to waive its management fees
and reimburse the Series for expenses to the extent that total expenses will
not exceed 1.50% for the Emerging Markets Series. Pursuant to a vote of the
Fund's shareholders on March 17, 1999, a new management fee structure based
on average daily net assets was approved as follows: 1.25% on the first $500
million, 1.20% on the next $500 million, 1.15% on the next $1,500 million,
1.10% on assets in excess of $2,500 million; all per year.
(3) The investment advisor for the Trend Series and Small Cap Value Series is
Delaware Management Company, Inc. ("DMC"). Effective May 1, 1999 through
October 31, 1999, DMC has voluntarily agreed to waive its management fees
and reimburse each Series for expenses to the extent that total expenses
will not exceed 0.85% for the Trend Series and 0.85% for the Small Cap Value
Series. Pursuant to a vote of the Fund's shareholders on March 17, 1999, a
new management fee structure based on average daily net assets was approved
as follows: 0.75% on the first $500 million, 0.70% on the next $500 million,
0.65% on the next $1,500 million, 0.60% on assets in excess of $2,500
million; all per year.
Other Expenses of the Trusts shown in the table are based on expenses incurred
by each Trust for the year ending December 31, 1998, except as noted. Future
Fund expenses will vary. 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>
FIDELITY VARIABLE INSURANCE
PRODUCTS FUNDS MFS-REGISTERED TRADEMARK-
- -------------------------------- VARIABLE TEMPLETON VARIABLE PRODUCTS OCC ACCUMULATION
VIP II VIP VIP II INSURANCE TRUST SERIES FUND (CLASS 1) TRUST
ASSET EQUITY- INVESTMENT ------------------------------- --------------------------------- -------------------
MANAGER INCOME GRADE BOND MFS MFS TEMPLETON
PORTFOLIO PORTFOLIO PORTFOLIO EMERGING TOTAL MFS ASSET TEMPLETON TEMPLETON GLOBAL
(INITIAL (INITIAL (INITIAL GROWTH RETURN UTILITIES ALLOCATION INTERNATIONAL STOCK EQUITY MANAGED
CLASS)(4) CLASS)(4) CLASS) 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%
0.54% 0.49% 0.43% 0.75% 0.75% 0.75% 0.60% 0.69% 0.70% 0.80% 0.78%
-- -- -- -- -- -- -- -- -- -- --
0.10% 0.09% 0.14% 0.10%(5) 0.16%(5) 0.26%(5) 0.18% 0.17% 0.19% 0.33%(6) 0.04%(6)
0.64% 0.58% 0.57% 0.85%(5) 0.91%(5) 1.01%(5) 0.78% 0.86% 0.89% 1.13%(7) 0.82%(7)
-- -- -- -- -- -- -- -- -- -- --
0.64% 0.58% 0.57% 0.85%(5) 0.91%(5) 1.01%(5) 0.78% 0.86% 0.89% 1.13% 0.82%
</TABLE>
- ------------------------------
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds, or Fidelity Management &
Research on behalf of 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,
the total operating expenses presented in the table would have been 0.63%
for the VIP II Asset Manager Portfolio and 0.57% for the VIP Equity-Income
Portfolio.
(5) 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. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Expenses do not take
into account these expense reductions, and are therefore higher than the
actual expenses of the series.
(6) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(7) Total Portfolio Expenses for the Managed Portfolio are limited by OpCap
Advisors so that the respective annualized operating expenses (net of any
expense offsets) do not exceed 1.00% of average daily net assets. Total
Portfolio Expenses (net of any expense offsets) for the Global Equity
Portfolio are limited to 1.25% of average daily net assets.
21
<PAGE>
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 3 -- 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.
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
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, together with the
portion of the premium load attributable to sales expenses,
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
our General Account, which supports insurance and annuity
obligations.
REDUCTION OF CHARGES -- PURCHASES ON A CASE BASIS
This Policy is available for purchases by corporations and
other groups or sponsoring organizations on a Case basis.
LLANY reserves the right to reduce premium loads or any
other charges on certain cases, where it is expected that
the amount or nature of such cases will result in savings of
sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of
reductions will be determined by a number of factors,
including but not limited to, the number of lives to be
insured, the total premiums expected to be paid, total
assets under management for the policy owner, the nature of
the relationship among the insured individuals, the purpose
for which the Policies are being purchased, the expected
persistency of the individual policies and any other
circumstances which LLANY believes to be relevant to the
expected reduction of its expenses. Some of these reductions
may be guaranteed and others may be subject to withdrawal or
modification by LLANY on a uniform Case basis. Reductions in
these charges will not be unfairly discriminatory against
any person, including the affected Policy Owners funded by
Account M.
22
<PAGE>
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Separate Account is
credited in the form of Accumulation Units, representing the
Fund in which assets of that Sub-Account are invested. An
Accumulation Unit is a unit of measure used to calculate the
value of each Sub-Account. Each Net Premium Payment will be
credited to the Policy as of the end of the Valuation Period
in which it is received at our 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 the sum of the Fixed
Account Value, the Separate Account Value and the Loan
Account Value. It 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 Separate Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Separate
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Separate Account.
You 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 Separate 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 LLANY that LLANY determines result
from the operations of the Separate Account; and
23
<PAGE>
(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. This equals the
Net Accumulation Value minus the applicable Surrender
Charge. All or part of the Surrender Value may be applied to
one or more of the Settlement Options. (See "Surrender
Charge.")
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 our 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 fee and the amount paid upon the surrender
will be taken proportionately from the values in each
funding option, unless you and we agree otherwise.
FULL SURRENDERS
A full surrender may be made at any time during the lifetime
of the Insured and before the Coverage Date. We will pay the
Surrender Value next computed after receiving your written
request our Administrative Office in a form satisfactory to
us. Payment of any amount from the Separate Account on a
full surrender will usually be made within seven calendar
days thereafter. All coverage under the Policy will
automatically terminate if you make a full surrender.
24
<PAGE>
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of transferred or surrendered amounts from the
Separate 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 our 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 Net Accumulation Value
to cover the Monthly Deduction.
After the five-year period expires, and depending on the
investment performance of the funding options, the Net
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 Net Accumulation Value and no payment to cover the
Monthly Deduction is made within the Grace Period. We will
send you a lapse notice at least 31 days before the Grace
Period expires.
REINSTATEMENT OF A LAPSED POLICY
You 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,
we will require satisfactory evidence of insurability and an
amount sufficient to pay for the current Monthly Deduction
plus two additional Monthly Deductions, as well as the
repayment of any indebtedness.
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 our 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 us. The loan may be for any
amount up to 100% of the Surrender Value; however, we 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. 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 we are
instructed otherwise in writing at our Administrative
Office.
25
<PAGE>
The Loan Account is where policy indebtedness (outstanding
loans and loan interest) accrues once it is transferred out
of the Fixed Account and the Sub-Accounts. The Loan Account
is part of LLANY's General Account. The Loan Account Value
is equal to the sum of all outstanding loans and loan
interest.
Interest charged on loans is payable by you and will accrue
at an annual rate of 8%. Loan interest is payable once a
year in arrears on each policy anniversary, 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
interest will be withdrawn proportionately from the values
in each funding option.
We will credit interest on the Loan Account Value. During
the first ten Policy Years, our current practice is to
credit interest 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. Interest paid will
be allocated among the funding options according to current
Net Premium Payment allocations.
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.
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
Separate 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 Separate 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
Death Benefit 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. Settlement
options are available if the Owner chooses to surrender the
Policy.
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 us, and
will take effect upon its receipt at our 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.
26
<PAGE>
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 us 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 us 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.
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 we mail or personally deliver a Notice
of Withdrawal Right to you, 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 Separate
Account even if you may have so directed until three
business days following the expiration of the
Right-to-Examine Period. If you return the Policy 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
The Owner on the Date of Issue will be the person designated
in the Policy Specifications as having all ownership rights
under the Policy.
The Insured is the person on whose life the Policy is
issued. 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.
You may name a new Policy Owner while the Insured is living.
Any such change in ownership must be in a written form
satisfactory to us and recorded at our 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 we take before it was recorded. We
may require that the Policy be submitted for endorsement
before making a change.
27
<PAGE>
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.
You may name a new Beneficiary while the Insured is living.
Any change must be in a written form satisfactory to us and
recorded at our 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
us 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 you or your executor(s),
administrator(s) or assigns.
ASSIGNMENT
While the Insured is living, you may assign his or her
rights in the Policy. The assignment must be in writing,
signed by you and recorded at our Administrative Office. No
assignment will affect any payment made or action taken by
us before it was recorded. We are not responsible for any
assignment not submitted for recording, nor for the
sufficiency or validity of any assignment. The assignment
will be subject to any indebtedness owed to us before it was
recorded.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may, within the first two Policy Years, exchange the
Policy for a permanent life insurance policy then being
offered by us. 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, you will be required to make
additional Premium Payments in order to effect the exchange.
The new policy will have the Issue Date and Issue Age as of
the exchange date. 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 you, we will pay the excess in cash. The
exchange may be subject to federal income tax withholding.
28
<PAGE>
INCONTESTABILITY
We 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, we 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
The Issue Age is the age of the Insured, to the nearest
birthday, on the Issue Date, the date on which the Policy
becomes effective. This date is shown on the Policy
Specifications.
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 (Death Benefit minus
outstanding loans, if any, minus the Accumulation Value)
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, we 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, we will pay no more than a refund of the
monthly charges for the cost of such additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends
are payable. These Policies do not share in our profits or
surplus earnings.
RIDERS
A Waiver of Monthly Deduction Rider may be added to the
Policy. Under this rider, LLANY will maintain the Death
Benefit by paying covered monthly deductions during periods
of disability.
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
29
<PAGE>
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 Separate
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 must meet certain tests. LLANY
believes the Separate 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
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
30
<PAGE>
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 Separate 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 Separate 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 Separate
Account. Based upon these expectations, no charge is
currently being made against the Separate 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 Separate 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.
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.
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
DIRECTOR Penn-Pacific Life Insurance Co. Formerly:
1801 S. Meyers Road Chairman and CEO [7/88-1/95], Baker,
Oakbrook Terrace, IL 60181 Rakish, Shipley & Politzer, Inc.
J. PATRICK BARRETT Chairman and Chief Executive Officer,
DIRECTOR CARPAT Investments
4605 Watergap
Manlius, NY 13104
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------
<S> <C>
DAVID N. BECKER Vice President and Chief Actuarial
SECOND VICE PRESIDENT AND Officer, The Lincoln National Life
APPOINTED ACTUARY Insurance Company.
1300 South Clinton Street
Fort Wayne, IN 46802
THOMAS D. BELL, JR. President and Chief Executive Officer
DIRECTOR [4/95-present], Burson-Marstellar.
230 Park Avenue, South Formerly: Vice Chairman [3/94-5/95],
New York, NY 10003 Gulfstream Aerospace Corp.
JON A. BOSCIA President, Chief Executive Officer and
DIRECTOR Director, Lincoln National Corp.
1300 South Clinton Street [1/98-present], Formerly: President and
Fort Wayne, IN 46802 Chief Executive Officer [10/96-1/98], and
Chief Operating Officer [5/94-10/96], The
Lincoln National Life Insurance Co.
KATHLEEN R. GORMAN Assistant Vice President, Lincoln Life &
ASSISTANT VICE PRESIDENT Annuity 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 (formerly Vice President) [1/98-present],
350 Church Street The Lincoln National Life Insurance Co.
Hartford, CT 06103 Formerly: Senior Vice President,
Connecticut 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 &
PRESIDENT AND DIRECTOR Annuity Company of New York [7/96-Present]
Formerly: President, [1/82-7/96] The
Holstein Company, Inc.
BARBARA S. KOWALCZYK Senior Vice President, Corporation
DIRECTOR Planning [5/94-present], Lincoln National
200 East Berry Street Corp.
Fort Wayne, IN 46802
MARGEURITE L. LACHMAN Managing Director, Schroder Real Estate
DIRECTOR Associates
437 Madison Avenue, 18th
Floor
New York, NY 10022
LOUIS G. MARCOCCIA Senior Vice President, Business, Finance
DIRECTOR and Administrative Services, Syracuse
Skytop Office Building University
Skytop Road
Syracuse, NY 13244-5300
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------
<S> <C>
TROY D. PANNING Second Vice President and Chief Financial
SECOND VICE PRESIDENT AND Officer
CHIEF FINANCIAL OFFICER [11/96-present], Lincoln Life & Annuity
Company of New York; Formerly: Accountant
[9/90-11/96], Ernst & Young LLP
JOHN M. PIETRUSKI Chairman of Board, Texas Biotechnology
DIRECTOR Corp.
One Penn Plaza
Suite 3408
New York, NY 10119
LAWRENCE T. ROWLAND President [97-present] Lincoln
DIRECTOR Reinsurance, Formerly: Senior Vice
One Reinsurance Place President (96), Vice President [94-95]
1700 Magnavox Way Lincoln Reinsurance.
Fort Wayne, IN 46804
GABRIEL L. SHAHEEN President, Chief Executive Officer and
DIRECTOR Director [1/98-present], The Lincoln
1300 South Clinton Street National Life Insurance Co. Formerly:
Fort Wayne, IN 46802 Managing Director, Lincoln National (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 &
ASSISTANT VICE PRESIDENT Annuity 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
DIRECTOR Financial Officer [1/95-present] Formerly:
200 East Berry Street Senior Vice President [5/92-1/95], Lincoln
Fort Wayne, IN 46802 National Corp.
C. SUZANNE WOMACK Secretary, Lincoln Life & Annuity Company
SECRETARY of New York [7/96-present]; Second Vice
200 East Berry Street President and Secretary, Lincoln National
Fort Wayne, IN 46802 Corporation [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>
33
<PAGE>
DISTRIBUTION OF POLICIES
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 LFA is 350 Church Street,
Hartford, CT 06103.
The Policy will be sold by individuals who, in addition to
being appointed as life insurance agents for LLANY, are also
registered representatives of LFA or other broker-dealers.
Gross first year commissions paid by LLANY, including
expense reimbursement allowances, on the sale of these
Policies are not more than 98% 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. 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
Separate Account. We must inform the Policy Owners and
obtain all necessary regulatory approvals. Any change must
be submitted to the New York Insurance Department, which
shall disapprove it if deemed detrimental to the interests
of the Policy Owners or if it renders our operations
hazardous to the public. If you object, the Policy may be
converted to a substantially comparable fixed benefit life
insurance policy offered by us on the life of the Insured.
You have 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. We 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.
STATE REGULATION
We are 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 our
operation 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 our
contract liabilities and reserves so that the Insurance
Department may certify the items are correct. Our books and
accounts are subject to review by the Insurance Department
at all times and
34
<PAGE>
a full examination of our operations is conducted
periodically by the New York Insurance Department. Such
regulation does not, however, involve any supervision of
management or investment practices or policies.
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 each
Sub-Account of the Separate Account, and any Loan Account
Value.
Policy Owners will also be sent annual reports containing
financial statements for the Separate 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
Insurance Department.
ADVERTISING
We are 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 our financial strength or claims-paying
ability. The ratings are not intended to reflect the
investment experience or financial strength of the Separate
Account. We may advertise these ratings from time to time.
In addition, we 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, we may occasionally include in
advertisements comparisons of currently taxable and tax
deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles
and general economic conditions.
We are a member of the Insurance Marketplace Standards
Association ("IMSA") and may include the IMSA logo and
information about IMSA membership in our advertisements.
Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services
for individually sold life insurance and annuities.
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits in the
date field to identify the year. If left uncorrected these
programs, which were designed and developed without
considering the impact of the upcoming change in the
century, could fail to operate or could produce erroneous
results when processing dates after December 31, 1999. For
example, for a bond with a stated maturity date of July 1,
2000, a computer program could read and store the maturity
date as July 1, 1900. This problem is known by many names,
such as the "Year 2000 Problem", "Y2K", and the "Millenium
Bug".
The Year 2000 Problem affects virtually all computer
programs worldwide. It can cause a computer system to
suddenly stop operating. It can also result in a computer
corrupting vital company records, and the problem could go
undetected for a long time. For our products, if left
unchecked it could cause such problems as contributions
35
<PAGE>
collection and deposit errors; claim payment difficulties;
accounting errors; erroneous unit values; and difficulties
or delays in processing transfers, surrenders and
withdrawals. In a worst case scenario, this could result in
a material disruption to the operations of LLANY and of
Lincoln Life and Delaware Service Company Inc. (Delaware),
affiliates of LLANY and providers of the accounting and
valuation services for the Separate Account.
However, both provider companies (Lincoln Life and Delaware)
are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC
projects aggregate expenditures in excess of $92 million for
its Y2K efforts through the Year 2000, Both Lincoln Life and
Delaware have dedicated Year 2000 teams and steering
committees that are answerable to their counterparts in LNC.
LLANY also has a dedicated Year 2000 team and is
coordinating its activities with those of Lincoln Life,
Delaware and LNC.
In light of the potential problems discussed above, LLANY,
as part of its Year 2000 updating process, has assumed
responsibility for correcting all high-priority Information
Technology (IT) systems which service the Separate Account.
Delaware is responsible for updating all its high-priority
IT systems to support these vital services. The Year 2000
effort, for both IT and non-IT systems, is organized into
four phases:
- awareness-raising and inventory of all assets (including
third-party agent and vendor relationships)
- assessment and high-level planning and strategy
- remediation of affected systems and equipment; and
- testing to verify Year 2000 readiness.
All three companies are currently on schedule to have their
high-priority IT systems remediated and tested to
demonstrate readiness by June 30, 1999. During the third and
fourth quarters of 1999 additional testing of the
environment will continue. All three companies are currently
on schedule to have their high-priority non-IT systems
(elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant
delays; however, some uncertainty remains. Specific factors
that give rise to this uncertainty include (but are
certainly not limited to) a possible loss of technical
resources to perform the work; failure to identify all
susceptible systems, and non-compliance by third parties
whose systems and operations impact LLANY. In a report dated
February 26, 1999, entitled, Investigating the Impact of the
Year 2000 Technology Problem, S. Rpt. 106-10, the U.S.
Senate Special Committee on the Year 2000 Technology Problem
expressed its concern that "Financial services firms...are
particularly vulnerable to...the risk that a material
customer or business partner will fail, as a result of the
computer problems, to meet its obligations".
One important source of uncertainty is the extent to which
the key trading partners of LLANY, Lincoln Life and of
Delaware will be successful in their own remediation and
testing efforts. LLANY, Lincoln Life and Delaware have been
monitoring the progress of their trading partners; however,
the efforts of these partners are beyond our control.
LLANY, Lincoln Life and Delaware expect to have completed
their necessary remediation and testing efforts prior to
December 31, 1999. However, given the nature and complexity
of the problem there can be no guarantee by any of the three
companies that there will not be significant computer
problems after December 31, 1999.
36
<PAGE>
LEGAL PROCEEDINGS
LLANY may be involved in various pending or threatened legal
proceedings arising from the conduct of its business. Most
of these proceedings are routine and in the ordinary course
of business.
EXPERTS
The statutory-basis financial statements of LLANY appearing
in this prospectus and registration statement have been
audited by Ernst & Young, LLP, independent auditors, as set
forth in their report which appears elsewhere in this
document and in the registration statement. The financial
statements 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 Vaughn W. Robbins, 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, Esq., 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
Separate 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.
37
<PAGE>
APPENDIX 1
CORRIDOR PERCENTAGES
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ----------- ------------- -----------
<S> <C> <C> <C>
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
-- - --
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
-- - --
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
-- - --
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
-- - --
60 130 90 105
61 128 91 104
62 126 92 103
63 124 93 102
64 122 94 101
-- - --
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
-- - --
</TABLE>
38
<PAGE>
APPENDIX 2
GUARANTEED MAXIMUM COST OF INSURANCE RATES
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>
39
<PAGE>
APPENDIX 3
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>
(.285X$1195.63) + (.085X($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>
<S> <C>
Surrender Charge for Initial Specified Amount =
(.285X$2966.81) +(.085X($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.
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.
40
<PAGE>
Guideline Annual Premium Amount (Female, Age 50, $50,000
Specified Amount) = $993.68.
<TABLE>
<S> <C>
Surrender Charge for the increase in Specified Amount =
(.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.
41
<PAGE>
APPENDIX 4
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES,
AND DEATH BENEFIT PROCEEDS
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 Separate 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 Separate 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 Separate Account for the first 12 Policy
Years, and 0.65% for Policy Years 13 and beyond. 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 0.80% of the daily
net asset value of the Separate Account. This rate reflects
an arithmetic average of total Fund portfolio annual
expenses for the year ending December 31, 1998.
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 -1.70%, 4.30% and 10.30%.
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.
42
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $6,623 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 6,954 500,000 500,000 500,000 3,788 4,085 4,384 0 0 0
2 14,256 500,000 500,000 500,000 7,442 8,275 9,146 1,437 2,270 3,141
3 21,923 500,000 500,000 500,000 10,862 12,470 14,221 4,857 6,465 8,216
4 29,973 500,000 500,000 500,000 14,045 16,664 19,637 8,040 10,659 13,632
5 38,426 500,000 500,000 500,000 16,970 20,836 25,410 10,965 14,831 19,405
6 47,302 500,000 500,000 500,000 19,630 24,975 31,572 14,826 20,171 26,768
7 56,621 500,000 500,000 500,000 21,987 29,040 38,128 18,384 25,437 34,525
8 66,406 500,000 500,000 500,000 24,013 32,999 45,095 21,611 30,597 42,693
9 76,680 500,000 500,000 500,000 25,672 36,808 52,488 24,471 35,607 51,287
10 87,469 500,000 500,000 500,000 26,921 40,419 60,319 26,921 40,419 60,319
15 150,061 500,000 500,000 500,000 26,253 54,498 108,037 26,253 54,498 108,037
20 229,946 500,000 500,000 500,000 9,403 56,125 175,897 9,403 56,125 175,897
25 331,901 0 500,000 500,000 0 28,769 278,149 0 28,769 278,149
30 462,026 0 0 500,000 0 0 457,194 0 0 457,194
</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 0.80% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
43
<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 4,873 5,194 0 0 319
2 14,155 500,000 500,000 500,000 9,067 9,996 10,965 3,072 4,001 4,970
3 21,767 500,000 500,000 500,000 13,404 15,236 17,224 7,409 9,241 11,229
4 29,761 500,000 500,000 500,000 17,591 20,625 24,051 11,596 14,630 18,056
5 38,153 500,000 500,000 500,000 21,656 26,196 31,535 15,661 20,201 25,540
6 46,966 500,000 500,000 500,000 25,624 31,985 39,774 20,828 27,189 34,978
7 56,219 500,000 500,000 500,000 29,474 37,978 48,825 25,877 34,381 45,228
8 65,935 500,000 500,000 500,000 33,093 44,071 58,664 30,695 41,673 56,266
9 76,136 500,000 500,000 500,000 36,648 50,435 69,541 35,449 49,236 68,342
10 86,848 500,000 500,000 500,000 40,071 57,016 81,505 40,071 57,016 81,505
15 148,996 500,000 500,000 500,000 53,086 91,607 160,940 53,086 91,607 160,940
20 228,314 500,000 500,000 500,000 58,168 128,923 290,734 58,168 128,923 290,734
25 329,546 500,000 500,000 594,583 55,611 171,143 512,572 55,611 171,143 512,572
30 458,747 500,000 500,000 942,899 38,079 216,205 881,214 38,079 216,205 881,214
</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 0.80% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
44
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $10,519 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 11,045 500,000 500,000 500,000 4,556 4,983 5,412 0 0 0
2 22,642 500,000 500,000 500,000 8,696 9,835 11,031 726 1,865 3,061
3 34,819 500,000 500,000 500,000 12,321 14,446 16,777 4,351 6,476 8,807
4 47,605 500,000 500,000 500,000 15,407 18,779 22,641 7,437 10,809 14,671
5 61,030 500,000 500,000 500,000 17,923 22,788 28,612 9,953 14,818 20,642
6 75,127 500,000 500,000 500,000 19,814 26,399 34,654 13,438 20,023 28,278
7 89,928 500,000 500,000 500,000 21,015 29,528 40,717 16,233 24,746 35,935
8 105,469 500,000 500,000 500,000 21,437 32,061 46,734 18,249 28,873 43,546
9 121,788 500,000 500,000 500,000 20,975 33,865 52,614 19,381 32,271 51,020
10 138,922 500,000 500,000 500,000 19,523 34,798 58,266 19,523 34,798 58,266
15 238,334 0 500,000 500,000 0 21,019 80,065 0 21,019 80,065
20 365,212 0 0 500,000 0 0 71,684 0 0 71,684
25 527,143 0 0 0 0 0 0 0 0 0
30 733,814 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 0.80% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
45
<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 7,075 7,580 8,087 1,090 1,595 2,102
2 22,526 500,000 500,000 500,000 13,861 15,314 16,831 5,901 7,354 8,871
3 34,640 500,000 500,000 500,000 20,272 23,117 26,209 12,312 15,157 18,249
4 47,361 500,000 500,000 500,000 26,402 31,089 36,393 18,442 23,129 28,433
5 60,717 500,000 500,000 500,000 32,210 39,194 47,429 24,250 31,234 39,469
6 74,741 500,000 500,000 500,000 37,832 47,579 59,557 31,464 41,211 53,189
7 89,466 500,000 500,000 500,000 43,296 56,286 72,928 38,520 51,510 68,152
8 104,928 500,000 500,000 500,000 48,584 65,313 87,669 45,400 62,129 84,485
9 121,163 500,000 500,000 500,000 53,537 74,523 103,786 51,945 72,931 102,194
10 138,209 500,000 500,000 500,000 58,080 83,856 121,381 58,080 83,856 121,381
15 237,111 500,000 500,000 500,000 74,329 133,079 240,424 74,329 133,079 240,424
20 363,337 500,000 500,000 500,000 74,728 184,873 443,862 74,728 184,873 443,862
25 524,437 500,000 500,000 834,837 43,148 232,413 795,083 43,148 232,413 795,083
30 730,047 0 500,000 1,434,246 0 276,787 1,365,949 0 276,787 1,365,949
</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 0.80% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
46
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,287 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 5,551 500,000 500,000 500,000 3,020 3,257 3,495 0 0 0
2 11,380 500,000 500,000 500,000 5,974 6,639 7,335 609 1,274 1,970
3 17,501 500,000 500,000 500,000 8,771 10,057 11,458 3,406 4,692 6,093
4 23,927 500,000 500,000 500,000 11,400 13,500 15,883 6,035 8,135 10,518
5 30,675 500,000 500,000 500,000 13,854 16,961 20,634 8,489 11,596 15,269
6 37,760 500,000 500,000 500,000 16,123 20,429 25,734 11,831 16,137 21,442
7 45,199 500,000 500,000 500,000 18,200 23,895 31,215 14,981 20,676 27,996
8 53,010 500,000 500,000 500,000 20,071 27,344 37,104 17,925 25,198 34,958
9 61,212 500,000 500,000 500,000 21,709 30,748 43,420 20,636 29,675 42,347
10 69,824 500,000 500,000 500,000 23,115 34,103 50,211 23,115 34,103 50,211
15 119,790 500,000 500,000 500,000 26,818 50,330 93,996 26,818 50,330 93,996
20 183,561 500,000 500,000 500,000 23,180 63,773 161,796 23,180 63,773 161,796
25 264,950 500,000 500,000 500,000 4,579 66,021 267,875 4,579 66,021 267,875
30 368,825 0 500,000 500,000 0 43,685 448,785 0 43,685 448,785
</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 0.80% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
47
<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 3,645 3,901 4,157 0 0 0
2 11,283 500,000 500,000 500,000 7,310 8,054 8,829 1,955 2,699 3,474
3 17,352 500,000 500,000 500,000 10,877 12,348 13,943 5,522 6,993 8,588
4 23,723 500,000 500,000 500,000 14,348 16,791 19,548 8,993 11,436 14,193
5 30,414 500,000 500,000 500,000 17,724 21,391 25,697 12,369 16,036 20,342
6 37,438 500,000 500,000 500,000 20,962 26,107 32,399 16,678 21,823 28,115
7 44,814 500,000 500,000 500,000 24,062 30,947 39,716 20,849 27,734 36,503
8 52,559 500,000 500,000 500,000 27,029 35,919 47,717 24,887 33,777 45,575
9 60,691 500,000 500,000 500,000 29,912 41,077 56,524 28,841 40,006 55,453
10 69,230 500,000 500,000 500,000 32,713 46,433 66,226 32,713 46,433 66,226
15 118,771 500,000 500,000 500,000 44,491 75,674 131,539 44,491 75,674 131,539
20 181,998 500,000 500,000 500,000 51,174 108,472 237,960 51,174 108,472 237,960
25 262,695 500,000 500,000 500,000 53,593 146,997 417,469 53,593 146,997 417,469
30 365,686 500,000 500,000 770,434 49,311 191,765 720,032 49,311 191,765 720,032
</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 0.80% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
48
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $8,278 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 8,692 500,000 500,000 500,000 4,099 4,450 4,804 0 0 0
2 17,818 500,000 500,000 500,000 8,017 8,980 9,989 1,212 2,175 3,184
3 27,401 500,000 500,000 500,000 11,681 13,515 15,518 4,876 6,710 8,713
4 37,463 500,000 500,000 500,000 15,105 18,069 21,444 8,300 11,264 14,639
5 46,028 500,000 500,000 500,000 18,280 22,633 27,803 11,475 15,828 20,998
6 59,122 500,000 500,000 500,000 21,181 27,184 34,621 15,737 21,740 29,177
7 70,770 500,000 500,000 500,000 23,753 31,662 41,895 19,670 27,579 37,812
8 83,000 500,000 500,000 500,000 25,921 35,990 49,605 23,199 33,268 46,883
9 95,842 500,000 500,000 500,000 27,584 40,057 57,708 26,223 38,696 56,347
10 109,326 500,000 500,000 500,000 28,668 43,781 66,189 28,668 43,781 66,189
15 187,559 500,000 500,000 500,000 24,424 55,821 116,290 24,424 55,821 116,290
20 287,406 0 500,000 500,000 0 46,896 183,763 0 46,896 183,763
25 414,839 0 0 500,000 0 0 272,171 0 0 272,171
30 577,480 0 0 500,000 0 0 416,123 0 0 416,123
</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 0.80% per year.
See "Expense Data" at pages 20-21 of this
Prospectus.
49
<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 6,528 377 779 1,183
2 17,704 500,000 500,000 500,000 11,291 12,454 13,667 4,501 5,664 6,877
3 27,226 500,000 500,000 500,000 16,612 18,900 21,384 9,822 12,110 14,594
4 37,223 500,000 500,000 500,000 21,750 25,532 29,806 14,960 18,742 23,016
5 47,721 500,000 500,000 500,000 26,675 32,328 38,980 19,885 25,538 32,190
6 58,743 500,000 500,000 500,000 31,478 39,386 49,081 26,046 33,954 43,649
7 70,316 500,000 500,000 500,000 36,165 46,726 60,217 32,091 42,652 56,143
8 82,468 500,000 500,000 500,000 40,734 54,359 72,500 38,018 51,643 69,784
9 95,228 500,000 500,000 500,000 45,072 62,186 85,944 43,714 60,828 84,586
10 108,626 500,000 500,000 500,000 49,143 70,182 100,651 49,143 70,182 100,651
15 186,358 500,000 500,000 500,000 65,719 113,700 200,316 65,719 113,700 200,316
20 285,566 500,000 500,000 500,000 74,524 163,746 367,908 74,524 163,746 367,908
25 412,183 500,000 500,000 688,180 65,584 215,687 655,410 65,584 215,687 655,410
30 573,782 500,000 500,000 1,184,469 21,798 265,203 1,128,066 21,798 265,203 1,128,066
</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 0.80% per year. See "Expense
Data" at pages 20-21 of this Prospectus.
50
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------- ------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTED ASSETS:
Bonds $1,435,882,019 $593,431,718
- ----------------------------------------------------------------------------
Common stocks 155,039 --
- ----------------------------------------------------------------------------
Mortgage loans on real estate 184,503,805 --
- ----------------------------------------------------------------------------
Policy loans 170,372,567 39,054,927
- ----------------------------------------------------------------------------
Cash and short-term investments 143,546,873 163,773,594
- ----------------------------------------------------------------------------
Other invested assets 60,000 --
- ----------------------------------------------------------------------------
Receivable for securities 3,477,120 34,804
- ---------------------------------------------------------------------------- -------------- ------------
Total cash and invested assets 1,937,997,423 796,295,043
- ----------------------------------------------------------------------------
Premiums and fees in course of collection 6,959,116 --
- ----------------------------------------------------------------------------
Accrued investment income 25,925,055 10,706,003
- ----------------------------------------------------------------------------
Other admitted assets 438,335 335,728
- ----------------------------------------------------------------------------
Separate account assets 236,861,781 164,721,012
- ---------------------------------------------------------------------------- -------------- ------------
Total admitted assets $2,208,181,710 $972,057,786
- ---------------------------------------------------------------------------- -------------- ------------
-------------- ------------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 851,746,596 $ 1,214,524
- ----------------------------------------------------------------------------
Other policyholder funds 962,725,311 587,465,491
- ----------------------------------------------------------------------------
Other liabilities 44,824,520 6,784,652
- ----------------------------------------------------------------------------
Federal income taxes recoverable (3,206,611) (342,378)
- ----------------------------------------------------------------------------
Asset valuation reserve 5,374,594 2,350,411
- ----------------------------------------------------------------------------
Interest maintenance reserve 5,051,304 2,594,552
- ----------------------------------------------------------------------------
Net transfers due from separate accounts (6,915,063) (5,582,705)
- ----------------------------------------------------------------------------
Separate account liabilities 236,861,781 164,721,012
- ---------------------------------------------------------------------------- -------------- ------------
Total liabilities 2,096,462,432 759,205,559
- ----------------------------------------------------------------------------
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 384,128,481 227,407,481
- ----------------------------------------------------------------------------
Unassigned surplus -- deficit (274,409,203) (16,555,254)
- ---------------------------------------------------------------------------- -------------- ------------
Total capital and surplus 111,719,278 212,852,227
- ---------------------------------------------------------------------------- -------------- ------------
Total liabilities and capital and surplus $2,208,181,710 $972,057,786
- ---------------------------------------------------------------------------- -------------- ------------
-------------- ------------
</TABLE>
See accompanying notes. S-1
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996
-------------- ------------ ---------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $1,291,566,984 $184,112,330 $ 631,355,849
- -----------------------------------------------------------
Net investment income 105,083,579 43,953,796 10,769,172
- -----------------------------------------------------------
Surrender and administrative charges 2,834,073 1,334,705 310,991
- -----------------------------------------------------------
Mortality and expense charges on deposit funds 1,980,728 1,548,722 --
- -----------------------------------------------------------
Amortization of the interest maintenance reserve 579,137 370,129 205,255
- -----------------------------------------------------------
Other revenues 536,698 183,048 18,347
- ----------------------------------------------------------- -------------- ------------ ---------------
Total revenues 1,402,581,199 231,502,730 642,659,614
- -----------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 1,320,787,190 72,475,389 640,912,693
- -----------------------------------------------------------
Commissions 274,529,390 2,459,308 18,931,151
- -----------------------------------------------------------
Underwriting, insurance and other expenses 28,064,172 8,012,925 1,801,204
- -----------------------------------------------------------
Net transfers to separate accounts 33,875,951 141,027,195 --
- ----------------------------------------------------------- -------------- ------------ ---------------
Total benefits and expenses 1,657,256,703 223,974,817 661,645,048
- ----------------------------------------------------------- -------------- ------------ ---------------
Gain (loss) from operations before dividends to
policyholders, federal income taxes (benefit) and net
realized loss on investments (254,675,504) 7,527,913 (18,985,434)
- -----------------------------------------------------------
Dividends to policyholders 3,375,629 -- --
- ----------------------------------------------------------- -------------- ------------ ---------------
Gain (loss) from operations before federal income taxes
(benefit) and net realized loss on investments (258,051,133) 7,527,913 (18,985,434)
- -----------------------------------------------------------
Federal income taxes (benefit) (4,561,826) 1,942,625 (391,144)
- ----------------------------------------------------------- -------------- ------------ ---------------
Gain (loss) from operations before net realized loss on
investments (253,489,307) 5,585,288 (18,594,290)
- -----------------------------------------------------------
Net realized loss on investments (721,449) (73,398) (855)
- ----------------------------------------------------------- -------------- ------------ ---------------
Net income (loss) $ (254,210,756) $ 5,511,890 $ (18,595,145)
- ----------------------------------------------------------- -------------- ------------ ---------------
-------------- ------------ ---------------
</TABLE>
See accompanying notes.
S-2
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS -- CAPITAL AND
STOCK SURPLUS DEFICIT SURPLUS
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at June 6, 1996 $ -- $ -- $ -- $ --
Add (deduct):
Capital paid-in 2,000,000 -- -- 2,000,000
- -------------------------------------------------
Surplus paid-in -- 69,000,000 -- 69,000,000
- -------------------------------------------------
Net loss -- -- (18,595,145) (18,595,145)
- -------------------------------------------------
Increase in nonadmitted assets -- -- (1,100,310) (1,100,310)
- -------------------------------------------------
Increase in asset 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
Add (deduct):
Surplus paid-in -- 156,721,000 -- 156,721,000
- -------------------------------------------------
Net loss -- -- (254,210,756) (254,210,756)
- -------------------------------------------------
Increase in unrealized capital losses -- -- (178,648) (178,648)
- -------------------------------------------------
Decrease in nonadmitted assets -- -- 241,698 241,698
- -------------------------------------------------
Increase in asset valuation reserve -- -- (3,024,183) (3,024,183)
- -------------------------------------------------
Increase in liability for reinsurance in
unauthorized companies -- -- (682,060) (682,060)
- ------------------------------------------------- ---------- ------------- ------------- -------------
Balances at December 31, 1998 $2,000,000 $ 384,128,481 $(274,409,203) $ 111,719,278
- ------------------------------------------------- ---------- ------------- ------------- -------------
---------- ------------- ------------- -------------
</TABLE>
See accompanying notes. S-3
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996
--------------- ------------ ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds, and other considerations received $ 1,284,669,810 $184,112,330 $ 631,355,849
- ----------------------------------------------------------------------
Investment income received 96,331,551 43,781,378 1,837,439
- ----------------------------------------------------------------------
Benefits paid (83,399,329) (85,008,691) (23,169,165)
- ----------------------------------------------------------------------
Insurance expenses paid (351,272,500) (154,355,904) (20,919,059)
- ----------------------------------------------------------------------
Federal income taxes received (paid) 1,703,193 (1,893,859) --
- ----------------------------------------------------------------------
Dividends to policyholders 2,651,237 -- --
- ----------------------------------------------------------------------
Other income received and expenses paid, net 39,064,672 1,613,631 329,338
- ---------------------------------------------------------------------- --------------- ------------ ---------------
Net cash provided by (used in) operating activities 989,748,634 (11,751,115) 589,434,402
- ----------------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 249,409,117 272,961,178 366,021,652
- ----------------------------------------------------------------------
Purchase of investments (1,280,892,696) (265,700,363) (965,220,343)
- ----------------------------------------------------------------------
Net decrease (increase) in policy loans (131,317,640) 1,554,149 (40,609,076)
- ---------------------------------------------------------------------- --------------- ------------ ---------------
Net cash provided by (used in) investing activities (1,162,801,219) 8,814,964 (639,807,767)
- ----------------------------------------------------------------------
FINANCING AND MISCELLANEOUS ACTIVITIES
Capital and surplus paid-in 156,721,000 158,407,481 71,000,000
- ----------------------------------------------------------------------
Other (3,895,136) (11,032,743) (1,291,628)
- ---------------------------------------------------------------------- --------------- ------------ ---------------
Net cash provided by financing activities 152,825,864 147,374,738 69,708,372
- ---------------------------------------------------------------------- --------------- ------------ ---------------
Increase (decrease) in cash and short-term investments (20,226,721) 144,438,587 19,335,007
- ----------------------------------------------------------------------
Total cash and short-term investments at beginning of year 163,773,594 19,335,007 --
- ---------------------------------------------------------------------- --------------- ------------ ---------------
Total cash and short-term investments at end of year $ 143,546,873 $163,773,594 $ 19,335,007
- ---------------------------------------------------------------------- --------------- ------------ ---------------
--------------- ------------ ---------------
</TABLE>
See accompanying notes.
S-4
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
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 principal business consists of underwriting annuities,
deposit-type contracts and life and health insurance sold through multiple
distribution channels. The Company is licensed to do business in New York
State.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect amounts reported in
the statutory basis 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. In 1998, the NAIC adopted codified statutory
accounting principles ("Codification"). 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 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
Department must adopt Codification as the prescribed basis of accounting on
which domestic insurers must report their statutory basis results. At this
time, it is unclear whether the Department will adopt Codification.
Management has not yet determined the impact of Codification 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 cost or amortized cost or fair 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 related amortization of deferred acquisition costs,
additional policyholder commitment and deferred income taxes.
Changes between cost and admitted asset investment amounts are credited or
charged directly to unassigned surplus rather than to a separate surplus
account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of bonds and mortgage loans
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 ("IMR") in the accompanying balance sheets. Realized capital gains
and losses are reported in income net of federal income tax and transfers to
IMR. The asset valuation reserve ("AVR") is determined by an NAIC prescribed
formula and is reported as a liability rather than a reduction to unassigned
surplus. Under GAAP, realized capital gains and losses are reported in the
income statement on a pretax
S-5
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
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.
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 AND DEPOSITS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts are reported as premium 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.
BENEFITS AND SETTLEMENT EXPENSES
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 operations; 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
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs. Business
assumed under 100% indemnity and assumption reinsurance agreements is
accounted for as a purchase for GAAP reporting purposes and the ceding
commission represents the purchase price. Under purchase accounting, assets
acquired and liabilities assumed are reported at fair value at the date of
the transaction and the excess of the purchase price over the sum of the
amounts assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory basis of accounting, the ceding commission is
expensed when paid.
Premiums, benefits and settlement expenses and policy benefits and contract
liabilities are reported in the accompanying financial statements net of
reinsurance amounts. Under GAAP, such amounts are reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Department to assume such business. Changes to those
amounts are credited or charged directly to unassigned surplus. Under GAAP,
an allowance for amounts deemed uncollectible is established through a
charge to income.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
S-6
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less
from the date of acquisition. Under GAAP, the corresponding captions of cash
and cash equivalents include cash balances and investments with initial
maturities of three months or less from the date of acquisition.
A reconciliation of the Company's capital and surplus and net income (loss)
determined on a statutory accounting basis with amounts determined in
accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
--------------------------------------------------------------------------
PERIOD FROM
JUNE 6, 1996 TO
DECEMBER 31 YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1998 1997 1996
--------------------------------------------------------------------------
(IN THOUSANDS)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts as reported on a statutory basis $111,719 $212,852 $(254,211) $ 5,512 $(18,595)
- ---------------------------------------------
GAAP adjustments:
Net unrealized gain on investments 27,851 14,327 -- -- --
- ---------------------------------------------
Interest maintenance reserve 5,051 2,595 (579) ) (370 3,204
- ---------------------------------------------
Net realized gain (loss) on investments (990) -- 3,050 ) (240 --
- ---------------------------------------------
Asset valuation reserve 5,375 2,350 -- -- --
- ---------------------------------------------
Policy and contract reserves (85,875) (19,204) 271,293 (3,667) (15,537)
- ---------------------------------------------
Present value of future profits, deferred
policy acquisition costs and goodwill 336,568 37,605 6,091 524 37,081
- ---------------------------------------------
Policyholders' share of earnings and
surplus on participating business (9,904) -- (100) -- --
- ---------------------------------------------
Deferred income taxes 35,280 (5,558) (12,696) 671 (1,215)
- ---------------------------------------------
Nonadmitted assets 880 1,122 -- -- --
- ---------------------------------------------
Other, net (1,705) -- (82) -- --
- --------------------------------------------- -------- -------- --------- ------ --------
Net increase (decrease) 312,531 33,237 266,977 (3,082) 23,533
- --------------------------------------------- -------- -------- --------- ------ --------
Amounts on a GAAP basis $424,250 $246,089 $ 12,766 $ 2,430 $ 4,938
- --------------------------------------------- -------- -------- --------- ------ --------
-------- -------- --------- ------ --------
</TABLE>
S-7
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
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.
Policy loans are reported at unpaid balances.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds and mortgage loans are credited or charged directly in
unassigned surplus.
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 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.
PREMIUMS
Premiums for group tax-qualified annuity business are recognized as revenue
when deposited. 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.
BENEFIT RESERVES
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.
The tabular interest, tabular less actual reserves 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.
S-8
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, benefits and settlement expenses are accounted for on
bases consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.
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 unit investments in mutual funds. The detailed operations of
the separate accounts are not included in the accompanying financial
statements. 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.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation. These reclassifications had no effect on
unassigned surplus-deficit or net income (loss) previously reported.
2. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 78,205,686 $42,237,959 $ 9,427,203
- ----------------------------------------
Mortgage loans on real estate 14,304,385 -- --
- ----------------------------------------
Policy loans 7,981,377 1,990,613 439,305
- ----------------------------------------
Cash and short-term investments 5,893,453 315,328 1,024,525
- ---------------------------------------- ------------ ----------- ----------------
Total investment income 106,384,901 44,543,900 10,891,033
- ----------------------------------------
Investment expenses 1,301,322 590,104 121,861
- ---------------------------------------- ------------ ----------- ----------------
Net investment income $105,083,579 $43,953,796 $10,769,172
- ---------------------------------------- ------------ ----------- ----------------
------------ ----------- ----------------
</TABLE>
S-9
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (CONTINUED)
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, 1998:
Corporate $1,148,083,966 $27,649,036 $(7,489,560) $1,168,243,442
---------------------------------
U.S. government 39,617,653 564,146 (119,394) 40,062,405
---------------------------------
Foreign government 19,532,744 994,331 (720,250) 19,806,825
---------------------------------
Mortgage-backed 225,005,162 6,239,684 (421,281) 230,823,565
---------------------------------
State and municipal 3,642,494 164,552 -- 3,807,046
--------------------------------- -------------- ----------- ----------- --------------
$1,435,882,019 $35,611,749 $(8,750,485) $1,462,743,283
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
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>
The carrying amount of investments in bonds in the balance
sheet at December 31, 1998 reflects adjustments of $178,648
to decrease amortized cost as a result of the Securities
Valuation Office ("SVO") of the NAIC designating certain
investments as low or lower quality.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1998, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
------------------------------
<S> <C> <C>
Maturity:
In 1999 $ 29,182,134 $ 29,230,713
----------------------------------------------------------------
In 2000-2003 358,100,253 362,502,042
----------------------------------------------------------------
In 2004-2008 525,815,980 536,016,775
----------------------------------------------------------------
After 2008 297,778,590 304,170,188
----------------------------------------------------------------
Mortgage-backed securities 225,005,062 230,823,565
---------------------------------------------------------------- -------------- --------------
Total $1,435,882,019 $1,462,743,283
- ------------------------------------------------------------------- -------------- --------------
-------------- --------------
</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.
S-10
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (CONTINUED)
Proceeds from sales of investments in bonds were $203,748,028, $274,742,319
and $365,646,000 in 1998, 1997 and 1996, respectively. Gross gains of
$3,612,434, $1,533,793 and $4,871,624, and gross losses of $1,529,149,
$1,922,165 and $2,433 during 1998, 1997 and 1996, respectively, were
realized on those sales. Net gains (losses) of $17,705, $(26) and $376,041
were realized on sales of short-term investments in 1998, 1997 and 1996,
respectively.
At December 31, 1998 and 1997, investments in bonds with an admitted asset
value of $500,129 and $500,177, respectively, were on deposit with the
Department to satisfy regulatory requirements.
During 1998, the minimum and maximum lending rates for mortgage loans were
6.62% 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 December 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.
Realized capital gains and losses are reported net of federal income taxes
of $1,223,897, $55,541 and $1,836,682 in 1998, 1997 and 1996, respectively,
and amounts transferred to the interest maintenance reserve of $3,035,887,
$239,459 and $3,409,395 in 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
3. FEDERAL INCOME TAXES
The Company's federal income tax return is not consolidated with any other
entities. The effective federal income tax rate for financial reporting
purposes differs from the prevailing statutory tax rate principally due to
tax-exempt investment income, other pass through tax attributes from
investments, differences in ceding commissions, policy acquisition costs,
and policy and contract liabilities in the tax return versus the financial
statements.
In 1998, a federal income tax net operating loss of $76,192,977 was
incurred. The Company plans to utilize $9,161,743 of the net operating loss
to recover taxes paid in prior years. The remaining portion of the net
operating loss of $67,031,234 will be available for use to offset taxable
income in future years. The net operating loss carryforward of $67,031,234
will expire in 2018.
The Company paid $3,675,000 in 1997 for federal income taxes. No federal
income tax payments were made in 1998 or 1996.
4. REINSURANCE
The Company cedes insurance to other companies, including affiliated
companies. The portion of risks exceeding the Company's retention limit is
reinsured with Lincoln Life. The Company limits its maximum risk that it
retains on an individual to $500,000. The Company remains obligated for
amounts ceded in the event that the reinsurers do not meet their
obligations. The Company did not cede or assume any business prior to
January 1, 1998. On January 2, 1998, the Company and Lincoln Life 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 and recognized
a ceding commission expense of $149,714,239 in 1998, which is included in
the statements of operations line item "Commissions." At the time of
closing, this block of business had statutory liabilities of $779,551,235
which became the Company's obligation. The Company also received assets,
measured on a historical statutory basis, equal to the liabilities. Pursuant
to the terms of the reinsurance agreement, the Company, Lincoln Life and
CIGNA are in the final stages of agreeing to the statutory basis values of
these assets and liabilities. Any changes to these values which may occur in
future periods will not be material to the Company's financial position.
Subsequent to the CIGNA transaction, the Company and Lincoln Life announced
that they had reached an agreement to sell the administration rights to a
variable annuity portfolio that had been acquired as part of the block of
business assumed
S-11
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
4. REINSURANCE (CONTINUED)
on January 2, 1998. This sale closed on October 12, 1998 with an effective
date of September 1, 1998.
On October 1, 1998, the Company entered into an indemnity reinsurance
transaction whereby the Company and Lincoln Life reinsured 100% of a block
of individual life insurance business from Aetna, Inc. The Company paid
$143,721,000 to Aetna on October 1, 1998 under the terms of the reinsurance
agreement and recognized a ceding commission expense of $135,374,141 in
1998, which is included in the statements of operations line item
"Commissions." At the time of closing, this block of business had statutory
liabilities of $463,007,132 which became the Company's obligation. The
Company also received assets, measured on a historical statutory basis,
equal to the liabilities. Subsequent to the Aetna transaction, the Company
and Lincoln Life announced that they had reached an agreement to retrocede
the sponsored life business assumed for $87,600,000, of which $11,900,000
was received by the Company. The retrocession agreement was executed on
October 14, 1998 with an effective date of October 1, 1998.
In October 1996, the Company and Lincoln Life purchased a block of group
tax-qualified annuity business from UNUM Corporation's affiliates. The
transaction was completed in the form of an assumptive reinsurance
transaction, which resulted in the Company paying a ceding commission of
$15,675,206. Policy liabilities and related accruals of the Company
increased by $714,282,427 as a result of this transaction.
The balance sheet captions, "Future policy benefits and claims" and "Other
policyholder funds," have been reduced for insurance ceded by $54,411,763
and $2,722,404, respectively, at December 31, 1998.
The caption "Premiums and deposits" in the statements of operations includes
$1,276,884,778 of insurance assumed and $52,443,264 of insurance ceded in
1998.
The caption "Benefits and settlement expenses" in the statements of
operations is net of reinsurance recoveries of $47,526,681 for 1998.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $682,060 at December 31, 1998. Amounts payable
or recoverable for reinsurance on policy and contract liabilities are not
subject to periodic or maximum limits. At December 31, 1998, the Company's
reinsurance recoverables are not material and no individual reinsurer owed
the Company an amount that was equal to or greater than 3% of the Company's
surplus.
5. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES
At December 31, 1998, the Company had $1,092,753,902 of insurance in force
for which the gross premiums are less than the net premiums according to the
standard of valuation set by the State of New York. Reserves to cover the
above insurance totaled $6,937,379 at December 31, 1998.
At December 31, 1998, the Company's annuity reserves and deposit fund
liabilities, including separate accounts, that are subject to discretionary
withdrawal with adjustment, subject to discretionary withdrawal without
adjustment and not subject to discretionary withdrawal provisions are
summarized as follows:
S-12
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
5. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT PERCENT
-------------- ---------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value of investment $ 343,050,030 28.5%
- -----------------------------------------------------------------------------
At book value, less surrender charge 153,828,072 12.8
- -----------------------------------------------------------------------------
At market value 229,940,273 19.1
- ----------------------------------------------------------------------------- -------------- ---------
726,818,375 60.4
Subject to discretionary withdrawal without adjustment:
At book value with minimal or no charge or adjustment 461,855,066 38.4
- -----------------------------------------------------------------------------
Not subject to discretionary withdrawal 13,848,286 1.2
- ----------------------------------------------------------------------------- -------------- ---------
Total annuity reserves and deposit fund liabilities, before reinsurance 1,202,521,727 100.0%
---------
---------
Less reinsurance 2,991,673
- ----------------------------------------------------------------------------- --------------
Net annuity reserves and deposit fund liabilities, including separate
accounts $1,199,530,054
- ----------------------------------------------------------------------------- --------------
--------------
</TABLE>
A reconciliation of the total net annuity reserves and deposit fund
liabilities to the amounts reported in the Company's 1998 Annual Statement
and the Company's Separate Accounts Annual Statement is as follows:
<TABLE>
<S> <C>
DECEMBER 31,
1998
--------------
Per 1998 Annual Statement:
Exhibit 8, Section B -- Total (net) $ 9,955,624
- --------------------------------------------------------------------------------------
Exhibit 8, Section C -- Total (net) 1,241,407
- --------------------------------------------------------------------------------------
Exhibit 10, Column 1, Line 19 958,392,750
- -------------------------------------------------------------------------------------- --------------
969,589,781
- --------------------------------------------------------------------------------------
Per Separate Accounts Annual Statement:
- --------------------------------------------------------------------------------------
Exhibit 6, Column 2, Line 0299999 --
- --------------------------------------------------------------------------------------
Page 3, Line 3 229,940,273
- -------------------------------------------------------------------------------------- --------------
229,940,273
--------------
Total net annuity reserves and deposit fund liabilities $1,199,530,054
- -------------------------------------------------------------------------------------- --------------
--------------
</TABLE>
Details underlying the balance sheet caption "Other policyholder funds" are
as follows:
<TABLE>
<S> <C> <C>
DECEMBER 31
1998 1997
------------- ------------
Premium deposit funds $ 931,230,214 $587,465,491
- -------------------------------------------------------------------------
Undistributed earnings on participating business 30,772,519 --
- -------------------------------------------------------------------------
Other 722,578 --
- ------------------------------------------------------------------------- ------------- ------------
$ 962,725,311 $587,465,491
------------- ------------
------------- ------------
</TABLE>
S-13
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
6. CAPITAL AND SURPLUS
The Company was initially capitalized on August 12, 1996 with a capital
contribution from Lincoln Life in the amount of $2,000,000. Additional paid-
in surplus from Lincoln Life of $69,000,000, $158,407,481 and $156,721,000
was received in September 1996, December 1997 and October 1998,
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 related to it. At December 31,
1998, the Company exceeds the RBC requirements.
The payment of dividends by the Company requires 30 day advance notice to
the Department.
7. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory basis statements of operations or
balance sheets for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Options issued subsequent to 1991
are exercisable in equal increments on the option issuance anniversary in
three to four years following issuance.
As of December 31, 1998, 16,600 shares of LNC common stock were subject to
options granted to Company employees under the stock option incentive plans
of which 2,399 were exercisable on that date. The exercise prices of the
outstanding options range from $58.94 to $89.85. During 1998, 137 options
were exercised. There were no options exercised during 1997.
8. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under lease agreements that
expire at various intervals over the next five years and are subject to
renewal options at market rates prevailing at the time of renewal. Rental
expense for all operating leases was $281,947, $155,664 and $32,252 for
1998, 1997 and 1996, respectively. Future minimum rental commitments are as
follows:
<TABLE>
<S> <C>
1999 $ 225,596
- ------------------------------------
2000 162,908
- ------------------------------------
2001 161,564
- ------------------------------------
2002 161,564
- ------------------------------------
2003 148,100
- ------------------------------------ ---------
$ 859,732
---------
---------
</TABLE>
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1998, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or service; 3) sources of supply of labor
or services used in the business; or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a severe
impact to the Company's financial condition.
CONTINGENCY MATTERS
The Company is occasionally involved in various pending or threatened legal
proceedings arising from the conduct of business. These proceedings are
routine in the ordinary course of business. In
S-14
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
8. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
some instances, these proceedings include claims for compensatory and
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 the ultimate liability, if any, under these
proceedings will not have a material adverse affect on the financial
position of the Company.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company has
accrued for expected assessments net of estimated future premium tax
deductions.
9. 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. 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 AND COMMON STOCK
Fair values of 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. In the case of private placements, fair
values 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. The fair values of common stocks are based on
quoted market prices.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair values of mortgage loans on real estate are established
using a discounted cash flow method based on credit rating, maturity and
future income. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and payment record.
Fair values for impaired mortgage loans are based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using U.S. 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 their
fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future policy benefits and claims" and "Other
policyholder funds," include investment type insurance contracts (i.e.,
deposit contracts). The fair values for the deposit contracts are based on
their approximate surrender values.
The remainder of the balance sheet captions "Future policy benefits and
claims" and "Other policyholder funds," that do not fit the definition of
"investment-type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and
have not been determined by the Company. It is the Company's position that
the disclosure of the fair value of these insurance contracts is important
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading if only the fair value of assets and
liabilities defined as financial instruments are disclosed. The Company and
other companies in the insurance industry are monitoring the related actions
of the various rule-making bodies and attempting to determine an appropriate
methodology for estimating and disclosing the "fair value" of their
insurance contract liabilities.
S-15
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the accompanying statutory
basis balance sheets at fair value. The related liabilities are also
reported at fair value in amounts equal to the separate account assets.
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
----------------------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------------------------------
DECEMBER
31
1998 1997
----------------------------------------------
(IN THOUSANDS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $1,435,882 $1,462,743 $ 593,432 $ 607,259
- -----------------------------------------------
Unaffiliated common stock 155 155 -- --
--------------------------------------------
Mortgage loans on real estate 184,504 185,694 -- --
--------------------------------------------
Policy loans 170,373 183,408 39,055 39,055
--------------------------------------------
Cash and short-term investments 143,547 143,547 163,774 163,774
--------------------------------------------
Other invested assets 60 60 -- --
--------------------------------------------
Investment-type insurance contracts (962,725) (938,191) (587,465) (587,465)
--------------------------------------------
Separate account assets 236,862 236,862 164,721 164,721
--------------------------------------------
Separate account liabilities (236,862) (236,862) (164,721) (164,721)
--------------------------------------------
</TABLE>
10. 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 $18,504,450, $3,454,014 and $931,000 in 1998, 1997 and 1996,
respectively. The Company has also entered into an agreement with Lincoln
Life to provide certain processing services. Fees received from Lincoln Life
for such services were $273,952, $578,003 and $229,000 in 1998, 1997 and
1996, respectively.
The Company has an investment management agreement with an affiliate,
Lincoln Investment Management, Inc., for investment advisory and asset
management services. Fees paid for such investment services were $1,501,592,
$558,011 and $122,000 in 1998, 1997 and 1996, respectively.
The Company cedes business to two affiliated companies, Lincoln Life and
Lincoln National Reassurance Company. The caption "Premiums and deposits" in
the accompanying statements of operations has been reduced by the $2,095,019
of premiums paid on these contracts in 1998. The caption "Future policy
benefits and claims" has been reduced by $2,583,702 related to reserve
credits taken on these contracts as of December 31, 1998.
11. SEPARATE ACCOUNTS
Separate account premiums, deposits and other considerations amounted to
$73,993,993 and $167,895,749 in 1998 and 1997, respectively. Reserves for
separate accounts with assets at fair value were $229,940,273 and
$159,132,918 at December 31, 1998 and 1997, respectively. All reserves are
subject to discretionary withdrawal at market value. All of the Company's
separate accounts are nonguaranteed. The investment risks associated with
market value changes are borne entirely by the policyholder.
S-16
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
11. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of various Separate Accounts:
Transfers to separate accounts $ 73,993,993 $167,895,749
- ------------------------------------------------------------------------------------------ ------------ ------------
Transfers from separate accounts (40,118,042) (26,868,553)
- ------------------------------------------------------------------------------------------ ------------ ------------
Net transfer to separate accounts as reported in the Company's NAIC Annual Statement --
Summary of Operations $ 33,875,951 $141,027,195
- ------------------------------------------------------------------------------------------ ------------ ------------
------------ ------------
</TABLE>
12. CENTURY COMPLIANCE (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 Company has been
redirecting a large portion of internal Information Technology efforts and
contracting with affiliate service providers, who have contracted with
outside consultants, to update systems to address Year 2000 issues. Experts
have been engaged to assist in developing work plans and cost estimates and
to complete remediation activities.
For the year ended December 31, 1998, the Company identified expenditures of
$235,809 to address this issue which represent all expenditures to date. The
Company's financial plans for 1999 and 2000 include expected expenditures of
an additional $410,000. Actual Year 2000 expenditures through December 31,
1998 and future Year 2000 expenditures are expected to be funded from
operating cash flows. The anticipated cost of addressing Year 2000 issues is
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. Such
costs will be closely monitored by management. Nevertheless, there can be no
guarantee that actual costs will not be higher than these estimated costs.
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. The total expenditures identified represent only the
Company's portion of Lincoln Life's and LNC's larger expenditures to address
the Year 2000 issue.
The current scope of the Company's and its affiliates overall Year 2000
program includes the following four major project areas: 1) addressing the
readiness of business applications, operating systems and hardware on
mainframe, personal computer and Local Area Network platforms (IT); 2)
addressing the readiness of non-IT embedded software and equipment (non-IT);
3) addressing the readiness of key business partners; and 4) establishing
Year 2000 contingency plans.
The projects to address IT and non-IT readiness have four major phases.
Phase one involves raising awareness and creating an inventory of all IT and
non-IT assets. The second phase consists of assessing all items inventoried
to initially determine whether they are affected by the Year 2000 issue and
preparing general plans and strategies. The third phase entails the detailed
planning and remediation of affected systems and equipment. The last phase
consists of testing to verify Year 2000 readiness.
The Company and its affiliates have completed those four phases for over
two-thirds of its high priority IT systems respectively, including those
provided by software vendors. While the Company's year 2000 program for
nearly all high priority IT systems is expected to be completed in the first
quarter 1999, phase four, for a small but important subset of these systems,
will continue through the end of the second quarter 1999. As of
S-17
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
12. CENTURY COMPLIANCE (UNAUDITED) (CONTINUED)
December 31, 1998, the status of projects addressing readiness of IT assets
is: 100% of IT assets have been inventoried (Phase 1) and assessed (Phase
2); 94% of IT projects have been through the remediation phase (Phase 3)
with the last project scheduled for completion by the end of March 1999; and
69% of IT projects have completed the testing phase (Phase 4) with the last
project scheduled to finish testing by the end of June 1999. A portion of
the effort that extends into 1999 is dependent on outside third parties and
is behind the original schedule. The Company is working with these parties
to modify the completion schedule.
As of December 31, 1998, the status of projects that address readiness of
high priority non-IT assets is: 100% of non-IT assets have been inventoried
(Phase 1) and assessed (Phase 2); 79% of non-IT projects addressing
remediation (Phase 3) have been completed and 21% of non-IT projects have
completed the testing phase (Phase 4). The Company expects to have all
phases related to high priority non-IT completed by the end of October 1999.
Concurrent with the IT and non-IT projects, the readiness of key business
partners is being reviewed and Year 2000 contingency plans are being
developed. The most significant categories of key business partners are
financial institutions, software vendors and utility providers (gas,
electric and telecommunications). Surveys have been mailed to these key
business partners. Based on responses received, current levels of readiness
are being assessed, follow-up contacts are underway, alternative strategies
are being developed and testing is being scheduled where feasible. This
effort is expected to continue well into 1999. As noted above, software
vendor assessments are considered part of the IT projects and, therefore,
would follow the schedule shown above for such projects.
While the Company is working to meet the schedules outlined above, some
uncertainty remains. Specific factors that give rise to this uncertainty
include a possible loss of technical resources to perform the work, failure
to identify all susceptible systems, non-compliance by third parties whose
systems and operations impact the Company and other similar uncertainties.
A worst case scenario might include the Company's inability to achieve Year
2000 readiness with respect to one or more of the Company's significant
policyholder systems resulting in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in
its ability to collect and process premiums or deposits, process claim
payments, accurately maintain policyholder information, accurately maintain
accounting records and/or perform adequate customer service. Should the
worst case scenario occur, it could, depending on its duration, have a
material impact on the Company's results of operations and financial
position. Simple failures can be repaired and returned to production within
a matter of hours with no material impact. Unanticipated failures with a
longer service disruption period would have a more serious impact. For this
reason, the Company is placing significant emphasis on risk management and
Year 2000 contingency planning. The Company is in the process of modifying
its contingency plans to address potential Year 2000 issues. Where these
efforts identify high risks due either to unacceptable work around
procedures or significant readiness risks, appropriate risk management
techniques are being developed. These techniques, such as resource shifting
or use of alternate providers, will be employed to provide stronger
assurances of readiness. The Company has gone through exercises to identify
worst case scenario failures. At this time, the Company believes its plans
are sufficient to mitigate identified worst case scenarios.
S-18
<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 (a wholly owned
subsidiary of The Lincoln National Life Insurance Company) as of
December 31, 1998 and 1997, and the related statutory-basis
statements of operations, changes in capital and surplus, and
cash flows for the years then ended and 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, 1998
and 1997, or the results of its operations or its cash flows for
the years then ended and 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, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended and 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.
/s/ Ernst & Young LLP
March 18, 1999
S-19
<PAGE>
PROSPECTUS 2
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
<TABLE>
<S> <C>
HOME OFFICE LOCATION: ADMINISTRATIVE OFFICE:
120 MADISON STREET PERSONAL SERVICE CENTER MVLI
SUITE 1700 350 CHURCH STREET
SYRACUSE, NY 13202 HARTFORD, CT 06103-1106
(888) 223-1860 (800) 552-9898 (5/99-7/99)
(800) 444-2363 (8/99 AND LATER)
</TABLE>
- --------------------------------------------------------------------------------
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance contract
(the "Policy"), offered by Lincoln Life & Annuity Company of New York ("LLANY,"
"we," "our" or "us").
The Policy features:
- flexible premium payments;
- a choice of one of two death benefit options;
- a choice of underlying investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance contract with the Policy. This
Prospectus and the Prospectuses of the Funds, furnished with this Prospectus,
should be read carefully to understand the Policy being offered.
The Policy described in this prospectus is available only in New York.
The mutual funds ("Funds") available through LLANY's Separate Account M
("Separate Account") are:
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
BARON CAPITAL FUNDS TRUST
Baron Capital Asset Fund -- Insurance Shares
BT INSURANCE FUNDS TRUST
EAFE-Registered Trademark- Equity Index Fund
Equity 500 Index Fund
Small Cap Index Fund
DELAWARE GROUP PREMIUM FUND, INC.
Delchester Series
Devon Series
Emerging Markets Series
REIT Series
Small Cap Value Series
Trend Series
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Contrafund Portfolio -- Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Growth Opportunities Portfolio -- Service Class
JANUS ASPEN SERIES
Janus Aspen Series Balanced Portfolio
Janus Aspen Series Worldwide Growth Portfolio
LINCOLN NATIONAL FUNDS (LN)
LN Bond Fund, Inc.
LN Capital Appreciation Fund, Inc.
LN Equity-Income Fund, Inc.
LN Global Asset Allocation Fund, Inc.
LN Money Market Fund, Inc.
LN Social Awareness Fund, Inc.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton International Fund -- Class 2
Templeton Stock Fund -- Class 2
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
Prospectus dated: May 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
- ----------------------------------------------- ---------
<S> <C>
HIGHLIGHTS..................................... 3
Initial Choices To Be Made................... 3
Level or Varying Death Benefit............... 3
Amount of Premium Payments................... 4
Selection of Funding Vehicles................ 4
Charges and Fees............................. 5
Changes in Specified Amount.................. 5
LLANY, THE SEPARATE ACCOUNT AND THE GENERAL
ACCOUNT....................................... 6
BUYING VARIABLE LIFE INSURANCE................. 7
Replacements................................. 8
APPLICATION.................................... 8
OWNERSHIP...................................... 9
BENEFICIARY.................................... 9
THE POLICY..................................... 9
Policy Specifications........................ 10
PREMIUM FEATURES............................... 10
Planned Premiums; Additional Premiums........ 10
Limits on Right to Make Payments of
Additional and Planned Premiums........... 10
Premium Load; Net Premium Payment.......... 11
RIGHT-TO-EXAMINE PERIOD........................ 11
TRANSFERS AND ALLOCATION AMONG ACCOUNTS........ 11
Allocation of Net Premium Payments........... 11
Transfers.................................... 11
Optional Sub-Account Allocation Programs..... 12
Dollar Cost Averaging...................... 12
Automatic Rebalancing...................... 13
POLICY VALUES.................................. 13
Accumulation Value........................... 13
Separate Account Value....................... 13
Accumulation Unit Value.................... 14
Accumulation Units......................... 14
Fixed Account and Loan Account Value......... 14
Net Accumulation Value....................... 14
FUNDS.......................................... 15
Substitution of Securities................... 19
Voting Rights................................ 19
Fund Participation Agreements................ 20
CHARGES AND FEES............................... 20
Deductions Made Monthly...................... 20
Monthly Deduction.......................... 20
Cost of Insurance Charge................... 21
Mortality and Expense Risk Charge............ 21
Fund Expenses................................ 22
Surrender Charges............................ 24
Reduction of Charges -- Purchases on a Case
Basis....................................... 25
Transaction Fee for Excess Transfers......... 25
DEATH BENEFITS................................. 25
Death Benefit Options........................ 25
Changes in Death Benefit Options and
Specified Amount............................ 26
<CAPTION>
CONTENTS PAGE
- ----------------------------------------------- ---------
<S> <C>
Federal Income Tax Definition of Life
Insurance................................... 27
NOTICE OF DEATH OF INSURED..................... 27
PAYMENT OF DEATH BENEFIT PROCEEDS.............. 27
Settlement Options........................... 27
POLICY LIQUIDITY............................... 28
Policy Loans................................. 28
Partial Surrender............................ 29
Surrender of the Policy...................... 29
Surrender Value............................ 29
Deferral of Payment and Transfers............ 29
ASSIGNMENT; CHANGE OF OWNERSHIP................ 30
LAPSE AND REINSTATEMENT........................ 30
Lapse of a Policy............................ 30
No Lapse Provision......................... 31
Reinstatement of a Lapsed Policy............. 31
COMMUNICATIONS WITH LLANY...................... 31
Proper Written Form.......................... 31
OTHER POLICY PROVISIONS........................ 31
Issuance..................................... 31
Date of Coverage............................. 32
Incontestability............................. 32
Misstatement of Age or Gender................ 32
Suicide...................................... 32
Nonparticipating Policies.................... 32
Riders....................................... 32
TAX ISSUES..................................... 32
Tax Treatment of Death Benefit............... 33
Federal Income Tax Considerations............ 33
Taxation of LLANY............................ 34
Other Considerations......................... 34
FAIR VALUE OF THE POLICY....................... 34
DIRECTORS AND OFFICERS OF LLANY................ 35
DISTRIBUTION OF POLICIES....................... 37
CHANGES OF INVESTMENT POLICY................... 37
OTHER CONTRACTS ISSUED BY LLANY................ 37
STATE REGULATION............................... 37
REPORTS TO OWNERS.............................. 38
ADVERTISING.................................... 38
PREPARING FOR YEAR 2000........................ 38
LEGAL PROCEEDINGS.............................. 40
EXPERTS........................................ 40
REGISTRATION STATEMENT......................... 40
APPENDIX 1: GUARANTEED MAXIMUM COST OF
INSURANCE RATES............................... 41
APPENDIX 2: ILLUSTRATION OF SURRENDER
CHARGES....................................... 42
APPENDIX 3: CORRIDOR PERCENTAGES............... 44
APPENDIX 4: ILLUSTRATION OF ACCUMULATION
VALUES, SURRENDER VALUES AND DEATH BENEFIT
PROCEEDS...................................... 45
FINANCIAL STATEMENTS...........................
Lincoln Life & Annuity Company of New York... S-1
</TABLE>
2
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features. Your
Policy is a flexible premium variable life insurance policy
under which flexible premium payments are permitted and the
Death Benefit and Policy values may vary with the investment
performance of the funding option(s) selected. Its value may
change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
Review your personal financial objectives and discuss them
with a qualified financial counselor before you buy a
variable life insurance policy. This Policy may, or may not,
be appropriate for your individual financial goals. The
value of the Policy and, under one option, the death benefit
amount depend on the investment results of the funding
options you select.
At all times, your Policy must qualify as life insurance
under the Internal Revenue Code of 1986 (the "Code") to
receive favorable tax treatment under Federal law. If these
requirements are met, you may benefit from such tax
treatment. LLANY reserves the right to return your premium
payments if they result in your Policy failing to meet Code
requirements.
INITIAL CHOICES TO BE MADE
The Policy Owner (the "Owner" or "you") is the person named
in the "Policy Specifications" who has all of the Policy
ownership rights. If no Owner is named, the Insured (the
person whose life is insured under the Policy) will be the
Owner of the Policy. You, as the Owner, have three important
choices to make when the Policy is first purchased. You need
to choose:
1) one of the two Death Benefit Options;
2) the amount of premium you want to pay; and
3) the amount of your Net Premium Payment to be placed in
each of the funding options you select. The Net Premium
Payment is the balance of your Premium Payment that
remains after certain charges are deducted from it.
LEVEL OR VARYING DEATH BENEFIT
The Death Benefit is the amount LLANY pays to the
Beneficiary(ies) when the Insured dies. Before we pay the
Beneficiary(ies), any outstanding loan account balances or
outstanding amounts due are subtracted from the Death
Benefit. LLANY calculates the Death Benefit payable as of
the date on which the Insured died.
When you purchase your Policy, you must choose one of two
Death Benefit Options:
1) a level death benefit; or
2) a varying death benefit.
If you choose the level Death Benefit Option, the Death
Benefit will be the greater of:
1) the "Specified Amount", which is the amount of the death
benefit in effect for the Policy when the Insured died (The
Specified Amount is on the Policy's Specification Page); or
3
<PAGE>
2) the "Corridor Death Benefit," which is the death benefit
calculated as a percentage of the Accumulation Value. (The
"Net Accumulation Value" is the total of the balances in the
Fixed Account and the Separate Account minus any outstanding
Loan Account amounts.)
If you choose the varying Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount plus the Net Accumulation Value when
the Insured died or
2) the Corridor Death Benefit.
See page 25.
This policy contains a "No Lapse Provision". This means that
the Policy will not lapse regardless of the gains or losses
of the Funds you select as long as you pay the specified No
Lapse Premium. Therefore, the Initial Death Benefit under
your Policy will be guaranteed to maturity even though your
Net Accumulation Value is insufficient to pay your current
Monthly Deductions. Loans or Partial Surrenders may
jeopardize the No Lapse Provision. See page 31.
If you have borrowed against your Policy or surrendered a
portion of your Policy, your Initial Death Benefit will be
reduced by the Loan Account balance and any surrendered
amount.
AMOUNT OF PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 10.
You may use the value of the Policy to pay the premiums due
and continue the Policy in force if sufficient values are
available for premium payments. Be careful; if the
investment options you choose do not do as well as you
expect, there may not be enough value to continue the Policy
in force without more premium payments. Charges against
Policy values for the Cost of Insurance (see page 21)
increase as the Insured gets older.
If your Policy lapses because your Monthly Premium Deduction
is larger than the Net Accumulation Value, you may reinstate
your Policy. Your Policy will not lapse if, on each Monthly
Anniversary, you meet the No Lapse Premium Requirement. See
page 31.
When you first receive your Policy you will have 10 days to
look it over. This is called the "Right-to-Examine" period.
Use this time to review your Policy and make sure it meets
your needs. During this period, your Initial Premium Payment
will be deposited in the Money Market Sub-Account. If you
then decide you do not want your Policy, we will return all
Premium Payments to you with no interest paid. See page 11.
SELECTION OF FUNDING VEHICLES
This Prospectus focuses on the Separate Account investment
information that makes up the "variable" part of the Policy.
If you put money into the variable funding options, you
assume all the investment risk on that money. This means
that if the mutual fund(s) you select go up in value, the
value of your Policy, net of charges and expenses, also goes
up. If those funds lose value, so does your Policy. Each
fund has its own investment objective. You should carefully
read each Fund's prospectus before making your decision.
You must choose the Fund(s) in which you want to place your
Net Premium Payment. These Sub-Accounts make up the Separate
Account. Each Sub-Account invests in
4
<PAGE>
shares of a certain Fund. You may also place your Net
Premium Payment or part of it into the Fixed Account. A
Sub-Account is not guaranteed and will increase or decrease
in value according to the particular Fund's investment
performance. See page 15.
You may also use LLANY's Fixed Account to fund your Policy.
Net Premium payments put into the Fixed Account:
- become part of LLANY's General Account;
- do not share the investment experience of the Separate
Account; and
- have a guaranteed minimum interest rate of 4% per year.
Interest beyond 4% is credited at LLANY's discretion. For
additional information on the Fixed Account, see page 7.
CHARGES AND FEES
We deduct a premium charge of 5% from each Premium Payment.
We make monthly deductions for administrative expenses
(currently, $15 per month for the first Policy Year and $5
per month afterwards, guaranteed not to exceed $10 after the
first Policy Year) along with the Cost of Insurance and any
riders that are placed on your Policy. We make daily charges
against the Separate Account for mortality and expense risk,
at an annual rate of 0.75% for Policy Years 1-10, 0.35% for
Policy Years 11-20 and 0.20% for Policy Years 21 and beyond.
Each Fund has its own management fee charge, also deducted
daily. Each Fund's expense levels will affect its investment
results. The table on page 22 shows you current expense
levels for each Fund.
Each Policy Year you may make 12 transfers between funding
options without charge. Beyond 12, a $25 fee may apply.
You may borrow within described limits against the Policy.
You may surrender the Policy in full or withdraw part of its
value.
The Surrender Charge is the amount retained by us if you
totally surrender your Policy in up to the first 15 Policy
years.
We charge you $25, but not more than 2% of the amount
withdrawn, each time you request a partial surrender of your
Policy. The length of the surrender charge period varies
based on your age at the date of issue or any increase in
Specified Amount. See page 24.
If you borrow against your Policy, interest will be charged
to the Loan Account Value. The annual interest rate is 8%.
You may pay that interest or have it added to your loan.
LLANY will credit interest on the Loan Account Value at an
annual rate equal to the interest rate charged minus 1% for
the first ten Policy Years, and thereafter at the annual
interest rate charged on the loan.
Charges and fees may be reduced in some circumstances where
Policies are purchased by corporations and other groups or
sponsoring organizations on a case basis. See page 25.
LLANY may derive a profit from its charges and may use these
profits to finance distribution of the Policies.
CHANGES IN SPECIFIED AMOUNT
The Initial Specified Amount, chosen by the Policy Owner, is
the initial Death Benefit.
5
<PAGE>
Within certain limits, you may decrease or, with
satisfactory evidence of insurability, increase the
Specified Amount. The minimum Specified Amount is currently
$100,000. Such changes will affect other aspects of your
Policy. See page 26.
LLANY, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT
Lincoln Life & Annuity Company of New York is a life
insurance company chartered under New York law on June 6,
1996. Wholly-owned by The Lincoln National Life Insurance
Company ("Lincoln Life") and in turn by Lincoln National
Corporation ("LNC"), a publicly held Indiana insurance
holding company incorporated in 1968, it is licensed to sell
life insurance policies and annuity contracts in New York.
Its principal office is at 120 Madison Street, Suite 1700,
Syracuse, NY 13202. LLANY, Lincoln Life, LNC and their
affiliates comprise the "Lincoln Financial Group" which
provides a variety of wealth accumulation and protection
products and services.
Lincoln Life & Annuity Flexible Premium Variable Life
Account M ("Account M") is a "separate account" established
pursuant to a resolution of the Board of Directors of LLANY.
Under New York law, the assets of Account M attributable to
the Policies, though LLANY's property, are not chargeable
with liabilities of any other business of LLANY and are
available first to satisfy LLANY's obligations under the
Policies. Account M's income, gains, and losses are credited
to or charged against Account M without regard to other
income, gains, or losses of LLANY. Its values and investment
performance are not guaranteed. It is registered with the
Securities and Exchange Commission (the "Commission") as a
"unit investment trust" under the 1940 Act and meets the
1940 Act's definition of "separate account". Such
registration does not involve supervision by the Commission
of Account M's or our management, investment practices, or
policies. We have other registered separate accounts which
fund other variable life insurance policies and variable
annuity contracts.
Account M is divided into Sub-Accounts, each of which is
invested solely in the shares of one of the Funds available
as funding vehicles under the Policies. On each Valuation
Day (any day on which the New York Stock Exchange is open),
Net Premium Payments allocated to Account M will be invested
in Fund shares at net asset value, and monies necessary to
pay for deductions, charges, transfers and surrenders from
Account M are raised by selling Fund shares at net asset
value.
The Funds and their investment objectives, which they may or
may not achieve, are on pages 15-19. More Fund information
is in the Funds' prospectuses, which must accompany or
precede this prospectus and should be read carefully. Some
Funds have investment objectives and policies similar to
those of other funds managed by the same investment adviser.
Their investment results may be higher or lower than those
of the other funds, and there can be no assurance, and no
representation is made, that a Fund's investment results
will be comparable to the investment results of any other
fund.
We reserve the right to add, withdraw or substitute Funds,
subject to the conditions of the Policy and to compliance
with regulatory requirements, if in our sole discretion
legal, regulatory, marketing, tax or investment
considerations so warrant or in the event a particular Fund
is no longer available for investment by the Sub-Accounts.
No substitution will take place without prior approval of
the Commission, to the extent required by law.
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Shares of the Funds may be used by us and other insurance
companies to fund both variable annuity contracts and
variable life insurance policies. While this is not
perceived as problematic, the Funds' governing bodies
(Boards of Directors/Trustees) have agreed to monitor events
to identify any material irreconcilable conflicts which
might arise and to decide what responsive action might be
appropriate. If a separate account were to withdraw its
investment in a Fund because of a conflict, a Fund might
have to sell portfolio securities at unfavorable prices.
A Policy may also be funded in whole or in part through the
"Fixed Account", part of LLANY's General Account supporting
its insurance and annuity obligations. We will credit
interest on amounts held in the Fixed Account as we
determine from time to time, but not less than 4% per year.
Interest, once credited, and Fixed Account principal are
guaranteed. Interests in the Fixed Account have not been
registered under the 1933 Act in reliance on exemptive
provisions. The Commission has not reviewed Fixed Account
disclosures, but they are subject to securities law
provisions relating to accuracy and completeness.
BUYING VARIABLE LIFE INSURANCE
The Policies this Prospectus offers are variable life
insurance policies which provide death benefit protection.
Investors not needing death benefit protection should
consider other forms of investment, as there are extra costs
and expenses of providing the insurance feature. Further,
life insurance purchasers who are risk-aversive or want more
predictable premium levels and benefits may be more
comfortable buying more traditional, non-variable life
insurance. However, variable life insurance is a flexible
tool for financial and investment planning for persons
needing death benefit protection and willing to assume
investment risk and to monitor investment choices they have
made.
Flexibility starts with the ability to make differing levels
of premium payments. A young family just starting out may
only be able to pay modest premiums initially but hope to
increase premium payments over time. At first, this family
would be paying primarily for the insurance feature (perhaps
at ages where the insurance cost is relatively low) and
later use a Policy more as a savings vehicle. A customer at
peak earning capacity may wish to pay substantial premiums
for a limited number of years prior to retirement, after
which Policy values may suffice, based on future expected
return results, though not guaranteed, to keep the Policy
inforce for the expected lifetime and to provide, through
loans, supplemental retirement income. A customer may be
able to pay a large single premium, using the Policy
primarily as a savings and investment vehicle for potential
tax advantages. A parent or grandparent may find a policy on
the life of a child or grandchild a useful gifting
opportunity over a period of years and the basis of an
investment program for the donee. A business may be able to
use a Policy to fund non-qualified executive compensation or
business continuation plans.
Sufficient premiums must always be paid to keep a policy
inforce, and there is a risk of lapse if premiums are too
low in relation to the insurance amount and if investment
results are less favorable than anticipated. The No Lapse
Provision may help to assure a death benefit even if
investment results are unfavorable.
Flexibility also results from being able to select, monitor
and change investment choices within a Policy. With the wide
variety of funding options available, it is possible to fine
tune an investment mix and change it to meet changing
personal objectives or investment conditions. Policy owners
should be prepared to monitor their investment choices on an
ongoing basis.
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Variable life insurance has significant tax advantages under
current tax law. A transfer of values from one fund to
another within the Policy generates no taxable gain or loss.
And any investment income and realized capital gains within
a fund are automatically reinvested without being taxed to
the Policy owners. Policy values therefore accumulate on a
tax-deferred basis. These situations would normally result
in immediate tax liabilities in the case of direct
investment in mutual funds.
While these tax deferral features also apply to variable
annuities, liquidity (the ability of Policy owners to access
Policy values) is normally more easily achieved with
variable life insurance. Unless a policy has become a
"modified endowment contract" (see page 33), an Owner can
borrow Policy values tax-free, without surrender charges and
at very low net interest cost. Policy loans can be a source
of retirement income. Variable annuity withdrawals are
generally taxable to the extent of accumulated income, may
be subject to surrender charges, and will result in penalty
tax if made before age 59 1/2.
Depending on the death benefit option chosen, accumulated
Policy values may also be part of the eventual death benefit
payable. If a Policy is heavily funded and investment
performance is very favorable, the death benefit may
increase even further because of tax law requirements that
the death benefit be a certain multiple of Policy value,
depending on the Insured's age (see page 25). The death
benefit is income-tax free and may, with proper estate
planning, be estate-tax free. A tax advisor should be
consulted.
There are costs and expenses of variable life insurance
ownership which are directly related to Policy values (i.e.
asset based costs),as is true with investment in mutual
funds or variable annuities. A significant additional cost
of variable life insurance is the "cost of insurance" charge
which is imposed on the "amount at risk" (the death benefit
less Policy value) and increases as the insured grows older.
This charge varies by age, underwriting classification,
smoking status and in most states by gender. The effect of
its increase can be seen in illustrations in this Prospectus
(see Appendix 4) or in personalized illustrations available
upon request. Surrender Charges, which decrease over time,
are another significant additional cost if the Policy is not
retained.
REPLACEMENTS
Before purchasing the Policy to replace, or to be funded
with proceeds borrowed or withdrawn from, an existing life
insurance policy, the applicant should consider a number of
matters. Will any commission will be paid to an agent or any
other person with respect to the replacement? Are coverages
and comparable values available from the Policy, as compared
to his or her existing policy? The Insured may no longer be
insurable, or the contestability period may have elapsed
with respect to the existing policy, while the Policy could
be contested. The Owner should consider similar matters
before deciding to replace the Policy or withdraw funds from
the Policy for the purchase of funding a new policy of life
insurance.
APPLICATION
Any person who wants to buy a Policy must first complete an
application on a form provided by LLANY.
A completed application identifies the prospective Insured
and provides sufficient information about the prospective
insured to permit LLANY to begin underwriting the risks
under the Policy. We require a medical history and
examination of the Insured. LLANY may decline to provide
insurance, or may place the Insured into a special
underwriting category (these include preferred, non-smoker
standard, smoker standard, non-smoker substandard and smoker
substandard). The amount of the Cost of
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Insurance deducted monthly from the Policy value after issue
varies among the underwriting categories as well as by age
of the Insured at his/her nearest birthday and, in most
states, gender of the Insured.
The applicant will initially select the Beneficiary or
Beneficiaries who are to receive Death Benefit Proceeds, the
initial face amount (the Initial Specified Amount) of the
Death Benefit and which of two methods of computing the
Death Benefit is to be used. (See DEATH BENEFITS, Death
Benefit Options). The applicant will also indicate both the
frequency and amount of Premium Payments, (see PREMIUM
FEATURES), and how Policy values are initially to be
allocated among the available funding options following the
expiration of the Right-to-Examine Period. (See
RIGHT-TO-EXAMINE PERIOD).
OWNERSHIP
The Owner is the person or persons named as Owner in the
application, and on the Date of Issue will usually be
identified as Owner in the Policy Specifications. If no
person is identified as Owner in the Policy Specifications,
then the Insured is the Owner. The person or persons
designated to be Owner of the Policy must have, or hold
legal title for the sole benefit of a person who has, an
"insurable interest" in the life of the Insured under
applicable state law. The Owner may be the Insured, or any
other natural person or non-natural entity.
The Owner is entitled to exercise rights under the Policy so
long as the Insured is living. These rights include the
power to select the Beneficiary and the Death Benefit
Option. The Owner generally also has the right to request
policy loans, make partial surrenders or surrender the
Policy. The Owner may also name a new owner, assign the
Policy or agree not to exercise all of the Owner's rights
under the Policy.
If the Owner predeceases the Insured, the Owner's rights in
the Policy will belong to the Owner's estate, unless
otherwise specified to LLANY.
BENEFICIARY
The Beneficiary is designated by the Owner or the Applicant
and is the person who will receive the Death Benefit
proceeds payable under the Policy. Multiple Beneficiaries
will be paid in equal shares, unless otherwise specified to
LLANY.
Except when LLANY has acknowledged an assignment of the
Policy or an agreement not to change the Beneficiary, the
Owner may change the Beneficiary at any time while the
Insured is living. Any request for a change in the
Beneficiary must be in a written form satisfactory to LLANY
and submitted to LLANY. Unless the Owner has reserved the
right to change the Beneficiary, such a request must be
signed by both the Owner and the Beneficiary. When LLANY has
recorded the change of Beneficiary, it will be effective as
of the date of signature or, if there is no such date, the
date recorded. No change of Beneficiary will affect or
prejudice LLANY as to any payment made or action taken by
LLANY before it was recorded.
If any Beneficiary dies before the Insured, the
Beneficiary's potential interest shall pass to any surviving
Beneficiaries, unless otherwise specified to LLANY. If no
named Beneficiary survives the Insured, any Death Benefit
Proceeds will be paid to the Owner or the Owner's executor,
administrator or assignee.
THE POLICY
The Policy is the life insurance contract described in this
Prospectus. The Date of Issue is the date on which LLANY
begins life insurance coverage under a Policy. A Policy Year
is each twelve month period, beginning on the Date of Issue,
during which the Policy is
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in effect. The Policy Anniversary is the day of the year the
Policy was issued, or the next Valuation Day if that day is
not a Valuation Day or is non-existent for that year. On
issuance, a life insurance contract (Policy) will be
delivered to the Owner. The Owner should promptly review the
Policy to confirm that it sets forth the features specified
in the application. The ownership and other options set
forth in the Policy are registered, and may be transferred,
solely on LLANY's books and records. Mere possession of the
Policy does not imply ownership rights. If the Owner loses
the Policy, LLANY will issue a replacement on request. LLANY
may impose a Policy replacement fee.
POLICY SPECIFICATIONS
The Policy includes a Policy Specifications page, with
supporting schedules, stating Policy information including
the identity of the Owner, the Date of Issue, the Initial
Specified Amount, the Death Benefit Option selected, the
Insured, the Issue Age, the Beneficiary, the initial Premium
Payment, the Surrender Charges, Expense Charges and Fees,
Guaranteed Maximum Cost of Insurance Rates, and the No Lapse
Premium.
PREMIUM FEATURES
The Policy permits flexible premium payments, meaning that
the Owner may select the frequency and the amount of Premium
Payments. After the Initial Premium Payment is made there is
no minimum premium required, except to maintain the No Lapse
Provision. (See LAPSE AND REINSTATEMENT No Lapse Provision).
The initial Premium Payment is due on the Effective Date
(the date on which the initial premium is applied to the
Policy) and must be equal to or exceed the amount necessary
to provide for two Monthly Deductions.
PLANNED PREMIUMS; ADDITIONAL PREMIUMS
Planned Premiums are the amount of premium (as shown in the
Policy Specifications) the Applicant chooses to pay LLANY on
a scheduled basis. This is the amount for which LLANY sends
a premium reminder notice.
Any subsequent Premium Payments (Additional Premiums) must
be sent directly to the Administrative Office. Additional
Premiums will be credited only when actually received by
LLANY. Planned Premiums may be billed annually,
semiannually, or quarterly. Pre-authorized automatic Premium
Payments can also be arranged at any time.
Unless specifically otherwise directed, any payment received
(other than any Premium Payment necessary to prevent, or
cure, Policy Lapse) will be applied first to reduce Policy
Indebtedness. There is no premium load on such payments to
the extent applied to reduce indebtedness.
LIMITS ON RIGHT TO MAKE PAYMENTS OF ADDITIONAL AND PLANNED
PREMIUMS
The Owner may increase Planned Premiums, or pay Additional
Premiums, subject to the following limitations and LLANY's
right to limit the amount or frequency of Additional
Premiums.
LLANY may require evidence of insurability if any payment of
Additional Premium (including Planned Premium) would
increase the difference between the Death Benefit and the
Accumulation Value. If LLANY is unwilling to accept the
risk, the increase in premium will be refunded without
interest and without participation of such amounts in any
underlying investment.
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<PAGE>
LLANY may also decline any Additional Premium (including
Planned Premium) or a portion thereof that would result in
total Premium Payments exceeding the maximum limitation for
life insurance under federal tax laws. The excess amount
would be returned.
PREMIUM LOAD; NET PREMIUM PAYMENT
LLANY deducts 5% from each Premium Payment. This amount,
sometimes referred to as premium load, covers certain
Policy-related state tax and federal income tax liabilities
and a portion of the sales expenses incurred by LLANY. The
Premium Payment, net of the premium load, is called the "Net
Premium Payment."
RIGHT-TO-EXAMINE PERIOD
The Owner may return the Policy to LLANY for cancellation as
follows.
If the Owner mails or delivers the Policy to the
Administrative Office on or before 10 days after delivery of
the Policy (60 days for Policies issued in replacement of
other insurance) (Right-to-Examine Period), LLANY will
refund to the Owner all Premium Payments.
Any Premium Payments received by LLANY before the end of the
Right-to-Examine Period will be held in the Money Market
Sub-Account, and will be allocated to the Sub-Accounts
designated by the Owner at the end of the Right-to-Examine
Period. If the Policy is returned for cancellation within
the Right-to-Examine Period, we will return any Premium
Payments within seven days, although refund of a Premium
Payment made by check may be delayed until the check clears.
TRANSFERS AND ALLOCATION AMONG ACCOUNTS
ALLOCATION OF NET PREMIUM PAYMENTS
The allocation of Net Premium Payments among the Fixed
Account and the Sub-Accounts may be set forth in the
application. An Owner may change the allocation of future
Net Premium Payments at any time. In any allocation, the
amount allocated to any Sub-Account must be in whole
percentages and result in a Sub-Account Value of at least
$100 or a Fixed Account Value of $2,500. LLANY, at its sole
discretion, may waive minimum balance requirements on the
Sub-Accounts.
TRANSFERS
The Owner may make transfers among the Sub-Accounts, on the
terms set forth below, at any time before the Insured
reaches Age 100. The Owner should carefully consider current
market conditions and each Sub-Account's investment policies
and related risks before allocating money to the
Sub-Accounts.
Transfer of amounts from one Sub-Account to another or from
the Sub-Accounts to the Fixed Account are possible at any
time. Within 30 days after each anniversary of the Date of
Issue, the Owner may transfer up to 20% of the Fixed Account
Value (as of the preceding anniversary of the Date of Issue)
to one or more Sub-Accounts. 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. Up to 12 transfer requests
(a request may involve more than a single transfer) may be
made in any Policy Year without charge, and any value
remaining in a Sub-Account after a transfer must be at least
$100. LLANY reserves the right to impose a minimum
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<PAGE>
transfer amount of $100 and a charge for each transfer
request in excess of 12 requests in any Policy Year. LLANY
may further limit transfers from the Fixed Account at any
time.
Transfers must be made in proper written form, unless the
Owner has given written authorization to LLANY to accept
telephone transactions. Contact our Administrative Office
for authorization forms and information on permitted
telephone transactions. Written transfer requests or
adequately authenticated telephone transfer requests
received at the Administrative Office by the close of the
New York Stock Exchange (usually 4:00 PM ET) on a Valuation
Day will be effective as of that day. Otherwise, requests
will be effective as of the next Valuation Day.
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 the Administrative Office receives a
request in proper written form or adequately authenticated
telephone transfer requests. Any transfer made which causes
the remaining value of Accumulation Units for a Sub-Account
or the Fixed Account to be less than $100 may result in
those remaining Accumulation Units being canceled and their
aggregate value reallocated proportionately among the other
Sub-Accounts and the Fixed Account to which Policy values
are then allocated.
OPTIONAL SUB-ACCOUNT ALLOCATION PROGRAMS
You may elect to participate in programs providing for
Dollar Cost Averaging or Automatic Rebalancing, currently
without charge, but may participate in only one program at
any time. Transfers under these programs do not count
against the 12 transfers per year without charge.
DOLLAR COST AVERAGING
Dollar Cost Averaging systematically transfers specified
dollar amounts from the Money Market Sub-Account. Transfer
allocations may be made to one or more of the Sub-Accounts
(not the Fixed Account) on a monthly or quarterly basis.
These transfers do not count against the free transfers
available. By making allocations on a regularly scheduled
basis, instead of on a lump sum basis, an Owner may reduce
exposure to market volatility. Dollar Cost Averaging will
not assure a profit or protect against a declining market.
If the Owner elects Dollar Cost Averaging, the value in the
Money Market Sub-Account must be at least $1,000 initially.
The minimum amount that may be allocated is $50 monthly.
An election for Dollar Cost Averaging is effective after the
Administrative Office receives a request from the Owner in
proper written form or by telephone, if adequately
authenticated. An election is effective within ten business
days, but only if there is sufficient value in the Money
Market Sub-Account. LLANY may, in its sole discretion, waive
Dollar Cost Averaging minimum deposit and transfer
requirements.
Dollar Cost Averaging terminates automatically: (1) if the
number of designated transfers has been completed; (2) if
the value in the Money Market Sub-Account is insufficient to
complete the next transfer; (3) within one week after the
Administrative Office receives a request for termination in
proper written form. or (4) if the Policy is surrendered.
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AUTOMATIC REBALANCING
Automatic Rebalancing 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). The Fixed Account is not subject to
rebalancing. The pre-determined level is the allocation
initially selected on the application, until you change it.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Sub-Accounts will be subject to
Automatic Rebalancing.
The Owner may select Automatic Rebalancing on a quarterly,
semi-annual or annual basis. Automatic Rebalancing may be
elected, terminated or the allocation may be changed at any
time, effective within ten business days upon receipt by the
Administrative Office of a request in proper written form or
by telephone if adequately authenticated.
POLICY VALUES
The Accumulation Value is the sum of the Fixed Account
Value, Separate Account Value and the Loan Account Value.
The Accumulation Value of the Policy depends on the
performance of the underlying investments. Policy values are
used to pay for Policy fees and expenses, including the Cost
of Insurance. Premium Payments to meet your objectives will
vary based on the investment performance of the underlying
investments. A market downturn, affecting the Sub-Accounts
upon which the Accumulation Value of a particular Policy
depends, may require additional premium payments beyond
those expected (unless the No Lapse Provision requirements
have been satisfied) to maintain the level of coverage or to
avoid lapse of the Policy. We strongly suggest you review
periodic statements to determine if additional premium
payments must be made to avoid lapse of the Policy.
We will tell you at least annually the Accumulation Value,
the number of Accumulation Units credited to the Policy,
current Accumulation Unit values, Sub-Account values, the
Fixed Account Value and the Loan Account Value.
ACCUMULATION VALUE
The portion of a Premium Payment, after deduction for 5.0%
for the premium load, is the Net Premium Payment. It is the
Net Premium Payment that is available for allocation to the
Fixed Account or the Sub-Accounts.
We credit each Net Premium Payment to the Policy as of the
end of the Valuation Period in which it is received at the
Administrative Office. The Valuation Period is the time
between Valuation Days, and a Valuation Day is every day on
which the New York Stock Exchange is open and trading
unrestricted. Accumulation Units are valued on every
Valuation Day.
The "Accumulation Value" of a Policy is determined by: (1)
multiplying the total number of Accumulation Units credited
to the Policy for each Sub-Account by its appropriate
current Accumulation Unit Value; (2) if a combination of
Sub-Accounts is elected, totaling the resulting values; and
(3) adding any values attributable to the Fixed Account and
the Loan Account. The Accumulation Value will be affected by
Monthly Deductions.
SEPARATE ACCOUNT VALUE
The Separate Account Value is the portion of the
Accumulation Value that is attributable to the Separate
Account.
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ACCUMULATION UNIT VALUE
All or a part of a Net Premium Payment allocated to a
Sub-Account is converted into Accumulation Units by dividing
the amount allocated by the value of the Accumulation Unit
for the Sub-Account next calculated after it is received at
the Administrative Office. The Accumulation Unit value for
each Sub-Account was initially established at $10.00. The
Accumulation Unit Value for each Sub-Account would
thereafter increase or decrease from one Valuation Period to
the next. Allocations to Sub-Accounts are made only as of
the end of a Valuation Day.
ACCUMULATION UNITS
An "Accumulation Unit" is a unit of measure used in the
calculation of the value of each Sub-Account. The
Accumulation Unit value for a Sub-Account for a 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 LLANY that LLANY determines result
from the operations of the Separate Account; and
3. The result of (2) is divided by the number of
Accumulation Units outstanding at the beginning of the
Valuation Period.
The daily charge imposed on a Sub-Account for any Valuation
Period is equal to the daily mortality and expense risk
charge multiplied by the number of calendar days in the
Valuation Period. The amount of Monthly Deduction allocated
to each Sub-Account will result in the cancellation of
Accumulation Units that have an aggregate value on the date
of such deduction equal to the total amount by which the
Sub-Account is reduced.
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of a
Variable 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 and fees and charges under the Policy.
FIXED ACCOUNT AND LOAN ACCOUNT VALUE
The Fixed Account Value and the Loan Account Value reflect
amounts allocated to LLANY's General Account through payment
of premiums or through transfers from the Separate Account.
LLANY guarantees the Fixed Account Value.
NET ACCUMULATION VALUE
The "Net Accumulation Value" is the Accumulation Value less
the Loan Account Value. The Net Accumulation Value
represents the net value of the Policy and is the basis for
calculating the Surrender Value.
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FUNDS
Each of the Sub-Accounts of the Separate Acount is invested
solely in the shares of one of the Funds available under the
Policies. Each of the Funds is a series of one of sixteen
Massachusetts or Delaware business trusts or Maryland
corporations. Each such trust or corporation is registered
as an open-end management investment company under the 1940
Act. They are collectively referred to as the "Trusts". All
of the Funds except for the Delaware Group REIT Series and
the Delaware Group Emerging Market Series are diversified
under the 1940 Act.
Listed below are the Trusts, their investment advisers and
distributors, and the Funds within each that are available
under the Policies:
AIM VARIABLE INSURANCE FUNDS, INC., managed by A I M
Advisors, Inc., and distributed by A I M Distributors Inc.,
11 Greenway Plaza, Suite 100, Houston, TX 77046-1173
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
BARON CAPITAL FUNDS TRUST, managed by BAMCO, Inc. and
distributed by Baron Capital Inc. 767 Fifth Avenue, New
York, NY 10153
Baron Capital Asset Fund -- Insurance Shares
BT INSURANCE FUNDS TRUST, managed by Bankers Trust Company,
130 Liberty Street (One Bankers Trust Plaza), New York, NY
10006 and distributed by First Data Distributors, Inc., 4400
Computer Drive, Westborough, MA 01581
EAFE-Registered Trademark- Equity Index Fund
Equity 500 Index Fund
Small Cap Index Fund
DELAWARE GROUP PREMIUM FUND, INC., managed by Delaware
Management Company, Inc., One Commerce Square, Philadelphia,
PA 19103 and for International and Emerging Markets,
Delaware International Advisors, Ltd., 80 Cheapside, London,
England ECV2 6EE, and distributed by Delaware Distributors,
L.P., 1818 Market Street, Philadelphia, PA 19103
Delchester Series
Devon Series
Emerging Markets Series
REIT Series
Small Cap Value Series
Trend Series
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II, AND VARIABLE
INSURANCE PRODUCTS FUND III, managed by Fidelity Management
& Research Company and distributed by Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, MA 02109
Fidelity VIP II Contrafund Portfolio -- Service Class
Fidelity VIP III Growth Opportunities Portfolio --
Service Class
JANUS ASPEN SERIES, managed by Janus Capital, 100 Fillmore
St. Denver, CO 80206-4928, and self-distributed.
Janus Aspen Series Balanced Portfolio
Janus Aspen Series Worldwide Growth Portfolio
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LINCOLN NATIONAL FUNDS, managed by Lincoln Investment
Management, Inc., 200 East Berry Street, Fort Wayne IN
46802, and distributed by Lincoln Financial Advisors, Inc.,
350 Church Street, Hartford CT 06103. Sub-advisors are also
noted.
LN Bond Fund, Inc.
LN Capital Appreciation Fund, Inc. (Sub-advised by Janus
Capital Corp.)
LN Equity-Income Fund, Inc. (Sub-advised by Fidelity
Management Trust Co.)
LN Global Asset Allocation Fund, Inc. (Sub-advised by
Putnam Investment Management, Inc.)
LN Money Market Fund, Inc.
LN Social Awareness Fund, Inc. (Sub-advised by Vantage
Investment Advisors, Inc.)
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST, managed
by Massachusetts Financial Services Company and distributed
by MFS Fund Distributors, Inc., 500 Boylston Street, Boston,
MA 02116
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST, managed and
distributed by NB Management Incorporated, 605 Third Avenue,
2nd Floor, New York, NY 10158-0006
NB AMT Mid-Cap Growth Portfolio
NB AMT Partners Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND, managed by
Templeton Investment Counsel, Inc. and its Templeton and
Franklin affiliates and distributed by Franklin/ Templeton
Distributors, Inc., 100 Fountain Parkway, St. Petersburg, FL
33716-1205
Templeton International Fund -- Class 2
Templeton Stock Fund -- Class 2
The investment advisory fees charged the Funds by their
advisers are shown on page 22 of this Prospectus.
Below is 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.
AIM V.I. GROWTH FUND (Large Cap Stocks): Seeks growth of
capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings
momentum. Current income will not be a criterion of
investment selection, and any such income should be
considered incidental.
AIM V.I. INTERNATIONAL EQUITY FUND (Large Cap Stocks --
International): Seeks to provide long-term growth of capital
by investing in a diversified portfolio of international
equity securities whose issuers are considered to have
strong earnings momentum. The fund seeks to meet this
objective by investing at least 70% of its total assets in
marketable equity securities of foreign companies that are
listed on a recognized foreign securities exchange or traded
in a foreign over-the-counter market.
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 investment advisor to be
undervalued relative to the investment advisor's appraisal
of current or projected earnings of the companies issuing
the securities, or relative to current market values of
16
<PAGE>
assets owned by the companies issuing the securities or
relative to the equity markets generally. Income is a
secondary objective and would be satisfied principally from
the interest (interest and dividends) generated by the
common stocks, convertible bonds and convertible preferred
stocks that make up the Fund's portfolio.
BARON CAPITAL ASSET FUND -- INSURANCE SHARES (Small/Medium
Cap U.S. Stocks): Seeks capital appreciation through
investments in securities of small sized companies with
market capitalizations of approximately $100 million to $1.5
billion, and medium sized companies with market
capitalizations of $1.5 billion to $5 billion, with
undervalued assets or favorable growth prospects.
BT EAFE-REGISTERED TRADEMARK- FUND (Large Cap Stocks --
International): Seeks to replicate as closely as possible
(before the deduction of Expenses) the total return of the
Europe, Australia, Far East Index (the
EAFE-Registered Trademark- Index) , a
capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United
States.
BT EQUITY 500 INDEX FUND (Large Cap U.S. Stocks): Seeks to
replicate as closely as possible the performance of the
Standard & Poor's 500 Composite Stock Price Index, before
the deduction of Fund expenses.
BT SMALL CAP INDEX FUND (Small/Medium Cap U.S. Stocks):
Seeks to replicate as closely as possible (before the
deduction of Expenses) the total return of the Russell 2000
Small Stock Index (the "Russell 2000"), an index consisting
of approximately 2,000 small-capitalization common stocks.
DELAWARE GROUP DELCHESTER SERIES (High Yield Bonds): Seeks
as high a current income as possible by investing in rated
and unrated corporate bonds (including high yield bonds
commonly known as junk bonds), U. S. government securities
and commercial paper. An investment in this Series may
involve greater risks than an investment in a portfolio
comprised primarily of investment grade bonds.
DELAWARE GROUP DEVON SERIES (Large Cap U.S. Stocks): Seeks
current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on
common stocks that the investment manager believes have the
potential for above-average dividend increases over time.
Under normal circumstances, the Series will invest at least
65% of its total assets in dividend paying common stocks.
DELAWARE GROUP EMERGING MARKETS SERIES (Emerging Markets
Stocks): Seeks to achieve long-term capital appreciation by
investing primarily in equity securities of issuers located
or operating in emerging counties. The Series is an
international fund. As such, 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
emerging or developing.
DELAWARE GROUP REIT SERIES (Small/Medium Cap U.S.
Stocks/Specialty): Seeks to achieve maximum long-term total
return. Capital appreciation is a secondary objective. It
seeks to achieve its objectives by investing in securities
of companies primarily engaged in the real estate industry.
DELAWARE GROUP SMALL CAP VALUE SERIES (Small/Medium Cap U.S.
Stocks): Seeks capital appreciation by investing primarily
in small cap common stocks whose market value appears low
relative to their underlying value or future earnings and
growth potential. Emphasis will also be placed on securities
of companies that may be temporarily out of favor or whose
value is not yet recognized by the market.
17
<PAGE>
DELAWARE GROUP TREND SERIES (Small/Medium Cap U.S. 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.
FIDELITY VIP II CONTRAFUND PORTFOLIO -- SERVICE CLASS (Large
Cap U.S. Stocks): Seeks capital appreciation by investing
primarily in securities of companies whose value the advisor
believes is not fully recognized by the public.
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO -- SERVICE
CLASS (Large Cap U.S. Stocks): Seeks capital growth by
investing primarily in common stocks.
JANUS ASPEN SERIES BALANCED PORTFOLIO (Balanced): Seeks long
term growth of capital, consistent with the preservation of
capital and balanced by current income. The Portfolio
normally invests 40-60% of its assets in securities selected
primarily for their growth potential and 40-60% of its
assets in securities selected primarily for their income
potential.
JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO (Large Cap
Stocks -- Global): Seeks long-term growth of capital in a
manner consistent with the preservation of capital by
investing primarily in common stocks of foreign and domestic
insurers.
LINCOLN NATIONAL BOND FUND (Investment Grade Bonds): Seeks
maximum current income consistent with prudent investment
strategy. The fund invests primarily in medium-and long-term
corporate and government bonds.
LINCOLN NATIONAL CAPITAL APPRECIATION FUND (Large Cap U.S.
Stocks): Seeks long-term growth of capital in a manner
consistent with preservation of capital. The fund invests in
a large number of companies of all sizes if the companies
are competing well and if their products and services are in
high demand. It may also buy some money market securities
and bonds, including junk (high risk) bonds.
LINCOLN NATIONAL EQUITY-INCOME FUND (Large Cap U.S. Stocks):
Seeks to achieve reasonable income by investing primarily in
income-producing equity securities. The fund invests mostly
in high-yielding bonds (including junk bonds)
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND (Balanced --
International): Seeks long-term total return consistent with
preservation of capital. The fund allocates its assets among
several categories of equity and fixed-income securities,
both of U.S. and foreign insurers.
LINCOLN NATIONAL MONEY MARKET FUND (Money Market): Seeks
maximum current income consistent with the preservation of
capital. The fund invests in short term obligations issued
by U.S. corporations, the U.S. government, and
federally-chartered banks and U.S. branches of foreign
banks.
LINCOLN NATIONAL SOCIAL AWARENESS FUND (Large Cap U.S.
Stock/Specialty): Seeks to achieve long-term capital
appreciation, by investing in stocks of established
companies which adhere to certain specific social criteria.
MFS EMERGING GROWTH SERIES (Small/Medium Cap U.S. Stocks):
Seeks to provide long-term growth of capital.
MFS TOTAL RETURN SERIES (Balanced): Seeks primarily to
provide 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.
18
<PAGE>
MFS UTILITIES SERIES (Small/Medium Cap U.S.
Stocks/Specialty): Seeks capital growth and current income
(income above that available from a portfolio invested
entirely in equity securities).
NB AMT MID-CAP GROWTH PORTFOLIO (Small/Medium Cap U.S.
Stocks): Seeks growth of capital through an investment
approach that is designed to increase capital with
reasonable risk. It invests mainly in common stocks of
mid-to-large capitalization companies.
NB AMT PARTNERS PORTFOLIO (Small/Medium Cap U.S. Stocks):
Seeks growth of capital and invests mainly in common stocks
of mid-to-large capitalization companies using the
value-oriented investment approach.
TEMPLETON INTERNATIONAL FUND -- CLASS 2 (Large Cap Stocks --
International): Seeks long-term capital growth. It invests
primarily in stocks of companies outside the United States,
including emerging markets. Any income realized will be
incidental.
TEMPLETON STOCK FUND -- CLASS 2 (Large Cap Stocks --
Global): Seeks long-term capital growth. Invests primarily
in equity securities issued by companies, large and small,
in various nations throughout the world, including the
United States and emerging markets.
Several of the Funds 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. Please review the prospectuses carefully.
There is no assurance that the investment objective of any
of the Funds will be met. You assume all of the investment
performance risk for the Sub-Accounts you select. There is
investment performance risk in each of the Sub-Accounts,
although the amount of such risk varies significantly among
the Sub-Accounts. Owners should read each Fund's prospectus
carefully and understand the risks before making or changing
investment choices. Additional Funds may, from time to time,
be made available as underlying investments with prior
approval of the New York Insurance Department. The right to
select among Funds will be limited by the terms and
conditions imposed by LLANY (See ALLOCATION OF NET PREMIUM
PAYMENTS).
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Separate Account or if, in the judgment of
LLANY, further investment in such shares should cease to be
appropriate in view of the purpose of the Separate Account
or in view of legal, regulatory or federal income tax
restrictions, LLANY may substitute shares of another Fund.
There will be no substitution of securities in any
Sub-Account without prior approval of the Commission.
VOTING RIGHTS
LLANY will vote the shares of each Fund held in the Separate
Account at special meetings of the shareholders of the
particular Fund in accordance with instructions received by
the Administrative Office in proper written form from
persons having a voting interest in the Separate Account.
LLANY will vote shares for which it has not received
instructions in the same proportion as it votes shares in
the Separate Account for which it has received instructions.
The Funds do not hold regular meetings of shareholders.
19
<PAGE>
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
Fund not more than sixty (60) days prior to the meeting of
the particular Fund. Voting instructions will be solicited
by written communication at least fourteen (14) days prior
to the meeting.
FUND PARTICIPATION AGREEMENTS
LLANY has entered into agreements with the various Trusts
and their advisers or distributors under which LLANY makes
the Funds available under the Policies and performs certain
administrative services. In some cases, the advisers or
distributors may compensate LLANY at annual rates of between
.10% and .25% of assets in a particular Fund attributable to
the Policies.
CHARGES AND FEES
LLANY deducts charges in connection with the Policy to
compensate it for providing the insurance benefit set forth
in the Policy, administering the Policy, assuming certain
risks in connection with the Policy and for incurring
expenses associated with the distribution of the Policy.
The nature and amount of these charges are as follows:
DEDUCTIONS MADE MONTHLY
We make various expense deductions monthly. The Monthly
Deductions, including the Cost of Insurance Charge and
charges for supplemental riders or benefits, if any, are
deducted proportionately from the Net Accumulation Value of
each underlying investment subject to the charge. For
Sub-Accounts, Accumulation Units are canceled and the value
of the canceled Units withdrawn in the same proportion as
their respective values have to the Net Accumulation Value.
The Monthly Deductions are made on the "Monthly Anniversary
Day", the Date of Issue and the same day of each month
thereafter, or if there is no such date in a given month,
then the first Valuation Day of the next month. If the day
that would otherwise be a Monthly Anniversary Day is not a
Valuation Day, then the Monthly Anniversary Day is the next
Valuation Day.
If the Net Accumulation Value is insufficient to cover the
current Monthly Deduction, you have a 61-day period (Grace
Period) to make a payment sufficient to cover that
deduction. (See LAPSE AND REINSTATEMENT Lapse of a Policy).
MONTHLY DEDUCTION
There is a flat dollar Monthly Deduction of $15 until the
first Policy Anniversary and, currently, $5 thereafter
(guaranteed not to exceed $10 after the first Policy Year).
These charges compensate LLANY for administrative expenses
associated with Policy issue and ongoing Policy maintenance
including premium billing and collection, policy value
calculation, confirmations, periodic reports and other
similar matters.
20
<PAGE>
COST OF INSURANCE CHARGE
The Cost of Insurance is 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.
The Cost of Insurance charge depends on the Age, policy
duration, underwriting category and gender (in accordance
with state law) of the Insured and the current Net Amount at
Risk. The Net Amount at Risk is the Death Benefit minus the
Accumulation Value. The rate on which the Monthly Deduction
for the Cost of Insurance is based will generally increase
as the Insured ages, although the Cost of Insurance charge
could decline if the Net Amount at Risk drops relatively
faster than the Cost of Insurance Rate increases.
The Cost of Insurance charge is determined by dividing the
Death Benefit at the beginning of the Policy Month by
1.0032737 (the monthly equivalent of an annual rate of 4%),
subtracting the Accumulation Value at the beginning of the
Policy Month and multiplying the result (the Net Amount at
Risk) by the applicable Cost of Insurance Rate as determined
by LLANY. The Guaranteed Cost of Insurance Rates are in
Appendix 3.
MORTALITY AND EXPENSE RISK CHARGE
LLANY deducts a daily charge as a percentage of the assets
of the Separate Account as a mortality and expense risk
charge. The mortality risk assumed is that insureds may live
for a shorter period than estimated, and therefore, a
greater amount of death benefit will be payable. The expense
risk assumed is that expenses incurred in issuing and
administering the policies will be greater than estimated.
The mortality and expense risk charge is guaranteed at an
annual rate of 0.75% in Policy Years 1-10, 0.35% in Policy
Years 11-20 and 0.20% in Policy Years 21 and beyond.
21
<PAGE>
FUND EXPENSES
The investment advisor for each of the Funds deducts a daily
charge as a percent of the net assets in each fund as an
asset management charge. The charge reflects asset
management fees of the investment advisor (Management Fees),
and other expenses incurred by the funds (including 12b-1
fees for a class of shares and Other Expenses). The charge
has the effect of reducing the investment results credited
to the Sub-Accounts. Future Fund expenses will vary.
<TABLE>
<CAPTION>
TOTAL ANNUAL
FUND
OPERATING TOTAL FUND
EXPENSES OPERATING
WITHOUT TOTAL WAIVERS EXPENSES WITH
MANAGEMENT 12b-1 OTHER WAIVERS OR AND WAIVERS OR
FUND FEES FEES EXPENSES REDUCTIONS REDUCTIONS REDUCTIONS
- ------------------------------ --------------- ----- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I. Growth Fund.......... 0.64% -- 0.08% 0.72% -- 0.72%
AIM V.I. International Equity
Fund........................ 0.75% -- 0.16% 0.91% -- 0.91%
AIM V.I. Value Fund........... 0.61% -- 0.05% 0.66% -- 0.66%
Baron Capital Asset
Fund--Insurance Shares
(1)......................... 1.00% 0.25% 6.37% 7.62% (6.17%) 1.45%
BT EAFE Index Fund (2)........ 0.45% -- 1.21% 1.66% (1.01%) 0.65%
BT Equity 500 Index Fund
(2)......................... 0.20% -- 0.99% 1.19% (0.89%) 0.30%
BT Small Cap Index Fund (2)... 0.35% -- 1.23% 1.58% (1.13%) 0.45%
Delaware Group Delchester
Series (3).................. 0.65% -- 0.10% 0.75% -- 0.75%
Delaware Group Devon Series
(3)......................... 0.65% -- 0.06% 0.71% -- 0.71%
Delaware Group Emerging
Markets Series (4).......... 1.25% -- 0.42% 1.67% (0.17%) 1.50%
Delaware Group REIT Series
(5)......................... 0.75% -- 0.27% 1.02% (0.17%) 0.85%
Delaware Group Small Cap Value
Series (6).................. 0.75% -- 0.10% 0.85% -- 0.85%
Delaware Group Trend Series
(6)......................... 0.75% 0.10% 0.85% (0.04%) 0.81%
Fidelity VIPII Contrafund
Portfolio -- Service Class
(7)......................... 0.59% 0.10% 0.11% 0.80% -- 0.80%
Fidelity VIPIII Growth
Opportunities Portfolio --
Service Class (7)........... 0.59% 0.10% 0.11% 0.80% -- 0.80%
Janus Aspen Series Balanced
Portfolio (8)............... 0.72% -- 0.02% 0.74% -- 0.74%
Janus Aspen Series Worldwide
Growth Portfolio (8)........ 0.67% -- 0.07% 0.74% (0.02%) 0.72%
LN Bond Fund.................. 0.44% -- 0.13% 0.57% -- 0.57%
LN Capital Appreciation
Fund........................ 0.76% -- 0.07% 0.83% -- 0.83%
LN Equity Income Fund......... 0.72% -- 0.07% 0.79% 0.79%
LN Global Asset Allocation
Fund........................ 0.72% -- 0.19% 0.91% -- 0.91%
LN Money Market Fund.......... 0.48% -- 0.11% 0.59% -- 0.59%
LN Social Awareness Fund...... 0.34% -- 0.04% 0.38% -- 0.38%
MFS Emerging Growth Series
(9)......................... 0.75% -- 0.10% 0.85% -- 0.85%
MFS Total Return Series (9)... 0.75% -- 0.16% 0.91% -- 0.91%
MFS Utilities Series (9)...... 0.75% -- 0.26% 1.01% -- 1.01%
AMT MidCap Growth Portfolio
(10)(11).................... 0.85% -- 0.58% 1.43% (0.43%) 1.00%
AMT Partners Portfolio
(10)(11).................... 0.78% -- 0.06% 0.84% -- 0.84%
Templeton International Fund
-- Class 2 (12)............. 0.69% 0.25% 0.17% 1.11% -- 1.11%
Templeton Stock Fund -- Class
2 (12)...................... 0.70% 0.25% 0.19% 1.14% -- 1.14%
</TABLE>
---------------------------------------------------
(1) The Adviser is contractually obligated to reduce its
fee to the extent required to limit Baron Capital Asset
Fund's total operating expenses to 1.5% for the first
$250 million of assets in the Fund, 1.35% for Fund
22
<PAGE>
assets over $250 million, and 1.25% for Fund assets
over $500 million. Without the expense limitations,
total operating expenses for the Fund for the period
October 1, 1998 through December 31, 1998 would have
been 7.62%
(2) Under the Advisory Agreement with Bankers Trust Company
(the "Advisor"), the Funds will pay an advisory fee at
an annual percentage rate of 0.45%, 0.20% and 0.35% of
the average daily net assets of the Funds for the EAFE
Equity Index Fund, Equity 500 Index Fund and Small Cap
Index Fund, respectively. These fees are accrued daily
and paid monthly. The Advisor has voluntarily
undertaken to waive its fees and to reimburse the Funds
for certain expenses so that the Funds' total operating
expenses will not exceed 0.65%, 0.30% and 0.45% of
average daily net assets for the EAFE Equity Index
Fund, Equity 500 Index Fund and Small Cap Index Fund,
respectively.
(3) The investment advisor for the Devon Series and
Delchester Series is Delaware Management Company, Inc.
("DMC"). Effective May 1, 1999 through October 31,
1999, DMC has voluntarily agreed to waive its
management fees and reimburse each Series for expenses
to the extent that total expenses will not exceed 0.80%
for the Devon Series and 0.80% for the Delchester
Series. Pursuant to a vote of the Fund's shareholders
on March 17, 1999, a new management fee structure based
on average daily net assets was approved as follows:
0.65% on the first $500 million, 0.60% on the next $500
million, 0.55% on the next $1,500 million, 0.50% on
assets in excess of $2,500 million; all per year.
(4) The investment advisor for the Emerging Markets Series
is Delaware International Advisors, Limited ("DIAL").
Effective May 1, 1999 through October 31, 1999, DIAL
has voluntarily agreed to waive its management fees and
reimburse the Series for expenses to the extent that
total expenses will not exceed 1.50% for the Emerging
Market Series. Pursuant to a vote of the Fund's
shareholders on March 17, 1999, a new management fee
structure based on average daily net assets was
approved as follows: 1.25% on the first $500 million,
1.20% on the next $500 million, 1.15% on the next
$1,500 million, 1.10% on assets in excess of $2,500
million; all per year.
(5) The investment advisor for the REIT Series is Delaware
Management Company, Inc. ("DMC"). Effective May 1, 1999
through October 31, 1999, DMC has voluntarily agreed to
waive its management fees and reimburse the Series for
expenses to the extent that total expenses will not
exceed 0.85% for the REIT Series. There is no change to
the current management fee structure.
(6) The investment advisor for the Trend Series and Small
Cap Value Series is Delaware Management Company, Inc.
("DMC"). Effective May 1, 1999 through October 31,
1999, DMC has voluntarily agreed to waive its
management fee and reimburse each Series for expenses
to the extent that total expenses will not exceed 0.85%
for the Trend Series and 0.85% for the Small Cap Value
Series. Pursuant to a vote of the Fund's shareholders
on March 17, 1999, a new management fee structure based
on average daily net assets was approved as follows:
0.75% on the first $500 million, 0.70% on the next $500
million, 0.65% on the next $1,500 million, 0.60% on
assets in excess of $2,500 million; all per year.
(7) A portion of the brokerage commissions that certain
funds pay was used to reduce funds expenses. In
addition, certain funds, or Fidelity Management &
Research on behalf of certain funds, have entered into
arrangements with their custodian whereby realized as a
result of uninvested cash balances were used to reduce
custodian expenses. Including these reductions, the
total operating expenses presented in the table would
have been 0.75% for the VIP II Contrafund Portfolio and
0.79% for the VIP III Growth Opportunities Portfolio.
(8) All expenses are stated both with and without
contractual waivers and fee reductions by Janus
Capital. Fee reductions for the Worldwide Growth and
Balanced Portfolios reduce the Management Fee to the
level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the
Management Fee and then against Other Expenses. Janus
Capital has agreed to continue the waivers and fee
reductions until at least the annual renewal of the
advisory agreement.
(9) 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
disbursing agent. Each series may enter into other such
arrangements and directed brokerage arrangements, which
would also have the effect of reducing the series'
expenses. Expenses do not take into account these
expense reductions, and are therefore higher than the
actual expenses of the series.
(10) Neuberger Berman Advisers Management Trust is divided
into portfolios ("Portfolios"), each of which invests
all of its net investable assets in a corresponding
series ("Series") of Advisers Managers Trust.
23
<PAGE>
The figures reported under "Investment Management and
Administration Fees" include the aggregate of the
administration fees paid by the Portfolio and the
management fees paid by its corresponding Series.
Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding
Series.
(11) NBMI has undertaken to reimburse certain operating
expenses, including the compensation of NBMI (except
with respect to Partners Portfolio) and excluding
taxes, interest, extraordinary expenses, brokerage
commissions and transaction costs, that exceed, in the
aggregate, 1% of the Mid-Cap Growth and Partners
Portfolios' average daily net asset value. These
expense reimbursement agreements are subject to
termination upon 60 days written notice with respect
to the Mid-Cap Growth and Partners Portfolios, and
there can be no assurance that these policies will be
continued thereafter.
(12) Class 2 of the Fund has a distribution plan or "Rule
12b-1 plan" which is described in the Fund's
prospectus.
SURRENDER CHARGES
A generally declining "Surrender Charge" may apply if the
Policy is totally surrendered or lapses during the first
fifteen years following the Date of Issue or the first
fifteen years following an increase in Specified Amount. The
Surrender Charge varies by Age of the Insured, the number of
years since the Date of Issue, and Specified Amount. The
length of the Surrender Charge period varies based on the
Age of the Insured on the date of issue or date of increase
in Specified Amount as follows:
<TABLE>
<CAPTION>
SURRENDER CHARGE
AGE PERIOD
- --------- ---------------------
<S> <C>
0-50 15 years
51 14 years
52 13 years
53 12 years
54 11 years
55+ 10 years
</TABLE>
The charge is in part a deferred sales charge and in part a
recovery of certain first year administrative costs and is
retained by LLANY. The maximum Surrender Charge is included
in each Policy and is in compliance with each state's
nonforfeiture law. Examples of the Surrender Charge can be
seen in Appendix 2.
The Surrender Charge under a Policy is proportional to the
face amount of the Policy. Expressed as a percentage of face
amount, it is higher for older than for younger issue ages.
The Surrender Charge cannot exceed Policy value. All
Surrender Charges decline to zero over the 15 years
following issuance of the Policy. See, for example, the
illustrations in Appendix 4 for issue ages 45 and 55.
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.
Supplemental Policy Specifications will be sent to the Owner
upon an increase in Specified Amount reflecting the maximum
additional Surrender Charge in the Table of Surrender
Charges. 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 (not to exceed 2% of the amount
surrendered) is imposed, allocated pro-rata among the
Sub-Accounts from which the partial surrender proceeds are
taken.
Any surrender may result in tax implications. (SEE TAX
MATTERS)
24
<PAGE>
Based on its actuarial determination, LLANY does not
anticipate that the Surrender Charge, together with the
portion of the premium load attributable to sales expense,
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.
REDUCTION OF CHARGES -- PURCHASES ON A CASE BASIS
This Policy is available for purchases by corporations and
other groups or sponsoring organizations on a Case basis.
LLANY reserves the right to reduce premium loads or any
other charges on certain cases, where it is expected that
the amount or nature of such cases will result in savings of
sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of
reductions will be determined by a number of factors,
including but not limited to, the number of lives to be
insured, the total premiums expected to be paid, total
assets under management for the policy owner, the nature of
the relationship among the insured individuals, the purpose
for which the Policies are being purchased, the expected
persistency of the individual policies and any other
circumstances which LLANY believes to be relevant to the
expected reduction of its expenses. Some of these reductions
may be guaranteed and others may be subject to withdrawal or
modification by LLANY on a uniform Case basis. Reductions in
these charges will not be unfairly discriminatory against
any person, including the affected Policy Owners funded by
Account M.
TRANSACTION FEE FOR EXCESS TRANSFERS
LLANY reserves the right to impose a charge for each
transfer request in excess of 12 in any Policy Year. A
single transfer request may consist of multiple
transactions.
DEATH BENEFITS
The Death Benefit Proceeds is the amount payable to the
Beneficiary upon the death of the Insured, in accordance
with the Death Benefit Option selected. Loans (if any) and
overdue deductions are deducted from the Death Benefit
Proceeds prior to payment.
The applicant must select the Specified Amount of the Death
Benefit, which may not be less than $100,000, and the Death
Benefit Option. The two Death Benefit Options are described
below. The applicant must consider a number of factors in
selecting the Specified Amount, including the amount of
proceeds required when the Insured dies and the Owner's
ability to make Premium Payments. The ability of the Owner
to support the Policy, particularly in later years, is an
important factor in selecting between the Death Benefit
Options, because the greater the Net Amount at Risk at any
time, the more that will be deducted each month from the
value of the Policy to pay the Cost of Insurance.
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available under the
Policy. The Death Benefit Proceeds payable under the Policy
is the greater of (a) the Corridor Death Benefit or (b) the
amount determined under the Death Benefit Option in effect
on the date of the Insured's Death, less (in each case) any
indebtedness under the Policy. In the case of Death Benefit
Option 1, the Specified Amount is reduced by the amount of
any partial surrender. The Corridor Death Benefit is the
applicable percentage (the Corridor Percentage) of the
Accumulation Value (rather than by reference to the
Specified Amount) required to maintain the Policy as a "life
insurance contract" for Federal
25
<PAGE>
income tax purposes. The Corridor Percentage is 250% through
the time the insured reaches Age 40 and decreases in
accordance with the table in Appendix 3 to 100% when the
Insured reaches Age 95.
Death Benefit Option 1 provides Death Benefit Proceeds equal
to the Specified Amount (a minimum of $100,000). If Option 1
is selected, the Policy pays level Death Benefit Proceeds
unless the Minimum Death Benefit exceeds the Specified
Amount. (See DEATH BENEFITS, Federal Income Tax Definition
of Life Insurance).
Death Benefit Option 2 provides Death Benefit Proceeds equal
to the sum of the Specified Amount plus the Net Accumulation
Value as of the date of the Insured's death. If Option 2 is
selected, the Death Benefit Proceeds increase or decrease
over time, depending on the amount of premium paid and the
investment performance of the underlying Sub-Accounts.
If for any reason the applicant fails to affirmatively elect
a particular Death Benefit Option, Death Benefit Option 1
shall apply until changed as provided below.
Owners who prefer insurance coverage that generally does not
vary in amount and generally has lower Cost of Insurance
Charges should elect Option 1. Owners who prefer to have
favorable investment experience reflected in increased
insurance coverage should select Option 2. Under Option 1,
any Surrender Value at the time of the Insured's Death will
revert to LLANY.
CHANGES IN DEATH BENEFIT OPTIONS AND SPECIFIED AMOUNT
All requests for changes between Death Benefit Options and
changes in the Specified Amount must be submitted in proper
written form to the Administrative Office. The minimum
increase in Specified Amount currently permitted is $1,000.
If requested, a supplemental application and evidence of
insurability must also be submitted to LLANY.
In a change from Death Benefit Option 1 to Death Benefit
Option 2, the Specified Amount shall be reduced so it
thereafter equals (a) the amount payable under the Death
Benefit Option in effect immediately before the change,
minus (b) the Accumulation Value immediately before the
change. In a change from Death Benefit Option 2 to Death
Benefit Option 1, the Specified Amount shall be increased so
that it thereafter equals the amount payable under the Death
Benefit Option in effect immediately before the change.
Any reductions in Specified Amount will be made against the
initial Specified Amount and any later increase in the
Specified Amount on a last in, first out basis. Any increase
in the Specified Amount will increase the amount of the
Surrender Charge applicable to the Policy.
LLANY may at its discretion decline any request for a change
between Death Benefit Options or increase in the Specified
Amount. LLANY may at its discretion decline any request for
change of the Death Benefit Option or reduction of the
Specified Amount if, after the change, the Specified Amount
would be less than the minimum Specified Amount or would
reduce the Specified Amount below the level required to
maintain the Policy as life insurance for purposes of
Federal income tax law.
Any change is effective on the first Monthly Anniversary Day
on or after the date of approval of the request by LLANY,
unless the Monthly Deduction Amount would increase as a
result of the change. In that case, the change is effective
on the first Monthly Anniversary Day on which the
Accumulation Value is equal to or greater than the Monthly
Deduction Amount, as increased.
26
<PAGE>
FEDERAL INCOME TAX DEFINITION OF LIFE INSURANCE
The amount of the Death Benefit must satisfy certain
requirements under the Code if the policy is to qualify as
insurance for federal income tax purposes. The amount of the
Death Benefit Proceeds required to be paid under the Code to
maintain the Policy as life insurance under each of the
Death Benefit Options (see INSURANCE COVERAGE PROVISIONS,
Death Benefit) is equal to the product of the Accumulation
Value and the applicable Corridor Percentage. A table of
Corridor Percentages is in Appendix 3.
NOTICE OF DEATH OF INSURED
Due Proof of Death must be furnished to LLANY at the
Administrative Office as soon as reasonably practical after
the death of the Insured, the person whose life is insured
under the Policy. Due Proof of Death must be in proper
written form and includes a certified copy of an official
death certificate, a certified copy of a decree of a court
of competent jurisdiction as to the finding of death, or any
other proof of death satisfactory to LLANY.
PAYMENT OF DEATH BENEFIT PROCEEDS
The Death Benefit Proceeds under the Policy will ordinarily
be paid within seven days, if in a lump sum, or in
accordance with any Settlement Option selected by the Owner
or the Beneficiary, after receipt at the Administrative
Office of Due Proof of Death of the Insured. The amount of
the Death Benefit Proceeds under Option 2 will be determined
as of the date of the Insured's death. Payment of the Death
Benefit Proceeds may be delayed if the Policy is contested
or if Separate Account values cannot be determined.
SETTLEMENT OPTIONS
There are several ways in which the Beneficiary may receive
the Death Benefit Proceeds or in which the Owner may choose
to receive payments upon the surrender of the Policy.
The Owner may elect or change a Settlement Option while the
insured is alive; If the Owner has not irrevocably selected
a Settlement Option, the Beneficiary may do so within 90
days after the Insured dies. If no Settlement Option is
selected, the Death Benefit Proceeds will be paid in a lump
sum.
If the Policy is assigned as collateral security, LLANY will
pay any amount due the assignee in one lump sum. Any
remaining Death Benefit Proceeds will be paid as elected.
A request to elect, change, or revoke a Settlement Option
must be received in proper written form by the
Administrative Office before payment of the lump sum or
under any Settlement Option. 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.
There are at least four Settlement Options:
The first Settlement Option is an annuity for the
lifetime of the payee.
The second Settlement Option is an annuity for the
lifetime of the payee, with monthly payments guaranteed
for 60, 120, 180, or 240 months.
27
<PAGE>
Under the third Settlement Option, LLANY makes monthly
payments for a stated number of years, at least five but
no more than thirty.
Under the fourth Settlement Option, LLANY pays at least
3% interest annually on the sum left on deposit, and pays
the amount on deposit on the payee's death.
Any other Settlement Option offered by LLANY at the time of
election may also be selected.
POLICY LIQUIDITY
The accumulated value of the Policy is available for loans
or withdrawals. Subject to certain limitations, the Owner
may borrow against the Surrender Value of the Policy, may
make a partial surrender of some of the Surrender Value of
the Policy and may fully surrender the Policy for its
Surrender Value.
POLICY LOANS
The Owner may at any time borrow in the aggregate up to 100%
of the Surrender Value at the time a Policy Loan is made.
LLANY may, however, limit the amount of the loan so that the
total Policy indebtedness will not exceed 90% of the amount
of the Accumulation Value less any Surrender Charge that
would be imposed on a full surrender. The Owner must execute
a loan agreement and assign the Policy to LLANY free of any
other assignments. The Loan Account is the account in which
Policy indebtedness (outstanding loans and interest) accrues
once it is transferred out of the Fixed Account or the
Sub-Accounts. Interest on Policy Loans accrues at an annual
rate of 8%, and is payable to LLANY (for its account) once a
year in arrears on each Policy Anniversary, or earlier upon
full surrender or other payment of proceeds of a Policy.
The amount of a loan, plus any accrued but unpaid interest,
is added to the outstanding Policy Loan balance. Unless paid
in advance, any loan interest due will be transferred
proportionately from the values in the Fixed Account and
each Sub-Account, and treated as an additional Policy Loan,
and added to the Loan Account Value.
LLANY credits interest to the Loan Account Value of 7% in
Policy Years 1-10 and 8% thereafter, so the net cost of a
Policy Loan is 1% in years 1-10 and 0% thereafter.
If the Net Accumulation Value is distributed among more than
one of the Sub-Accounts (including for this purpose the
Fixed Account), transfers from each for loans and loan
interest will be made in proportion to the assets in each
such Sub-Account at that time, unless LLANY is instructed
otherwise in proper written form at the Administrative
Office. Repayments on the loan and interest credited on the
Loan Account Value will be allocated according to the most
recent Premium Payment allocation at the time of the
repayment.
A Policy Loan, whether or not repaid, affects the proceeds
payable upon the Death and the Accumulation Value. The
longer a Policy Loan is outstanding, the greater the effect
is likely to be. While an outstanding Policy Loan reduces
the amount of assets invested, depending on the investment
results of the Sub-Accounts, 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 Charges,
the Policy will terminate without value subject to the
conditions in the Grace Period Provision, unless the No
Lapse Provision is in effect. (SEE LAPSE AND REINSTATEMENT,
Lapse of a Policy)
28
<PAGE>
If a Policy lapses while a loan is outstanding, adverse tax
consequences may result.
PARTIAL SURRENDER
You may make a partial surrender at any time while the
Insured is alive by request to the Administrative Office in
proper written form or by telephone, if you have authorized
telephone transactions. A $25 transaction fee (not to exceed
2% of the amount surrendered) is charged for each partial
surrender. Total partial surrenders may not exceed 90% of
the Surrender Value of the Policy. Each partial surrender
may not be less than $500. Partial surrenders are subject to
other limitations as described below.
Partial surrenders may reduce the Specified Amount and, in
each case, reduce the Death Benefit Proceeds. To the extent
that a requested partial surrender would cause the Specified
Amount to be less than $100,000, the partial surrender will
not be permitted by LLANY. In addition, if following a
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
surrender may be limited to the extent necessary to meet the
federal tax law requirements.
The effect of partial surrenders on the Death Benefit
Proceeds depends on the Death Benefit Option elected under
the Policy. If Death Benefit Option 1 has been elected, a
partial surrender would reduce the Accumulation Value and
the Specified Amount. The reduction in the Specified Amount,
which would reduce any past increases on a last in, first
out basis, reduces the amount of the Death Benefit Proceeds.
If Death Benefit Option 2 has been elected, a partial
surrender would reduce the Accumulation Value, but would not
reduce the Specified Amount. The reduction in the
Accumulation Value reduces the amount of the Death Benefit
Proceeds.
If the Net Accumulation Value is distributed among more than
one of the Sub-Accounts, surrenders from each will be made
in proportion to the assets in each Sub-Account at the time
of the surrender, unless LLANY is instructed otherwise in
proper written form at the Administrative Office. LLANY may
at its discretion decline any request for a partial
surrender.
SURRENDER OF THE POLICY
You may surrender the Policy at any time on surrender of the
Policy, LLANY will pay you, or your assignee, the Surrender
Value next computed after receipt of the request in proper
written form at the Administrative Office,and coverage under
the Policy will then automatically terminate.
SURRENDER VALUE
The "Surrender Value" of a Policy is the amount you can
receive in a lump sum by surrendering the Policy. The
Surrender Value is the Net Accumulation Value less the
Surrender Charge (SEE CHARGES AND FEES, Surrender Charge).
All or part of the Surrender Value may be applied to one or
more of the Settlement Options. Surrender Values are
illustrated in Appendix 4.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of loans or of the Surrender Value from any of the
Sub-Accounts will be made within seven days. Payment or
transfer from the Fixed Account may be deferred up to
29
<PAGE>
six months at LLANY's option. If LLANY exercises its right
to defer any payment from the Fixed Account, interest will
accrue and be paid as required by law from the date the
recipient would otherwise have been entitled to receive the
payment.
ASSIGNMENT; CHANGE OF OWNERSHIP
While the Insured is living, you may assign your rights in
the Policy, including the right to change the beneficiary
designation. The assignment must be in proper written form,
signed by you and recorded at the Administrative Office. No
assignment will affect, or prejudice LLANY as to, 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. Any assignment is
subject to any indebtedness owed to LLANY at the time the
assignment is recorded and any interest accrued on such
indebtedness after recordation of any assignment.
Once recorded, the assignment remains effective until
released by the assignee in proper written form. So long as
an effective assignment remains outstanding, you will not be
permitted to take any action with respect to the Policy
without the consent of the assignee in proper written form.
So long as the Insured is living, you may name a new Owner
by recording a change in ownership in proper written form at
the Administrative Office. On recordation, the change will
be effective as of the date of execution of the document of
transfer or, if there is no such date, the date of
recordation. No such change of ownership will affect, or
prejudice LLANY as to, any payment made or action taken by
LLANY before it was recorded. LLANY may require that the
Policy be submitted to it for endorsement before making a
change.
LAPSE AND REINSTATEMENT
LAPSE OF A POLICY
The No Lapse Premium is the cumulative premium required to
have been paid by each Monthly Anniversary Day to prevent
the Policy from lapsing. Except as provided by the No Lapse
Provision, if at any time the Net Accumulation Value is
insufficient to pay the Monthly Deduction, the Policy is
subject to lapse and automatic termination of all coverage
under the Policy. The Net Accumulation Value may be
insufficient (1) because it has been exhausted by earlier
deductions, (2) due to poor investment performance, (3) due
to partial surrenders, (4) due to indebtedness for Policy
Loans, or (5) because of some combination of the foregoing
factors.
If LLANY has not received a Premium Payment or payment of
indebtedness on Policy Loans necessary so that the Net
Accumulation Value is sufficient to pay the Monthly
Deduction Amount on a Monthly Anniversary Day, LLANY will
send a written notice to the Owner and any assignee of
record. The notice will state the amount of the Premium
Payment or payment of indebtedness on Policy Loans necessary
such that the Net Accumulation Value is at least equal to
two times the Monthly Deduction Amount. If the minimum
required amount set forth in the notice is not paid to LLANY
on or before the day that is the later of (a) 31 days after
the date of mailing of the notice, and (b) 61 days after the
date of the Monthly Anniversary Day with respect to which
such notice was sent (together, the Grace Period), then the
policy shall terminate and all coverage under the policy
shall lapse without value.
30
<PAGE>
NO LAPSE PROVISION
The No Lapse Premium is the cumulative premium required to
have been paid by each Monthly Anniversary Day to prevent
the Policy from lapsing. If this Policy has a No Lapse
Premium shown on the specifications, this policy will not
lapse if, at each Monthly Anniversary Day, the sum of all
Premium Payments less any policy loans (including any
accrued loan interest) and partial surrenders is at least
equal to the sum of the No Lapse Premiums (as indicated in
the Policy Specifications) due since the Date of Issue of
the Policy. A Grace Period will be allotted after each
Monthly Anniversary Day on which insufficient premiums have
been paid (see preceding paragraph). The payment of
sufficient additional premiums during the Grace Period will
keep the No Lapse Provision in force.
The No Lapse Provision will terminate if you fail to meet
the premium requirements, if there is an increase in
Specified Amount or if you change the Death Benefit Option.
Once the No Lapse Provision terminates, it cannot be
reinstated.
REINSTATEMENT OF A LAPSED POLICY
After the Policy has lapsed due to the failure to make a
necessary payment before the end of an applicable Grace
Period, it may be reinstated provided (a) it has not been
surrendered, (b) there is an application for reinstatement
in proper written form, (c) evidence of insurability of the
insured is furnished to LLANY and it agrees to accept the
risk, (d) LLANY receives a payment sufficient to keep the
Policy in force for at least two months, and (e) any accrued
loan interest is paid. The effective date of the reinstated
Policy shall be the Monthly Anniversary Day after the date
on which LLANY approves the application for reinstatement.
Surrender Charges will be reinstated as of the Policy Year
in which the Policy lapsed.
If the Policy is reinstated, such reinstatement is effective
on the Monthly Anniversary Day following LLANY approval. The
Accumulation Value at reinstatement will be the Net Premium
Payment then made less all Monthly Deductions due.
If the Surrender 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.
COMMUNICATIONS WITH LLANY
PROPER WRITTEN FORM
Whenever this Prospectus refers to a communication "in
proper written form," it means a written document, in form
and substance reasonably satisfactory to LLANY, received at
the Administrative Office.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only when the
Insured is at least Age 18 and at most Age 80.
31
<PAGE>
DATE OF COVERAGE
The date of coverage will be the Date of Issue, provided the
Insured is alive and prior to any change in the health and
insurability of the Insured as represented in the
application.
INCONTESTABILITY
LLANY will not contest payment of the Death Benefit Proceeds
based on the initial Specified Amount after the Policy has
been in force during the Insured's lifetime for two years
from the Date of Issue. For any increase in Specified Amount
requiring evidence of insurability, LLANY will not contest
payment of the Death Benefit Proceeds based on such an
increase after it has been in force for two years from its
effective date.
MISSTATEMENT OF AGE OR GENDER
If the Age or gender of the Insured has been misstated, the
affected benefits will be adjusted. The amount of the Death
Benefit Proceeds 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 gender 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 Date of Issue, 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.
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.
RIDERS
A Waiver of Monthly Deduction Rider may be added to the
Policy. Under this Rider, LLANY will maintain the Death
Benefit by paying covered monthly deductions during periods
of disability.
TAX ISSUES
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. The Policy should thus receive the same federal
income tax treatment as fixed benefit life insurance.
32
<PAGE>
TAX TREATMENT OF DEATH BENEFIT
The death proceeds payable under a Policy are excludable
from gross income of the Beneficiary under Section 101 of
the Code.
FEDERAL INCOME TAX CONSIDERATIONS
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 Owner is
over 59 1/2 years of Age or disabled.
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 Owner when the Policy is
in jeopardy of becoming a modified endowment contract. 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 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. LLANY will monitor compliance with these tests.
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 Separate
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 must meet certain tests. LLANY
believes the Separate 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
objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code,
LLANY reserves the right to take steps required 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.
LLANY also 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.
33
<PAGE>
A total surrender or termination of the Policy by lapse may
have adverse tax consequences. If the amount received by the
Owner plus total Policy indebtedness exceeds the premiums
paid into the Policy, the excess will generally be treated
as taxable income, 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 Owner or
Beneficiary.
TAXATION OF LLANY
LLANY is taxed as a life insurance company under the Code.
Since the Separate 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 Separate Account
are reinvested and taken into account in determining the
value of Separate Accumulation Units.
LLANY does not initially expect to incur any Federal income
tax liability that would be chargeable to the Separate
Account. Based upon these expectations, no charge is
currently being made against the Separate 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 Separate Account.
LLANY may also incur state and local taxes in addition to
premium taxes. At present, these taxes are not significant.
If they increase, however, additional charges for such taxes
may be made.
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.
FAIR VALUE OF THE POLICY
It is sometimes necessary for tax and other reasons to
determine the "fair value" of the Policy. The fair value of
the Policy is measured differently for different purposes.
It is not necessarily the same as the Accumulation Value or
the Net Accumulation Value, although the amount of the Net
Accumulation Value will typically be important in valuing
the Policy for this purpose. For some but not all purposes,
the fair value of the Policy may be the Surrender Value of
the Policy. The fair value of the Policy may be impacted by
developments other than the performance of the underlying
investments. For example, without regard to any other
factor, it increases as the Insured grows older. Moreover,
on the death of the Insured, it tends to increase
significantly. The Owner should consult with his or her
advisors for guidance as to the appropriate methodology for
determining the fair value of the Policy for a particular
purpose.
34
<PAGE>
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
DIRECTOR Penn-Pacific Life Insurance Co. Formerly:
1801 S. Meyers Road Chairman and CEO [7/88-1/95], Baker,
Oakbrook Terrace, IL 60181 Rakish, Shipley & Politzer, Inc.
J. PATRICK BARRETT Chairman and Chief Executive Officer,
DIRECTOR CARPAT Investments
4605 Watergap
Manlius, NY 13104
DAVID N. BECKER Vice President and Chief Actuarial
SECOND VICE PRESIDENT AND Officer, The Lincoln National Life
APPOINTED ACTUARY Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
THOMAS D. BELL, JR. President and Chief Executive Officer
DIRECTOR [4/95-present], Burson-Marstellar.
230 Park Avenue, South Formerly: Vice Chairman [3/94-5/95],
New York, NY 10003 Gulfstream Aerospace Corp.
JON A. BOSCIA President, Chief Executive Officer and
DIRECTOR Director, Lincoln National Corp.
1300 South Clinton Street [1/98-present], Formerly: President and
Fort Wayne, IN 46802 Chief Executive Officer [10/96-1/98], and
Chief Operating Officer [5/94-10/96], The
Lincoln National Life Insurance Co.
Formerly: President [7/91-5/94] Lincoln
Investment Management Inc.
JOHN H. GOTTA Senior Vice President and General Manager
SECOND VICE PRESIDENT (formerly Vice President) [1/98-present],
350 Church Street The Lincoln National Life Insurance Co.
Hartford, CT 06103 Formerly: Senior Vice President,
Connecticut 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 &
PRESIDENT AND DIRECTOR Annuity Company of New York [7/96-Present]
Formerly: President, [1/82-7/96] The
Holstein Company, Inc.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- -----------------------------------------------------------------------
<S> <C>
BARBARA S. KOWALCZYK Senior Vice President, Corporation
DIRECTOR Planning [5/94-present], Lincoln National
200 East Berry Street Corp.; Formerly: Senior Vice President
Fort Wayne, IN 46802 [7/92-5/94], Lincoln Investment Management
Co.
MARGEURITE L. LACHMAN Managing Director, Schroder Real Estate
DIRECTOR Associates
437 Madison Avenue, 18th
Floor
New York, NY 10022
LOUIS G. MARCOCCIA Senior Vice President, Business, Finance
DIRECTOR and Administrative Services, Syracuse
Skytop Office Building University
Skytop Road
Syracuse, NY 13244-5300
TROY D. PANNING Second Vice President and Chief Financial
SECOND VICE PRESIDENT AND Officer
CHIEF FINANCIAL OFFICER [11/96-present], Lincoln Life & Annuity
Company of New York; Formerly: Accountant
[9/90-11/96], Ernst & Young LLP
JOHN M. PIETRUSKI Chairman of Board, Texas Biotechnology
DIRECTOR Corp.
One Penn Plaza
Suite 3408
New York, NY 10119
LAWRENCE T. ROWLAND President [97-present] Lincoln
DIRECTOR Reinsurance, Formerly: Senior Vice
One Reinsurance Place President (96), Vice President [94-95]
1700 Magnavox Way Lincoln Reinsurance.
Fort Wayne, IN 46804
GABRIEL L. SHAHEEN President, Chief Executive Officer and
DIRECTOR Director [1/98-present], The Lincoln
1300 South Clinton Street National Life Insurance Co. Formerly:
Fort Wayne, IN 46802 Managing Director, Lincoln National (UK)
PLC [12/96-1/98]; President, Lincoln
National Reinsurance Company [7/94-12/96];
Senior Vice President, Lincoln National
Life Reinsurance Company [1/93-7/95]
ROBERT O. SHEPPARD, ESQ. Assistant Vice President, Lincoln Life &
ASSISTANT VICE PRESIDENT Annuity 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
DIRECTOR Financial Officer [1/95-present] Formerly:
200 East Berry Street Senior Vice President [5/92-1/95], Lincoln
Fort Wayne, IN 46802 National Corp.
</TABLE>
36
<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
SECRETARY of New York [7/96-present]; Second Vice
200 East Berry Street President and Secretary, Lincoln National
Fort Wayne, IN 46802 Corporation [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>
DISTRIBUTION OF POLICIES
LLANY intends to offer the Policy 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 ("NASD"). The
principal business address of LFA is 350 Church Street,
Hartford, CT 06103.
The Policy may be sold by individuals, who in addition to
being appointed as life insurance agents for LLANY, are also
registered representatives of LFA or other broker-dealers.
These representatives may receive commission and service
fees up to 98% of the first year premium, plus up to 10% of
all other premiums paid. In lieu of premium-based
commission, LLANY may pay equivalent amounts based on
Accumulation Value. The selling office receives additional
compensation on the first year premium and all additional
premiums. In some situations, the selling office 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 sales charges made under this Policy.
CHANGES OF INVESTMENT POLICY
LLANY may materially change the investment policy of the
Separate Account. LLANY must inform the Owners and obtain
all necessary regulatory approvals. Any change must be
submitted to the various state insurance departments which
shall disapprove it if deemed detrimental to the interests
of the Owners or if it renders LLANY's operations hazardous
to the public. If an Owner objects, the Policy may be
converted to a substantially comparable fixed benefit life
insurance policy offered by LLANY on the life of the
Insured. The 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 from time to time offers 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.
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
37
<PAGE>
form is filed with the New York 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 OWNERS
LLANY maintains Policy records and will mail to each 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 each Sub-Account and any Loan Account Value.
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, Owners will receive statements of significant
transactions, such as changes in Specified Amount, changes
in Death Benefit Option, transfers among Sub-Accounts,
Premium Payments, loans, loan repayments, reinstatement and
termination.
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.
We are a member of the Insurance Marketplace Standards
Association ("IMSA") and may include the IMSA logo and
information about IMSA membership in our advertisements.
Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services
for individually sold life insurance and annuities.
PREPARING FOR YEAR 2000
Many existing computer programs use only two digits in the
date field to identify the year. If left uncorrected these
programs, which were designed and developed without
considering the impact of the upcoming change in the
century, could fail to operate or could produce erroneous
results when processing dates after December 31, 1999. For
example, for a bond with a stated maturity date of July 1,
2000, a computer program could read and store the maturity
date as July 1, 1900. This problem is known by many names,
such as the "Year 2000 Problem", "Y2K", and the "Millenium
Bug".
38
<PAGE>
The Year 2000 Problem affects virtually all computer
programs worldwide. It can cause a computer system to
suddenly stop operating. It can also result in a computer
corrupting vital company records, and the problem could go
undetected for a long time. For our products, if left
unchecked it could cause such problems as contributions
collection and deposit errors; claim payment difficulties;
accounting errors; erroneous unit values; and difficulties
or delays in processing transfers, surrenders and
withdrawals. In a worst case scenario, this could result in
a material disruption to the operations of LLANY and of
Lincoln Life and Delaware Service Company Inc. (Delaware),
affiliates of LLANY and providers of the accounting and
valuation services for the Separate Account.
However, both provider companies (Lincoln Life and Delaware)
are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC
projects aggregate expenditures in excess of $92 million for
its Y2K efforts through the year 2000. Both Lincoln Life and
Delaware have dedicated Year 2000 teams and steering
committees that are answerable to their counterparts in LNC.
LLANY also has a dedicated Year 2000 team and is
coordinating its activities with those of Lincoln Life,
Delaware and LNC.
In light of the potential problems discussed above, LLANY,
as part of its Year 2000 updating process, has assumed
responsibility for correcting all high-priority Information
Technology (IT) systems which service the Separate Account.
Delaware is responsible for updating all its high-priority
IT systems to support these vital services. The Year 2000
efforts for both IT and non-IT systems, is organized into
four phases:
- awareness-raising and inventory of all assets (including
third-party agent and vendor relationships)
- assessment and high-level planning and strategy
- remediation of affected systems and equipment; and
- testing to verify Year 2000 readiness.
All three companies are currently on schedule to have their
high-priority IT systems remediated and tested to
demonstrate readiness by June 30, 1999. During the third and
fourth quarters of 1999 additional testing of the
environment will continue. All three companies are currently
on schedule to have their high-priority non-IT systems
(elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant
delays; however, some uncertainty remains. Specific factors
that give rise to this uncertainty include (but are
certainly not limited to) a possible loss of technical
resources to perform the work; failure to identify all
susceptible systems; and non-compliance by third parties
whose systems and operations impact LLANY. In a report dated
February 26, 1999, entitled INVESTIGATING THE IMPACT OF THE
YEAR 2000 TECHNOLOGY PROBLEM, S. Rpt. 106-10, the U.S.
Senate Special Committee on the Year 2000 Technology Problem
expressed its concern that "Financial services firms...are
particularly vulnerable to...the risk that a material
customer or business partner will fail, as a result of the
computer problems, to meet its obligations".
One important source of uncertainty is the extent to which
the key trading partners of LLANY, Lincoln Life and of
Delaware will be successful in their own remediation and
testing efforts. LLANY, Lincoln Life and Delaware have been
monitoring the progress of their trading partners; however,
the efforts of these partners are beyond our control.
39
<PAGE>
LLANY, Lincoln Life and Delaware expect to have completed
their necessary remediation and testing efforts prior to
December 31, 1999. However, given the nature and complexity
of the problem, there can be no guarantee by any of the
three companies that there will not be significant computer
problems after December 31, 1999.
LEGAL PROCEEDINGS
LLANY may be involved in various pending or threatened legal
proceedings arising from the conduct of its business. Most
of these proceedings are routine and in the ordinary course
of business.
EXPERTS
The statutory-basis financial statements of LLANY appearing
in this prospectus and registration statement have been
audited by Ernst & Young, LLP, independent auditors, as set
forth in their report which appears elsewhere in this
document and in the registration statement. The financial
statement 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 Vaughn W. Robbins, 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, Esq., 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.
40
<PAGE>
APPENDIX 1
GUARANTEED MAXIMUM COST OF INSURANCE RATES
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>
41
<PAGE>
APPENDIX 2
ILLUSTRATION OF SURRENDER CHARGES
The initial Surrender Charge is calculated as (a) times (b),
plus (c), with that result not to exceed (d), where
(a) is 1.25;
(b) is the curtate net level premium for the Specified
Amount of insurance, calculated using the 1980
Commissioners Standard Ordinary mortality table and 4%
interest;
(c) is $10 per $1000 of Specified Amount; and
(d) is $50 per $1000 of Specified Amount.
The Surrender Charge decreases from its initial amount to
zero over a period of at most 15 years. If the insured's Age
at issue is 55 or greater, then the Surrender Charge
decreases to zero over a period of ten years. In general
terms, the initial Surrender Charge is amortized in
proportion to a twenty year life contingent annuity due,
with a further reduction in the final years of the surrender
charge period. In formulas, the Surrender Charge a point in
time "t" years after issue is (a) times (b) times (c), where
(a) is the initial Surrender Charge;
(b) is the ratio of a life contingent annuity due beginning
at time t and ending 20 years after issue, divided by a
life contingent annuity due beginning at issue and
ending 20 years after issue, both calculated using the
1980 Commissioners Standard Ordinary mortality table and
4% interest; and
(c) is a durational factor depending on the issue Age and
policy year "t". Values are shown below for issue Age 50
or less, and for issue Age 55 or more. Values for Ages
51 through 54 fall in between these values.
<TABLE>
<CAPTION>
AGE 50 AGES 55
T OR LESS OR MORE
------------ ----------- -------------
<S> <C> <C>
7 or less 100% 75%
8 100% 50%
9 100% 25%
10 100% 0%
11 80% 0%
12 60% 0%
13 40% 0%
14 20% 0%
15 or more 0% 0%
</TABLE>
EXAMPLE 1: A male, Age 45, purchases a policy with a
Specified Amount of $100,000.
The initial Surrender Charge is computed as follows:
net level premium = 1987.66
$10 per $1000 of Specified Amount = $1000
$50 per $1000 of Specified Amount = $5000
initial Surrender Charge = 1.25 X $1987.66 + 1000 =
$3,484.57, which is less than $5000.
42
<PAGE>
This amount decreased to zero over 15 years as follows:
<TABLE>
<CAPTION>
YEARS INITIAL
AFTER SURRENDER ANNUITY DURATIONAL SURRENDER
ISSUE CHARGE RATIO FACTOR CHARGE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
0 $3,484.57 1.00000 100% 3,484.57
1 $3,484.57 0.96609 100% 3,366.42
2 $3,484.57 0.93101 100% 3,244.18
3 $3,484.57 0.89471 100% 3,117.68
4 $3,484.57 0.85711 100% 2,986.67
5 $3,484.57 0.81818 100% 2,850.99
6 $3,484.57 0.77782 100% 2,710.36
7 $3,484.57 0.73600 100% 2,564.64
8 $3,484.57 0.69265 100% 2,413.59
9 $3,484.57 0.64769 100% 2,256.93
10 $3,484.57 0.60104 100% 2,094.38
11 $3,484.57 0.55257 80% 1,540.37
12 $3,484.57 0.50212 60% 1,049.80
13 $3,484.57 0.44952 40% 626.55
14 $3,484.57 0.39456 20% 274.97
15 $3,484.57 0.33701 0% 0.00
</TABLE>
EXAMPLE 2: A female, Age 55, purchases a policy with a
Specified Amount of $200,000.
The initial Surrender Charge is computed as follows:
net level premium = $4,996.55
$10 per $1000 of Specified Amount = $2,000
$50 per $1000 of Specified Amount = $10,000
initial Surrender Charge = 1.25 X $4996.55 + 2000 =
$8,245.68, which is less than $10,000.
This amount decreased to zero over 10 years as follows:
<TABLE>
<CAPTION>
YEARS INITIAL
AFTER SURRENDER ANNUITY DURATIONAL SURRENDER
ISSUE CHARGE RATIO FACTOR CHARGE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
0 $8,245.68 1.00000 100% 8,245.68
1 $8,245.68 0.96649 100% 7,969.40
2 $8,245.68 0.93185 100% 7,683.73
3 $8,245.68 0.89596 100% 7,387.80
4 $8,245.68 0.85871 100% 7,080.67
5 $8,245.68 0.82003 100% 6,761.74
6 $8,245.68 0.77986 100% 6,430.50
7 $8,245.68 0.73818 75% 4,565.07
8 $8,245.68 0.69496 50% 2,885.22
9 $8,245.68 0.65022 25% 1,340.37
10 $8,245.68 0.60387 0% 0.00
</TABLE>
43
<PAGE>
APPENDIX 3
CORRIDOR PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED AGE OF
THE INSURED CORRIDOR
(NEAREST BIRTHDAY) PERCENTAGE
- ---------------------- -------------
<S> <C>
0-40 250%
41 243%
42 236%
43 229%
44 222%
45 215%
46 209%
47 203%
48 197%
49 191%
50 185%
51 178%
52 171%
53 164%
54 157%
55 150%
56 146%
57 142%
58 138%
59 134%
60 130%
61 128%
62 126%
63 124%
64 122%
65 120%
66 119%
67 118%
68 117%
69 116%
70 115%
71 113%
72 111%
73 109%
74 107%
75-90 105%
91 104%
92 103%
93 102%
94 101%
95-99 100%
</TABLE>
44
<PAGE>
APPENDIX 4
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES, AND
DEATH BENEFIT PROCEEDS
The illustrations in this Prospectus have been prepared to
help show how values under the Policies change with
investment performance. The illustrations illustrate how
Accumulation Values, Surrender Values and Death Benefit
Proceeds 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 Benefit Proceeds 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 Proceeds 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 mortality and expense risk charges are
equivalent to an annual effective rate of 0.75% of the daily
net asset value of the Separate Account in years 1-10, 0.35%
in years 11-20 and 0.20% in years 21 and later. 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 0.82% of the daily net asset
value of the Separate Account. This rate reflects an
arithmetic average of total Fund portfolio annual expenses
for the year ending December 31, 1998.
Considering 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 annual rates of
-1.57%, 4.43% and 10.43%, for years 1-10, -1.17%, 4.83% and
10.83% in years 11-20, and -1.02%, 4.98% and 10.98% in years
21 and later.
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 preferred and standard.
Policies issued on a substandard basis would result in lower
Accumulation Values and Death Benefit Proceeds than those
illustrated.
The illustrations also reflect the fact that LLANY deducts a
premium load of 5% from 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 fifteen Policy Years. Surrender
Charges reflect, in part, age and Specified Amount, and are
shown in the illustrations.
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 a flat dollar charge of $15 per month in the first
year. Current values reflect a current flat dollar monthly
administrative expense charge of $5 (and guaranteed values,
$10) in subsequent Policy 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.
45
<PAGE>
MALE AGE 45 NONSMOKER
PREFERRED -- $5,396 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 5,666 500,000 500,000 500,000 3,447 3,701 3,955 0 0 0
2 11,615 500,000 500,000 500,000 5,984 6,682 7,413 0 0 0
3 17,861 500,000 500,000 500,000 8,299 9,610 11,042 0 0 0
4 24,420 500,000 500,000 500,000 10,387 12,473 14,853 0 0 177
5 31,306 500,000 500,000 500,000 12,228 15,247 18,844 0 1,238 4,835
6 38,537 500,000 500,000 500,000 13,811 17,915 23,024 493 4,597 9,706
7 46,130 500,000 500,000 500,000 15,097 20,430 27,374 2,495 7,828 14,772
8 54,102 500,000 500,000 500,000 16,057 22,752 31,884 4,197 10,892 20,024
9 62,473 500,000 500,000 500,000 16,651 24,833 36,533 5,561 13,743 25,443
10 71,262 500,000 500,000 500,000 16,836 26,612 41,296 6,544 16,321 31,004
15 122,257 500,000 500,000 500,000 10,938 30,070 67,992 10,938 30,070 67,992
20 187,341 0 500,000 500,000 0 16,073 96,586 0 6,073 96,586
25 270,407 0 0 500,000 0 0 120,730 0 0 120,730
30 376,421 0 0 500,000 0 0 122,105 0 0 122,105
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
46
<PAGE>
MALE AGE 45 NONSMOKER
PREFERRED -- $5,396 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 5,666 500,000 500,000 500,000 3,447 3,701 3,955 0 0 0
2 11,615 500,000 500,000 500,000 6,871 7,598 8,356 0 0 0
3 17,861 500,000 500,000 500,000 10,139 11,562 13,107 0 0 0
4 24,420 500,000 500,000 500,000 13,279 15,623 18,274 0 947 3,598
5 31,306 500,000 500,000 500,000 16,317 19,812 23,930 2,307 5,803 9,920
6 38,537 500,000 500,000 500,000 19,279 24,162 30,153 5,961 10,844 16,835
7 46,130 500,000 500,000 500,000 22,145 28,658 36,983 9,543 16,056 24,381
8 54,102 500,000 500,000 500,000 24,803 33,192 44,369 12,943 21,332 32,509
9 62,473 500,000 500,000 500,000 27,416 37,931 52,541 16,326 26,841 41,451
10 71,262 500,000 500,000 500,000 29,919 42,819 61,516 19,628 32,527 51,225
15 122,257 500,000 500,000 500,000 40,320 69,763 122,944 40,320 69,763 122,944
20 187,341 500,000 500,000 500,000 46,993 101,131 224,857 46,993 101,131 224,857
25 270,407 500,000 500,000 500,000 50,188 139,743 402,074 50,188 139,743 402,074
30 376,421 500,000 500,000 755,782 43,660 182,859 706,338 43,660 182,859 706,338
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
47
<PAGE>
MALE AGE 55 NONSMOKER
PREFERRED -- $9,184 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 9,643 500,000 500,000 500,000 5,873 6,306 6,740 0 0 0
2 19,768 500,000 500,000 500,000 8,778 9,927 11,134 0 0 0
3 30,400 500,000 500,000 500,000 11,173 13,240 15,512 0 0 0
4 41,563 500,000 500,000 500,000 13,030 16,197 19,848 0 0 0
5 53,284 500,000 500,000 500,000 14,318 18,747 24,106 0 0 3,950
6 65,591 500,000 500,000 500,000 14,976 20,807 28,221 0 1,637 9,051
7 78,514 500,000 500,000 500,000 14,934 22,280 32,115 1,318 8,664 18,499
8 92,083 500,000 500,000 500,000 14,100 23,041 35,678 5,545 14,486 27,124
9 106,330 500,000 500,000 500,000 12,361 22,938 38,775 8,353 18,931 34,767
10 121,290 500,000 500,000 500,000 9,604 21,812 41,256 9,604 21,812 41,256
15 208,084 0 0 500,000 0 0 39,330 0 0 39,330
20 318,858 0 0 0 0 0 0 0 0 0
25 460,236 0 0 0 0 0 0 0 0 0
30 640,675 0 0 0 0 0 0 0 0 0
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
48
<PAGE>
MALE AGE 55 NONSMOKER
PREFERRED -- $9,184 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 9,643 500,000 500,000 500,000 5,873 6,306 6,740 0 0 0
2 19,768 500,000 500,000 500,000 11,485 12,718 14,005 0 0 0
3 30,400 500,000 500,000 500,000 16,747 19,147 21,758 0 0 0
4 41,563 500,000 500,000 500,000 21,755 25,693 30,154 641 4,578 9,040
5 53,284 500,000 500,000 500,000 26,467 32,316 39,221 6,311 12,160 19,065
6 65,591 500,000 500,000 500,000 31,021 39,159 49,178 11,850 19,989 30,007
7 78,514 500,000 500,000 500,000 35,442 46,262 60,153 21,826 32,646 46,537
8 92,083 500,000 500,000 500,000 39,713 53,620 72,246 31,159 45,066 63,691
9 106,330 500,000 500,000 500,000 43,678 61,091 85,431 39,670 57,084 81,424
10 121,290 500,000 500,000 500,000 47,264 68,613 99,775 47,264 68,613 99,775
15 208,084 500,000 500,000 500,000 61,104 109,864 199,266 61,104 109,864 199,266
20 318,858 500,000 500,000 500,000 64,002 154,726 368,268 64,002 154,726 368,268
25 460,236 500,000 500,000 704,375 45,823 199,876 670,833 45,823 199,876 670,833
30 640,675 0 500,000 1,236,622 0 246,534 1,177,735 0 246,534 1,177,735
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
49
<PAGE>
FEMALE AGE 45 NONSMOKER
PREFERRED -- $4,391 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 4,611 500,000 500,000 500,000 2,848 3,056 3,265 0 0 0
2 9,452 500,000 500,000 500,000 4,996 5,570 6,172 0 0 0
3 14,535 500,000 500,000 500,000 6,996 8,079 9,262 0 0 0
4 19,872 500,000 500,000 500,000 8,837 10,569 12,543 0 0 20
5 25,477 500,000 500,000 500,000 10,512 13,031 16,026 0 1,074 4,069
6 31,361 500,000 500,000 500,000 12,009 15,449 19,720 638 4,079 8,350
7 37,540 500,000 500,000 500,000 13,322 17,814 23,641 2,561 7,053 12,880
8 44,028 500,000 500,000 500,000 14,434 20,105 27,797 4,306 9,977 17,669
9 50,840 500,000 500,000 500,000 15,320 22,291 32,187 5,851 12,821 22,718
10 57,992 500,000 500,000 500,000 15,977 24,363 36,837 7,192 15,578 28,052
15 99,491 500,000 500,000 500,000 16,209 33,499 66,556 16,209 33,499 66,556
20 152,456 500,000 500,000 500,000 8,886 37,309 109,847 8,886 37,309 109,847
25 220,053 0 500,000 500,000 0 25,910 172,663 0 25,910 172,663
30 306,326 0 0 500,000 0 0 269,279 0 0 269,279
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
50
<PAGE>
FEMALE AGE 45 NONSMOKER
PREFERRED -- $4,391 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 4,611 500,000 500,000 500,000 2,848 3,056 3,265 0 0 0
2 9,452 500,000 500,000 500,000 5,695 6,292 6,915 0 0 0
3 14,535 500,000 500,000 500,000 8,460 9,632 10,905 0 0 0
4 19,872 500,000 500,000 500,000 11,143 13,082 15,272 0 559 2,750
5 25,477 500,000 500,000 500,000 13,749 16,648 20,058 1,792 4,691 8,101
6 31,361 500,000 500,000 500,000 16,229 20,287 25,258 4,859 8,917 13,888
7 37,540 500,000 500,000 500,000 18,588 24,005 30,919 7,827 13,244 20,158
8 44,028 500,000 500,000 500,000 20,829 27,809 37,094 10,701 17,681 26,966
9 50,840 500,000 500,000 500,000 23,001 31,751 43,888 13,532 22,282 34,419
10 57,992 500,000 500,000 500,000 25,107 35,841 51,371 16,322 27,056 42,586
15 99,491 500,000 500,000 500,000 34,831 59,380 103,510 34,831 59,380 103,510
20 152,456 500,000 500,000 500,000 42,183 87,543 190,039 42,183 87,543 190,039
25 220,053 500,000 500,000 500,000 47,750 123,064 339,163 47,750 123,064 339,163
30 306,326 500,000 500,000 636,737 48,704 165,579 595,081 48,704 165,579 595,081
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
51
<PAGE>
FEMALE AGE 55 NONSMOKER
PREFERRED -- $7,260 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 7,623 500,000 500,000 500,000 4,819 5,166 5,515 0 0 0
2 15,627 500,000 500,000 500,000 7,805 8,750 9,740 0 0 0
3 24,032 500,000 500,000 500,000 10,545 12,291 14,202 0 0 0
4 32,857 500,000 500,000 500,000 13,052 15,799 18,943 0 0 1,499
5 42,123 500,000 500,000 500,000 15,315 19,262 23,983 0 2,604 7,325
6 51,852 500,000 500,000 500,000 17,311 22,651 29,332 1,469 6,809 13,490
7 62,068 500,000 500,000 500,000 18,981 25,904 34,966 7,734 14,657 23,719
8 72,794 500,000 500,000 500,000 20,247 28,934 40,844 13,189 21,875 33,785
9 84,057 500,000 500,000 500,000 21,006 31,625 46,894 17,704 28,323 43,592
10 95,883 500,000 500,000 500,000 21,181 33,882 53,069 21,181 33,882 53,069
15 164,496 500,000 500,000 500,000 12,484 37,517 87,684 12,484 37,517 87,684
20 252,066 0 500,000 500,000 0 15,388 124,838 0 15,388 124,838
25 363,830 0 0 500,000 0 0 145,464 0 0 145,464
30 506,473 0 0 500,000 0 0 95,062 0 0 95,062
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
52
<PAGE>
FEMALE AGE 55 NONSMOKER
PREFERRED -- $7,260 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 7,623 500,000 500,000 500,000 4,819 5,166 5,515 0 0 0
2 15,627 500,000 500,000 500,000 9,466 10,462 11,503 0 0 0
3 24,032 500,000 500,000 500,000 13,884 15,833 17,952 0 0 0
4 32,857 500,000 500,000 500,000 18,138 21,346 24,980 694 3,904 7,536
5 42,123 500,000 500,000 500,000 22,199 26,982 32,620 5,541 10,324 15,962
6 51,852 500,000 500,000 500,000 26,158 32,834 41,032 10,316 16,992 25,190
7 62,068 500,000 500,000 500,000 30,022 38,921 50,308 18,776 27,674 39,062
8 72,794 500,000 500,000 500,000 33,789 45,251 60,542 26,731 38,192 53,483
9 84,057 500,000 500,000 500,000 37,344 51,722 71,724 34,042 48,420 68,422
10 95,883 500,000 500,000 500,000 40,654 58,307 83,931 40,654 58,307 83,931
15 164,496 500,000 500,000 500,000 55,084 95,594 168,935 55,084 95,594 168,935
20 252,066 500,000 500,000 500,000 64,351 139,748 312,471 64,351 139,748 312,471
25 363,830 500,000 500,000 592,552 61,706 188,993 564,336 61,706 188,993 564,336
30 506,473 500,000 500,000 1,040,042 36,023 240,083 990,516 36,023 240,083 990,516
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
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 mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
53
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------- ------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTED ASSETS:
Bonds $1,435,882,019 $593,431,718
- ----------------------------------------------------------------------------
Common stocks 155,039 --
- ----------------------------------------------------------------------------
Mortgage loans on real estate 184,503,805 --
- ----------------------------------------------------------------------------
Policy loans 170,372,567 39,054,927
- ----------------------------------------------------------------------------
Cash and short-term investments 143,546,873 163,773,594
- ----------------------------------------------------------------------------
Other invested assets 60,000 --
- ----------------------------------------------------------------------------
Receivable for securities 3,477,120 34,804
- ---------------------------------------------------------------------------- -------------- ------------
Total cash and invested assets 1,937,997,423 796,295,043
- ----------------------------------------------------------------------------
Premiums and fees in course of collection 6,959,116 --
- ----------------------------------------------------------------------------
Accrued investment income 25,925,055 10,706,003
- ----------------------------------------------------------------------------
Other admitted assets 438,335 335,728
- ----------------------------------------------------------------------------
Separate account assets 236,861,781 164,721,012
- ---------------------------------------------------------------------------- -------------- ------------
Total admitted assets $2,208,181,710 $972,057,786
- ---------------------------------------------------------------------------- -------------- ------------
-------------- ------------
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 851,746,596 $ 1,214,524
- ----------------------------------------------------------------------------
Other policyholder funds 962,725,311 587,465,491
- ----------------------------------------------------------------------------
Other liabilities 44,824,520 6,784,652
- ----------------------------------------------------------------------------
Federal income taxes recoverable (3,206,611) (342,378)
- ----------------------------------------------------------------------------
Asset valuation reserve 5,374,594 2,350,411
- ----------------------------------------------------------------------------
Interest maintenance reserve 5,051,304 2,594,552
- ----------------------------------------------------------------------------
Net transfers due from separate accounts (6,915,063) (5,582,705)
- ----------------------------------------------------------------------------
Separate account liabilities 236,861,781 164,721,012
- ---------------------------------------------------------------------------- -------------- ------------
Total liabilities 2,096,462,432 759,205,559
- ----------------------------------------------------------------------------
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 384,128,481 227,407,481
- ----------------------------------------------------------------------------
Unassigned surplus -- deficit (274,409,203) (16,555,254)
- ---------------------------------------------------------------------------- -------------- ------------
Total capital and surplus 111,719,278 212,852,227
- ---------------------------------------------------------------------------- -------------- ------------
Total liabilities and capital and surplus $2,208,181,710 $972,057,786
- ---------------------------------------------------------------------------- -------------- ------------
-------------- ------------
</TABLE>
See accompanying notes. S-1
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996
-------------- ------------ ---------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $1,291,566,984 $184,112,330 $ 631,355,849
- -----------------------------------------------------------
Net investment income 105,083,579 43,953,796 10,769,172
- -----------------------------------------------------------
Surrender and administrative charges 2,834,073 1,334,705 310,991
- -----------------------------------------------------------
Mortality and expense charges on deposit funds 1,980,728 1,548,722 --
- -----------------------------------------------------------
Amortization of the interest maintenance reserve 579,137 370,129 205,255
- -----------------------------------------------------------
Other revenues 536,698 183,048 18,347
- ----------------------------------------------------------- -------------- ------------ ---------------
Total revenues 1,402,581,199 231,502,730 642,659,614
- -----------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 1,320,787,190 72,475,389 640,912,693
- -----------------------------------------------------------
Commissions 274,529,390 2,459,308 18,931,151
- -----------------------------------------------------------
Underwriting, insurance and other expenses 28,064,172 8,012,925 1,801,204
- -----------------------------------------------------------
Net transfers to separate accounts 33,875,951 141,027,195 --
- ----------------------------------------------------------- -------------- ------------ ---------------
Total benefits and expenses 1,657,256,703 223,974,817 661,645,048
- ----------------------------------------------------------- -------------- ------------ ---------------
Gain (loss) from operations before dividends to
policyholders, federal income taxes (benefit) and net
realized loss on investments (254,675,504) 7,527,913 (18,985,434)
- -----------------------------------------------------------
Dividends to policyholders 3,375,629 -- --
- ----------------------------------------------------------- -------------- ------------ ---------------
Gain (loss) from operations before federal income taxes
(benefit) and net realized loss on investments (258,051,133) 7,527,913 (18,985,434)
- -----------------------------------------------------------
Federal income taxes (benefit) (4,561,826) 1,942,625 (391,144)
- ----------------------------------------------------------- -------------- ------------ ---------------
Gain (loss) from operations before net realized loss on
investments (253,489,307) 5,585,288 (18,594,290)
- -----------------------------------------------------------
Net realized loss on investments (721,449) (73,398) (855)
- ----------------------------------------------------------- -------------- ------------ ---------------
Net income (loss) $ (254,210,756) $ 5,511,890 $ (18,595,145)
- ----------------------------------------------------------- -------------- ------------ ---------------
-------------- ------------ ---------------
</TABLE>
See accompanying notes.
S-2
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS -- CAPITAL AND
STOCK SURPLUS DEFICIT SURPLUS
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at June 6, 1996 $ -- $ -- $ -- $ --
Add (deduct):
Capital paid-in 2,000,000 -- -- 2,000,000
- -------------------------------------------------
Surplus paid-in -- 69,000,000 -- 69,000,000
- -------------------------------------------------
Net loss -- -- (18,595,145) (18,595,145)
- -------------------------------------------------
Increase in nonadmitted assets -- -- (1,100,310) (1,100,310)
- -------------------------------------------------
Increase in asset 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
Add (deduct):
Surplus paid-in -- 156,721,000 -- 156,721,000
- -------------------------------------------------
Net loss -- -- (254,210,756) (254,210,756)
- -------------------------------------------------
Increase in unrealized capital losses -- -- (178,648) (178,648)
- -------------------------------------------------
Decrease in nonadmitted assets -- -- 241,698 241,698
- -------------------------------------------------
Increase in asset valuation reserve -- -- (3,024,183) (3,024,183)
- -------------------------------------------------
Increase in liability for reinsurance in
unauthorized companies -- -- (682,060) (682,060)
- ------------------------------------------------- ---------- ------------- ------------- -------------
Balances at December 31, 1998 $2,000,000 $ 384,128,481 $(274,409,203) $ 111,719,278
- ------------------------------------------------- ---------- ------------- ------------- -------------
---------- ------------- ------------- -------------
</TABLE>
See accompanying notes. S-3
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996
TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996
--------------- ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds, and other considerations received $ 1,284,669,810 $184,112,330 $631,355,849
- ------------------------------------------------------------
Investment income received 96,331,551 43,781,378 1,837,439
- ------------------------------------------------------------
Benefits paid (83,399,329) (85,008,691) (23,169,165)
- ------------------------------------------------------------
Insurance expenses paid (351,272,500) (154,355,904) (20,919,059)
- ------------------------------------------------------------
Federal income taxes received (paid) 1,703,193 (1,893,859) --
- ------------------------------------------------------------
Dividends to policyholders 2,651,237 -- --
- ------------------------------------------------------------
Other income received and expenses paid, net 39,064,672 1,613,631 329,338
- ------------------------------------------------------------ --------------- ------------ -------------
Net cash provided by (used in) operating activities 989,748,634 (11,751,115) 589,434,402
- ------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 249,409,117 272,961,178 366,021,652
- ------------------------------------------------------------
Purchase of investments (1,280,892,696) (265,700,363) (965,220,343)
- ------------------------------------------------------------
Net decrease (increase) in policy loans (131,317,640) 1,554,149 (40,609,076)
- ------------------------------------------------------------ --------------- ------------ -------------
Net cash provided by (used in) investing activities (1,162,801,219) 8,814,964 (639,807,767)
- ------------------------------------------------------------
FINANCING AND MISCELLANEOUS ACTIVITIES
Capital and surplus paid-in 156,721,000 158,407,481 71,000,000
- ------------------------------------------------------------
Other (3,895,136) (11,032,743) (1,291,628)
- ------------------------------------------------------------ --------------- ------------ -------------
Net cash provided by financing activities 152,825,864 147,374,738 69,708,372
- ------------------------------------------------------------ --------------- ------------ -------------
Increase (decrease) in cash and short-term investments (20,226,721) 144,438,587 19,335,007
- ------------------------------------------------------------
Total cash and short-term investments at beginning of year 163,773,594 19,335,007 --
- ------------------------------------------------------------ --------------- ------------ -------------
Total cash and short-term investments at end of year $ 143,546,873 $163,773,594 $19,335,007
- ------------------------------------------------------------ --------------- ------------ -------------
--------------- ------------ -------------
</TABLE>
See accompanying notes.
S-4
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND OPERATIONS
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 principal business consists of underwriting annuities,
deposit-type contracts and life and health insurance sold through multiple
distribution channels. The Company is licensed to do business in New York
State.
USE OF ESTIMATES
The nature of the insurance and investment management businesses requires
management to make estimates and assumptions that affect amounts reported in
the statutory basis 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. In 1998, the NAIC adopted codified statutory
accounting principles ("Codification"). 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 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
Department must adopt Codification as the prescribed basis of accounting on
which domestic insurers must report their statutory basis results. At this
time, it is unclear whether the Department will adopt Codification.
Management has not yet determined the impact of Codification 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 cost or amortized cost or fair 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 related amortization of deferred acquisition costs,
additional policyholder commitment and deferred income taxes.
Changes between cost and admitted asset investment amounts are credited or
charged directly to unassigned surplus rather than to a separate surplus
account.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of bonds and mortgage loans
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 ("IMR") in the accompanying balance sheets. Realized capital gains
and losses are reported in income net of federal income tax and transfers to
IMR. The asset valuation reserve ("AVR") is determined by an NAIC prescribed
formula and is reported as a liability rather than a reduction to unassigned
surplus. Under GAAP, realized capital gains and losses are reported in the
income statement on a pretax
S-5
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
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.
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 AND DEPOSITS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts are reported as premium 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.
BENEFITS AND SETTLEMENT EXPENSES
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 operations; 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
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs. Business
assumed under 100% indemnity and assumption reinsurance agreements is
accounted for as a purchase for GAAP reporting purposes and the ceding
commission represents the purchase price. Under purchase accounting, assets
acquired and liabilities assumed are reported at fair value at the date of
the transaction and the excess of the purchase price over the sum of the
amounts assigned to assets acquired less liabilities assumed is recorded as
goodwill. On a statutory basis of accounting, the ceding commission is
expensed when paid.
Premiums, benefits and settlement expenses and policy benefits and contract
liabilities are reported in the accompanying financial statements net of
reinsurance amounts. Under GAAP, such amounts are reported on a gross basis.
A liability for reinsurance balances has been provided for unsecured policy
and contract liabilities and unearned premiums ceded to reinsurers not
authorized by the Department to assume such business. Changes to those
amounts are credited or charged directly to unassigned surplus. Under GAAP,
an allowance for amounts deemed uncollectible is established through a
charge to income.
INCOME TAXES
Deferred income taxes are not provided for differences between financial
statement amounts and tax bases of assets and liabilities.
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
S-6
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less
from the date of acquisition. Under GAAP, the corresponding captions of cash
and cash equivalents include cash balances and investments with initial
maturities of three months or less from the date of acquisition.
A reconciliation of the Company's capital and surplus and net income (loss)
determined on a statutory accounting basis with amounts determined in
accordance with GAAP is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
----------------------------------------------------------
PERIOD FROM
JUNE 6, 1996
TO
DECEMBER 31 DECEMBER 31,
YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1996
----------------------------------------------------------
(IN THOUSANDS)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts as reported on a statutory
basis $ 111,719 $ 212,852 $ (254,211) $ 5,512 $ (18,595)
- -------------------------------------
GAAP adjustments:
Net unrealized gain on investments 27,851 14,327 -- -- --
- -------------------------------------
Interest maintenance reserve 5,051 2,595 (579) (370) 3,204
- -------------------------------------
Net realized gain (loss) on
investments (990) -- 3,050 (240) --
- -------------------------------------
Asset valuation reserve 5,375 2,350 -- -- --
- -------------------------------------
Policy and contract reserves (85,875) (19,204) 271,293 (3,667) (15,537 )
- -------------------------------------
Present value of future profits,
deferred policy acquisition costs
and goodwill 336,568 37,605 6,091 524 37,081
- -------------------------------------
Policyholders' share of earnings
and surplus on participating
business (9,904) -- (100) -- --
- -------------------------------------
Deferred income taxes 35,280 (5,558) (12,696) 671 (1,215 )
- -------------------------------------
Nonadmitted assets 880 1,122 -- -- --
- -------------------------------------
Other, net (1,705) -- (82) -- --
- ------------------------------------- --------- --------- ---------- --------- -------------
Net increase (decrease) 312,531 33,237 266,977 (3,082) 23,533
- ------------------------------------- --------- --------- ---------- --------- -------------
Amounts on a GAAP basis $ 424,250 $ 246,089 $ 12,766 $ 2,430 $ 4,938
- ------------------------------------- --------- --------- ---------- --------- -------------
--------- --------- ---------- --------- -------------
</TABLE>
S-7
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
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.
Policy loans are reported at unpaid balances.
Mortgage loans on real estate are reported at unpaid balances, less
allowances for impairments.
Realized investment gains and losses on investments sold are determined
using the specific identification method. Changes in admitted asset carrying
amounts of bonds and mortgage loans are credited or charged directly in
unassigned surplus.
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 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.
PREMIUMS
Premiums for group tax-qualified annuity business are recognized as revenue
when deposited. 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.
BENEFIT RESERVES
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.
The tabular interest, tabular less actual reserves 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.
S-8
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, benefits and settlement expenses are accounted for on
bases consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.
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 unit investments in mutual funds. The detailed operations of
the separate accounts are not included in the accompanying financial
statements. 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.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation. These reclassifications had no effect on
unassigned surplus-deficit or net income (loss) previously reported.
2. INVESTMENTS
The major categories of net investment income are as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996
TO
DECEMBER 31,
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Income:
Bonds $ 78,205,686 $42,237,959 $ 9,427,203
---------------------------------------------------
Mortgage loans on real estate 14,304,385 -- --
---------------------------------------------------
Policy loans 7,981,377 1,990,613 439,305
---------------------------------------------------
Cash and short-term investments 5,893,453 315,328 1,024,525
--------------------------------------------------- ------------- ----------- --------------
Total investment income 106,384,901 44,543,900 10,891,033
- ------------------------------------------------------
Investment expenses 1,301,322 590,104 121,861
- ------------------------------------------------------ ------------- ----------- --------------
Net investment income $ 105,083,579 $43,953,796 $ 10,769,172
- ------------------------------------------------------ ------------- ----------- --------------
------------- ----------- --------------
</TABLE>
S-9
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (CONTINUED)
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, 1998:
Corporate $1,148,083,966 $27,649,036 $(7,489,560) $1,168,243,442
---------------------------------
U.S. government 39,617,653 564,146 (119,394) 40,062,405
---------------------------------
Foreign government 19,532,744 994,331 (720,250) 19,806,825
---------------------------------
Mortgage-backed 225,005,162 6,239,684 (421,281) 230,823,565
---------------------------------
State and municipal 3,642,494 164,552 -- 3,807,046
--------------------------------- -------------- ----------- ----------- --------------
$1,435,882,019 $35,611,749 $(8,750,485) $1,462,743,283
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
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>
The carrying amount of investments in bonds in the balance
sheet at December 31, 1998 reflects adjustments of $178,648
to decrease amortized cost as a result of the Securities
Valuation Office ("SVO") of the NAIC designating certain
investments as low or lower quality.
A summary of the cost or amortized cost and fair value of
investments in bonds at December 31, 1998, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
------------------------------
<S> <C> <C>
Maturity:
In 1999 $ 29,182,134 $ 29,230,713
----------------------------------------------------------------
In 2000-2003 358,100,253 362,502,042
----------------------------------------------------------------
In 2004-2008 525,815,980 536,016,775
----------------------------------------------------------------
After 2008 297,778,590 304,170,188
----------------------------------------------------------------
Mortgage-backed securities 225,005,062 230,823,565
---------------------------------------------------------------- -------------- --------------
Total $1,435,882,019 $1,462,743,283
- ------------------------------------------------------------------- -------------- --------------
-------------- --------------
</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.
S-10
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (CONTINUED)
Proceeds from sales of investments in bonds were $203,748,028, $274,742,319
and $365,646,000 in 1998, 1997 and 1996, respectively. Gross gains of
$3,612,434, $1,533,793 and $4,871,624, and gross losses of $1,529,149,
$1,922,165 and $2,433 during 1998, 1997 and 1996, respectively, were
realized on those sales. Net gains (losses) of $17,705, $(26) and $376,041
were realized on sales of short-term investments in 1998, 1997 and 1996,
respectively.
At December 31, 1998 and 1997, investments in bonds with an admitted asset
value of $500,129 and $500,177, respectively, were on deposit with the
Department to satisfy regulatory requirements.
During 1998, the minimum and maximum lending rates for mortgage loans were
6.62% 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 December 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.
Realized capital gains and losses are reported net of federal income taxes
of $1,223,897, $55,541 and $1,836,682 in 1998, 1997 and 1996, respectively,
and amounts transferred to the interest maintenance reserve of $3,035,887,
$239,459 and $3,409,395 in 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic location.
3. FEDERAL INCOME TAXES
The Company's federal income tax return is not consolidated with any other
entities. The effective federal income tax rate for financial reporting
purposes differs from the prevailing statutory tax rate principally due to
tax-exempt investment income, other pass through tax attributes from
investments, differences in ceding commissions, policy acquisition costs,
and policy and contract liabilities in the tax return versus the financial
statements.
In 1998, a federal income tax net operating loss of $76,192,977 was
incurred. The Company plans to utilize $9,161,743 of the net operating loss
to recover taxes paid in prior years. The remaining portion of the net
operating loss of $67,031,234 will be available for use to offset taxable
income in future years. The net operating loss carryforward of $67,031,234
will expire in 2018.
The Company paid $3,675,000 in 1997 for federal income taxes. No federal
income tax payments were made in 1998 or 1996.
4. REINSURANCE
The Company cedes insurance to other companies, including affiliated
companies. The portion of risks exceeding the Company's retention limit is
reinsured with Lincoln Life. The Company limits its maximum risk that it
retains on an individual to $500,000. The Company remains obligated for
amounts ceded in the event that the reinsurers do not meet their
obligations. The Company did not cede or assume any business prior to
January 1, 1998. On January 2, 1998, the Company and Lincoln Life 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 and recognized
a ceding commission expense of $149,714,239 in 1998, which is included in
the statements of operations line item "Commissions." At the time of
closing, this block of business had statutory liabilities of $779,551,235
which became the Company's obligation. The Company also received assets,
measured on a historical statutory basis, equal to the liabilities. Pursuant
to the terms of the reinsurance agreement, the Company, Lincoln Life and
CIGNA are in the final stages of agreeing to the statutory basis values of
these assets and liabilities. Any changes to these values which may occur in
future periods will not be material to the Company's financial position.
Subsequent to the CIGNA transaction, the Company and Lincoln Life announced
that they had reached an agreement to sell the administration rights to a
variable annuity portfolio that had been acquired as part of the block of
business assumed
S-11
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
4. REINSURANCE (CONTINUED)
on January 2, 1998. This sale closed on October 12, 1998 with an effective
date of September 1, 1998.
On October 1, 1998, the Company entered into an indemnity reinsurance
transaction whereby the Company and Lincoln Life reinsured 100% of a block
of individual life insurance business from Aetna, Inc. The Company paid
$143,721,000 to Aetna on October 1, 1998 under the terms of the reinsurance
agreement and recognized a ceding commission expense of $135,374,141 in
1998, which is included in the statements of operations line item
"Commissions." At the time of closing, this block of business had statutory
liabilities of $463,007,132 which became the Company's obligation. The
Company also received assets, measured on a historical statutory basis,
equal to the liabilities. Subsequent to the Aetna transaction, the Company
and Lincoln Life announced that they had reached an agreement to retrocede
the sponsored life business assumed for $87,600,000, of which $11,900,000
was received by the Company. The retrocession agreement was executed on
October 14, 1998 with an effective date of October 1, 1998.
In October 1996, the Company and Lincoln Life purchased a block of group
tax-qualified annuity business from UNUM Corporation's affiliates. The
transaction was completed in the form of an assumptive reinsurance
transaction, which resulted in the Company paying a ceding commission of
$15,675,206. Policy liabilities and related accruals of the Company
increased by $714,282,427 as a result of this transaction.
The balance sheet captions, "Future policy benefits and claims" and "Other
policyholder funds," have been reduced for insurance ceded by $54,411,763
and $2,722,404, respectively, at December 31, 1998.
The caption "Premiums and deposits" in the statements of operations includes
$1,276,884,778 of insurance assumed and $52,443,264 of insurance ceded in
1998.
The caption "Benefits and settlement expenses" in the statements of
operations is net of reinsurance recoveries of $47,526,681 for 1998.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $682,060 at December 31, 1998. Amounts payable
or recoverable for reinsurance on policy and contract liabilities are not
subject to periodic or maximum limits. At December 31, 1998, the Company's
reinsurance recoverables are not material and no individual reinsurer owed
the Company an amount that was equal to or greater than 3% of the Company's
surplus.
5. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES
At December 31, 1998, the Company had $1,092,753,902 of insurance in force
for which the gross premiums are less than the net premiums according to the
standard of valuation set by the State of New York. Reserves to cover the
above insurance totaled $6,937,379 at December 31, 1998.
At December 31, 1998, the Company's annuity reserves and deposit fund
liabilities, including separate accounts, that are subject to discretionary
withdrawal with adjustment, subject to discretionary withdrawal without
adjustment and not subject to discretionary withdrawal provisions are
summarized as follows:
S-12
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
5. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT PERCENT
-------------- ---------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value of investment $ 343,050,030 28.5%
- -----------------------------------------------------------------------------
At book value, less surrender charge 153,828,072 12.8
- -----------------------------------------------------------------------------
At market value 229,940,273 19.1
- ----------------------------------------------------------------------------- -------------- ---------
726,818,375 60.4
Subject to discretionary withdrawal without adjustment:
At book value with minimal or no charge or adjustment 461,855,066 38.4
- -----------------------------------------------------------------------------
Not subject to discretionary withdrawal 13,848,286 1.2
- ----------------------------------------------------------------------------- -------------- ---------
Total annuity reserves and deposit fund liabilities, before reinsurance 1,202,521,727 100.0%
---------
---------
Less reinsurance 2,991,673
- ----------------------------------------------------------------------------- --------------
Net annuity reserves and deposit fund liabilities, including separate
accounts $1,199,530,054
- ----------------------------------------------------------------------------- --------------
--------------
</TABLE>
A reconciliation of the total net annuity reserves and deposit fund
liabilities to the amounts reported in the Company's 1998 Annual Statement
and the Company's Separate Accounts Annual Statement is as follows:
<TABLE>
<S> <C>
DECEMBER 31,
1998
--------------
Per 1998 Annual Statement:
Exhibit 8, Section B -- Total (net) $ 9,955,624
- --------------------------------------------------------------------------------------
Exhibit 8, Section C -- Total (net) 1,241,407
- --------------------------------------------------------------------------------------
Exhibit 10, Column 1, Line 19 958,392,750
- -------------------------------------------------------------------------------------- --------------
969,589,781
- --------------------------------------------------------------------------------------
Per Separate Accounts Annual Statement:
- --------------------------------------------------------------------------------------
Exhibit 6, Column 2, Line 0299999 --
- --------------------------------------------------------------------------------------
Page 3, Line 3 229,940,273
- -------------------------------------------------------------------------------------- --------------
229,940,273
--------------
Total net annuity reserves and deposit fund liabilities $1,199,530,054
- -------------------------------------------------------------------------------------- --------------
--------------
</TABLE>
Details underlying the balance sheet caption "Other policyholder funds" are
as follows:
<TABLE>
<S> <C> <C>
DECEMBER 31
1998 1997
------------- ------------
Premium deposit funds $ 931,230,214 $587,465,491
- -------------------------------------------------------------------------
Undistributed earnings on participating business 30,772,519 --
- -------------------------------------------------------------------------
Other 722,578 --
- ------------------------------------------------------------------------- ------------- ------------
$ 962,725,311 $587,465,491
------------- ------------
------------- ------------
</TABLE>
S-13
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
6. CAPITAL AND SURPLUS
The Company was initially capitalized on August 12, 1996 with a capital
contribution from Lincoln Life in the amount of $2,000,000. Additional paid-
in surplus from Lincoln Life of $69,000,000, $158,407,481 and $156,721,000
was received in September 1996, December 1997 and October 1998,
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 related to it. At December 31,
1998, the Company exceeds the RBC requirements.
The payment of dividends by the Company requires 30 day advance notice to
the Department.
7. EMPLOYEE BENEFIT PLANS
LNC maintains defined benefit pension plans for its employees (including
Company employees) and a defined contribution plan for the Company's agents.
LNC also maintains 401(k) plans, deferred compensation plans and
postretirement medical and life insurance plans for its employees and agents
(including the Company's employees and agents). The aggregate expenses and
accumulated obligations for the Company's portion of these plans are not
material to the Company's statutory basis statements of operations or
balance sheets for any of the periods shown.
LNC has various incentive plans for key employees, agents and directors of
LNC and its subsidiaries that provide for the issuance of stock options,
stock appreciation rights, restricted stock awards and stock incentive
awards. These plans are comprised primarily of stock option incentive plans.
Stock options granted under the stock option incentive plans are at the
market value at the date of grants and, subject to termination of
employment, expire ten years from the date of grant. Such options are
transferable only upon death and are exercisable one year from the date of
grant for options issued prior to 1992. Options issued subsequent to 1991
are exercisable in equal increments on the option issuance anniversary in
three to four years following issuance.
As of December 31, 1998, 16,600 shares of LNC common stock were subject to
options granted to Company employees under the stock option incentive plans
of which 2,399 were exercisable on that date. The exercise prices of the
outstanding options range from $58.94 to $89.85. During 1998, 137 options
were exercised. There were no options exercised during 1997.
8. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under lease agreements that
expire at various intervals over the next five years and are subject to
renewal options at market rates prevailing at the time of renewal. Rental
expense for all operating leases was $281,947, $155,664 and $32,252 for
1998, 1997 and 1996, respectively. Future minimum rental commitments are as
follows:
<TABLE>
<S> <C>
1999 $ 225,596
- ------------------------------------
2000 162,908
- ------------------------------------
2001 161,564
- ------------------------------------
2002 161,564
- ------------------------------------
2003 148,100
- ------------------------------------ ---------
$ 859,732
---------
---------
</TABLE>
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1998, the Company did not have a concentration of: 1)
business transactions with a particular customer, lender or distributor; 2)
revenues from a particular product or service; 3) sources of supply of labor
or services used in the business; or 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a severe
impact to the Company's financial condition.
CONTINGENCY MATTERS
The Company is occasionally involved in various pending or threatened legal
proceedings arising from the conduct of business. These proceedings are
routine in the ordinary course of business. In
S-14
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
8. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
some instances, these proceedings include claims for compensatory and
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 the ultimate liability, if any, under these
proceedings will not have a material adverse affect on the financial
position of the Company.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company has
accrued for expected assessments net of estimated future premium tax
deductions.
9. 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. 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 AND COMMON STOCK
Fair values of 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. In the case of private placements, fair
values 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. The fair values of common stocks are based on
quoted market prices.
MORTGAGE LOANS ON REAL ESTATE
The estimated fair values of mortgage loans on real estate are established
using a discounted cash flow method based on credit rating, maturity and
future income. The rating for mortgages in good standing are based on
property type, location, market conditions, occupancy, debt service
coverage, loan to value, caliber of tenancy, borrower and payment record.
Fair values for impaired mortgage loans are based on: 1) the present value
of expected future cash flows discounted at the loan's effective interest
rate; 2) the loan's market price; or 3) the fair value of the collateral if
the loan is collateral dependent.
POLICY LOANS
The estimated fair value of investments in policy loans was calculated on a
composite discounted cash flow basis using U.S. 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 their
fair value.
INVESTMENT-TYPE INSURANCE CONTRACTS
The balance sheet captions, "Future policy benefits and claims" and "Other
policyholder funds," include investment type insurance contracts (i.e.,
deposit contracts). The fair values for the deposit contracts are based on
their approximate surrender values.
The remainder of the balance sheet captions "Future policy benefits and
claims" and "Other policyholder funds," that do not fit the definition of
"investment-type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and
have not been determined by the Company. It is the Company's position that
the disclosure of the fair value of these insurance contracts is important
because readers of these financial statements could draw inappropriate
conclusions about the Company's capital and surplus determined on a fair
value basis. It could be misleading if only the fair value of assets and
liabilities defined as financial instruments are disclosed. The Company and
other companies in the insurance industry are monitoring the related actions
of the various rule-making bodies and attempting to determine an appropriate
methodology for estimating and disclosing the "fair value" of their
insurance contract liabilities.
S-15
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SEPARATE ACCOUNTS
Assets held in separate accounts are reported in the accompanying statutory
basis balance sheets at fair value. The related liabilities are also
reported at fair value in amounts equal to the separate account assets.
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
----------------------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------------------------------
DECEMBER
31
1998 1997
----------------------------------------------
(IN THOUSANDS)
----------------------------------------------
<S> <C> <C> <C> <C>
Bonds $1,435,882 $1,462,743 $ 593,432 $ 607,259
- -----------------------------------------------
Unaffiliated common stock 155 155 -- --
--------------------------------------------
Mortgage loans on real estate 184,504 185,694 -- --
--------------------------------------------
Policy loans 170,373 183,408 39,055 39,055
--------------------------------------------
Cash and short-term investments 143,547 143,547 163,774 163,774
--------------------------------------------
Other invested assets 60 60 -- --
--------------------------------------------
Investment-type insurance contracts (962,725) (938,191) (587,465) (587,465)
--------------------------------------------
Separate account assets 236,862 236,862 164,721 164,721
--------------------------------------------
Separate account liabilities (236,862) (236,862) (164,721) (164,721)
--------------------------------------------
</TABLE>
10. 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 $18,504,450, $3,454,014 and $931,000 in 1998, 1997 and 1996,
respectively. The Company has also entered into an agreement with Lincoln
Life to provide certain processing services. Fees received from Lincoln Life
for such services were $273,952, $578,003 and $229,000 in 1998, 1997 and
1996, respectively.
The Company has an investment management agreement with an affiliate,
Lincoln Investment Management, Inc., for investment advisory and asset
management services. Fees paid for such investment services were $1,501,592,
$558,011 and $122,000 in 1998, 1997 and 1996, respectively.
The Company cedes business to two affiliated companies, Lincoln Life and
Lincoln National Reassurance Company. The caption "Premiums and deposits" in
the accompanying statements of operations has been reduced by the $2,095,019
of premiums paid on these contracts in 1998. The caption "Future policy
benefits and claims" has been reduced by $2,583,702 related to reserve
credits taken on these contracts as of December 31, 1998.
11. SEPARATE ACCOUNTS
Separate account premiums, deposits and other considerations amounted to
$73,993,993 and $167,895,749 in 1998 and 1997, respectively. Reserves for
separate accounts with assets at fair value were $229,940,273 and
$159,132,918 at December 31, 1998 and 1997, respectively. All reserves are
subject to discretionary withdrawal at market value. All of the Company's
separate accounts are nonguaranteed. The investment risks associated with
market value changes are borne entirely by the policyholder.
S-16
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
11. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of transfers to (from) separate accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of
various Separate Accounts:
Transfers to separate accounts $73,993,993 $167,895,749
- ------------------------------------------------------------ --------- ---------
Transfers from separate accounts (40,118,042) (26,868,553)
- ------------------------------------------------------------ --------- ---------
Net transfer to separate accounts as reported in the
Company's NAIC Annual Statement -- Summary of Operations $33,875,951 $141,027,195
- ------------------------------------------------------------ --------- ---------
--------- ---------
</TABLE>
12. CENTURY COMPLIANCE (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 Company has been
redirecting a large portion of internal Information Technology efforts and
contracting with affiliate service providers, who have contracted with
outside consultants, to update systems to address Year 2000 issues. Experts
have been engaged to assist in developing work plans and cost estimates and
to complete remediation activities.
For the year ended December 31, 1998, the Company identified expenditures of
$235,809 to address this issue which represent all expenditures to date. The
Company's financial plans for 1999 and 2000 include expected expenditures of
an additional $410,000. Actual Year 2000 expenditures through December 31,
1998 and future Year 2000 expenditures are expected to be funded from
operating cash flows. The anticipated cost of addressing Year 2000 issues is
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. Such
costs will be closely monitored by management. Nevertheless, there can be no
guarantee that actual costs will not be higher than these estimated costs.
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. The total expenditures identified represent only the
Company's portion of Lincoln Life's and LNC's larger expenditures to address
the Year 2000 issue.
The current scope of the Company's and its affiliates overall Year 2000
program includes the following four major project areas: 1) addressing the
readiness of business applications, operating systems and hardware on
mainframe, personal computer and Local Area Network platforms (IT); 2)
addressing the readiness of non-IT embedded software and equipment (non-IT);
3) addressing the readiness of key business partners; and 4) establishing
Year 2000 contingency plans.
The projects to address IT and non-IT readiness have four major phases.
Phase one involves raising awareness and creating an inventory of all IT and
non-IT assets. The second phase consists of assessing all items inventoried
to initially determine whether they are affected by the Year 2000 issue and
preparing general plans and strategies. The third phase entails the detailed
planning and remediation of affected systems and equipment. The last phase
consists of testing to verify Year 2000 readiness.
The Company and its affiliates have completed those four phases for over
two-thirds of its high priority IT systems respectively, including those
provided by software vendors. While the Company's year 2000 program for
nearly all high priority IT systems is expected to be completed in the first
quarter 1999, phase four, for a small but important subset of these systems,
will continue through the end of the second quarter 1999. As of
S-17
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
12. CENTURY COMPLIANCE (UNAUDITED) (CONTINUED)
December 31, 1998, the status of projects addressing readiness of IT assets
is: 100% of IT assets have been inventoried (Phase 1) and assessed (Phase
2); 94% of IT projects have been through the remediation phase (Phase 3)
with the last project scheduled for completion by the end of March 1999; and
69% of IT projects have completed the testing phase (Phase 4) with the last
project scheduled to finish testing by the end of June 1999. A portion of
the effort that extends into 1999 is dependent on outside third parties and
is behind the original schedule. The Company is working with these parties
to modify the completion schedule.
As of December 31, 1998, the status of projects that address readiness of
high priority non-IT assets is: 100% of non-IT assets have been inventoried
(Phase 1) and assessed (Phase 2); 79% of non-IT projects addressing
remediation (Phase 3) have been completed and 21% of non-IT projects have
completed the testing phase (Phase 4). The Company expects to have all
phases related to high priority non-IT completed by the end of October 1999.
Concurrent with the IT and non-IT projects, the readiness of key business
partners is being reviewed and Year 2000 contingency plans are being
developed. The most significant categories of key business partners are
financial institutions, software vendors and utility providers (gas,
electric and telecommunications). Surveys have been mailed to these key
business partners. Based on responses received, current levels of readiness
are being assessed, follow-up contacts are underway, alternative strategies
are being developed and testing is being scheduled where feasible. This
effort is expected to continue well into 1999. As noted above, software
vendor assessments are considered part of the IT projects and, therefore,
would follow the schedule shown above for such projects.
While the Company is working to meet the schedules outlined above, some
uncertainty remains. Specific factors that give rise to this uncertainty
include a possible loss of technical resources to perform the work, failure
to identify all susceptible systems, non-compliance by third parties whose
systems and operations impact the Company and other similar uncertainties.
A worst case scenario might include the Company's inability to achieve Year
2000 readiness with respect to one or more of the Company's significant
policyholder systems resulting in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in
its ability to collect and process premiums or deposits, process claim
payments, accurately maintain policyholder information, accurately maintain
accounting records and/or perform adequate customer service. Should the
worst case scenario occur, it could, depending on its duration, have a
material impact on the Company's results of operations and financial
position. Simple failures can be repaired and returned to production within
a matter of hours with no material impact. Unanticipated failures with a
longer service disruption period would have a more serious impact. For this
reason, the Company is placing significant emphasis on risk management and
Year 2000 contingency planning. The Company is in the process of modifying
its contingency plans to address potential Year 2000 issues. Where these
efforts identify high risks due either to unacceptable work around
procedures or significant readiness risks, appropriate risk management
techniques are being developed. These techniques, such as resource shifting
or use of alternate providers, will be employed to provide stronger
assurances of readiness. The Company has gone through exercises to identify
worst case scenario failures. At this time, the Company believes its plans
are sufficient to mitigate identified worst case scenarios.
S-18
<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 (a wholly owned
subsidiary of The Lincoln National Life Insurance Company) as of
December 31, 1998 and 1997, and the related statutory-basis
statements of operations, changes in capital and surplus, and
cash flows for the years then ended and 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, 1998
and 1997, or the results of its operations or its cash flows for
the years then ended and 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, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended and 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.
/s/ Ernst & Young LLP
March 18, 1999
S-19
<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 Post-Effective Amendment No. 4 to this registration statement comprises
the following papers and documents:
The facing sheet;
The undertaking to file reports;
2 Prospectuses: Prospectus 1 (69 pages) and Prospectus 2 (72 pages);
The fees and charges representation;
Statements regarding indemnification;
The signatures
Consents of
Robert O. Sheppard, Esquire
Vaughn W. Robbins, FSA
Ernst & Young, LLP
<PAGE>
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)
(2) Not applicable.
(3) (a) Form of Principal Underwriting Agreement between Lincoln
Financial Advisors Corporation and Lincoln Life & Annuity
Company of New York (4)
(b) Form of Selling Group Agreement.*
(c) Commission Schedule for Variable Life Policies.*
(4) Not applicable.
(5) (a) Forms of Policy and Application.
(1) Policy Form LN 660 NY and Application B10399NY. (3)
(2) Proposed Policy Form LN 660 NY and Application B 10399 NY. (4)
(b) Riders. LR 434 NY LNY and LR 435 NY LNY. (3)
(6) (a) Articles of Incorporation of Lincoln Life & Annuity Company of
New York. (1)
(b) Bylaws of Lincoln Life & Annuity Company of New York. (1)
(7) Not applicable.
(8) Fund Participation Agreements.
Agreements between Lincoln Life & Annuity Company of New York and:
(a) AIM Variable Insurance Funds, Inc. (4)
(b) Baron Capital Funds Trust.*
(c) BT Insurance Funds Trust. (4)
(d) Delaware Group Premium Fund, Inc.*
(e) Fidelity Variable Insurance Products Fund. (4)
(f) Fidelity Variable Insurance Products Fund II. (4)
(g) Janus Aspen Series.*
(h) Lincoln National Money Market Fund, Inc. (4)
(i) MFS-Registered Trademark- Variable Insurance Trust. (4)
(j) Neuberger & Berman Advisers Management Trust.*
(k) Templeton Variable Products Series Fund. (4)
(l) OCC Accumulation Trust. (4)
(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 Vaughn W. Robbins, FSA
7. Consent of Ernst & Young LLP, Independent Auditors*
8. Not applicable.
* To be filed by amendment
----------------------------
(1) Incorporated by reference to Registration Statement on Form N-4 (File No.
333-38007) filed on October 16, 1997.
(2) Incorporated by reference to Registration Statement on Form N-8B-2 (File No.
811-08651) filed on February 11, 1998.
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement on Form S-6 (File No. 333-42507) filed on July 2,
1998.
(4) Incorporated by reference to Post-Effective Amendment No. 1 on Form S-6
(File No. 333-42507) filed on February 26, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Lincoln Life & Annuity Company of New York, has duly caused this Post-Effective
Amendment No. 4 to this Registration Statement on Form S-6 (File Number
333-42507) to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Syracuse and State of New York, on the 13th day of
May, 1999. Registrant certifies that this amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933.
LINCOLN LIFE & ANNUITY FLEXIBLE
PREMIUM VARIABLE LIFE ACCOUNT M
(Registrant)
By: /s/ PHILIP L. HOLSTEIN
-----------------------------------
Philip L. Holstein
PRESIDENT, TREASURER AND DIRECTOR
LINCOLN LIFE & ANNUITY COMPANY OF NEW
YORK
(Depositor)
By: /s/ PHILIP L. HOLSTEIN
-----------------------------------
Philip L. Holstein
PRESIDENT, TREASURER AND DIRECTOR
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to its Registration Statement (File No.
333-42507) has been signed below on May 13, 1999 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)
Second Vice President and
/s/ TROY D. PANNING* Chief Financial Officer
------------------------------------------- (Principal Financial
Troy D. Panning Officer and Principal
Accounting Officer)
/s/ JON A. BOSCIA*
------------------------------------------- Director
Jon A. Boscia
/s/ RICHARD C. VAUGHAN*
------------------------------------------- Director
Richard C. Vaughan
/S/ THOMAS D. BELL, JR.*
------------------------------------------- Director
Thomas D. Bell, Jr.
/s/ ROLAND C. BAKER*
------------------------------------------- Director
Roland C. Baker
/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
- -------------------------------------------------- -------------------------
/s/ J. PATRICK BARRETT*
------------------------------------------- Director
J. Patrick Barrett
/s/ LOUIS G. MARCOCCIA*
------------------------------------------- Director
Louis G. Marcoccia
/s/ GABRIEL L. SHAHEEN*
------------------------------------------- Director
Gabriel L. Shaheen
by/s/ PHILIP L. HOLSTEIN
------------------------------------
Philip L. Holstein
Attorney-in-Fact
(A Majority of the Directors)
<PAGE>
Robert O. Sheppard Lincoln Financial Group
Corporate Counsel Lincoln Life & Annuity
Company of New York
120 Madison Street, Suite 1700
Syracuse, NY 13202-2802
Telephone: (315)428-8420
Facsimile: (315)428-8419
May 13, 1999
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Lincoln Life & Annuity Flexible Premium Variable Life Account M
Lincoln Life & Annuity Company of New York
Post-Effective Amendment No. 4: 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 this 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 for the Account.
I further consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 4 to said Registration Statement and to the reference to me
under the heading "Experts" in said Registration Statement, as amended.
Very truly yours,
/s/ Robert O. Sheppard
Robert O. Sheppard
Corporate Counsel
<PAGE>
[LETTERHEAD]
May 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln Life & Annuity Flexible Premium
Variable Life Account M (the "Account")
Post-Effective Amendment Number 4, File No. 333-42507
Dear Sirs:
This opinion is furnished in connection with the filing of the
Registration Statement on Form S-6 filed by Lincoln Life & Annuity
Company of New York under the Securities Act of 1993. The prospectus
included in said Registration Statement 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 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/ Vaughn W. Robbins
Vaughn W. Robbins, 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
Post-Effective Amendment No. 4 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 18, 1999,
with respect to the statutory-basis financial statements of Lincoln Life &
Annuity Company of New York.
/s/ Ernst & Young, LLP
Fort Wayne, Indiana
May 10, 1999
