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PROSPECTUS 1
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LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE
ACCOUNT M
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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) 444-2363
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A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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This Prospectus describes VUL-I, 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 include: 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.
You may allocate net premiums to the Sub-accounts of our Flexible Premium
Variable Life Account M ("Separate Account"). Each Sub-account invests in one of
the funds listed below.
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AIM VARIABLE INSURANCE FUNDS FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS
AIM V.I. Capital Appreciation Fund TRUST
AIM V.I. Diversified Income Fund Templeton Asset Strategy Fund -- Class 1
AIM V.I. Growth Fund (formerly Templeton Asset Allocation Fund)
AIM V.I. Value Fund Templeton Growth Securities Fund -- Class 1
DELAWARE GROUP PREMIUM FUND (formerly Templeton Stock Fund)
Emerging Markets Series -- Standard Class Templeton International Securities Fund --
Small Cap Value Series -- Standard Class Class 1
Trend Series -- Standard Class (formerly Templeton International Fund)
DEUTSCHE ASSET MANAGEMENT VIT FUNDS LINCOLN NATIONAL MONEY MARKET FUND, INC.
(FORMERLY BT INSURANCE FUNDS TRUST) Money Market Fund
Equity 500 Index Fund MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
TRUST
FIDELITY VARIABLE INSURANCE PRODUCTS FUND MFS Emerging Growth Series
Equity-Income Portfolio -- Initial Class MFS Total Return Series
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II MFS Utilities Series
Asset Manager Portfolio -- Initial Class OCC ACCUMULATION TRUST
Investment Grade Bond Portfolio -- Initial Global Equity Portfolio
Class Managed Portfolio
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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 1, 2000
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TABLE OF CONTENTS
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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................... 25
Deferral of Payment and
Transfers........................ 25
Lapse and Reinstatement............... 25
Lapse of a Policy; Effect of
Guaranteed Death Benefit
Provision........................ 25
Reinstatement of a Lapsed
Policy........................... 25
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Policy Loans.......................... 26
Settlement Options.................... 27
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Other Policy Provisions............... 27
Issuance.......................... 27
Effective Date of Coverage........ 27
Short-Term Right to Cancel the
Policy........................... 27
Policy Owner...................... 28
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............................ 30
Tax Issues............................ 30
Taxation of Life Insurance
Contracts in General............. 30
Policies Which Are MECS........... 31
Policies Which Are Not MECS....... 32
Other Considerations.............. 32
Tax Status of LLANY............... 33
Other Matters......................... 34
Directors and Officers of LLANY... 34
Distribution of Policies.......... 36
Changes of Investment Policy...... 36
Other Contracts Issued by LLANY... 36
State Regulation.................. 37
Reports to Policy Owners.......... 37
Advertising....................... 37
Legal Proceedings................. 37
Experts........................... 38
Registration Statement............ 38
Appendix 1............................ 39
Corridor Percentages.............. 39
Appendix 2............................ 40
Guaranteed Maximum Cost of
Insurance Rates.................. 40
Appendix 3............................ 41
Illustration of Surrender
Charges.......................... 41
Appendix 4............................ 43
Illustration of Accumulation
Values, Surrender Values, and
Death Benefit Proceeds........... 43
Financial Statements
Separate Account.................. M-1
Lincoln Life & Annuity Company of
New York......................... S-1
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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. If you
are already entitled to favorable tax treatment, you should
satisfy yourself that this Policy meets your other financial
goals before you buy it. 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.
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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 18)
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.
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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 page 20 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 26.
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.
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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 described in "The Funds". 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
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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.
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
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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 "Tax Issues"), 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 "Death Benefit"). 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 under the
Policies. Each of the Funds, in turn, is an investment
portfolio of one of the Trusts or corporations listed below.
A given Fund may have a similar investment objective and
principal investment strategy to those for another mutual
fund managed by the same investment advisor or subadvisor.
However, because of timing of investments and other
variables we cannot guarantee that there will be any
correlation between the two investments. Even though the
management strategy and the objectives of the funds are
similar, the investment results may vary.
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The portfolios, their investment advisers and distributors,
and the Funds within each that are available under the
Policies:
AIM VARIABLE INSURANCE FUNDS 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. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Growth Fund
AIM V.I. Value Fund
DELAWARE GROUP PREMIUM FUND, managed by Delaware
Management Company, One Commerce Square, Philadelphia,
PA 19103 and for 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;
Emerging Markets Series -- Standard Class
Small Cap Value Series -- Standard Class
Trend Series -- Standard Class
DEUTSCHE ASSET MANAGEMENT VIT FUNDS TRUST (formerly BT
Insurance Funds Trust), managed by Bankers Trust
Company, 130 Liberty Street (One Bankers Trust Plaza),
New York, NY 10006 and distributed by Provident
Distributors, Inc., Four Falls Corporate Center, West
Conshohocken PA 19428.
Equity 500 Index Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND, and FIDELITY
VARIABLE INSURANCE PRODUCTS FUND II managed by Fidelity
Management & Research Company and distributed by
Fidelity Distributors Corporation Inc., 82 Devonshire
Street, Boston, MA 02109;
Equity-Income Portfolio -- Initial Class
Asset Manager Portfolio -- Initial Class
Investment Grade Bond Portfolio -- Initial Class
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST,
managed by Templeton Investment Counsel, Inc., Broward
Financial Centre, STE 2100, Fort Lauderdale FL 33394 and
its Templeton and Franklin affiliates and distributed by
Franklin Templeton Distributors, Inc., 777 Mariners
Island Blvd. San Mateo CA 94403-7777;
Templeton Asset Strategy Fund -- Class 1 (formerly
Asset Allocation Fund)
Templeton Growth Securities Fund -- Class 1
(formerly Stock Fund)
Templeton International Securities Funds -- Class 1
(formerly International Fund)
LINCOLN NATIONAL MONEY MARKET FUND, INC., managed by
Lincoln Investment Management, Inc. 200 East Berry
Street, Fort Wayne, IN 46802, and distributed by Lincoln
Financial Advisors Corp. 350 Church Street, Hartford, CT
06103.
Money Market Fund
Lincoln Investment Management, Inc. (Lincoln Investment)
has informed the funds to which it provides advisory
services that it intends to merge into a newly created
series of its affiliate, Delaware Management Business
Trust, during the second or third quarter of 2000.
Lincoln Investment does not expect the merger to result
in any change in the level of advisory services that it
currently provides to these funds, although there may be
come changes in, and additions to, personnel. See the
prospectuses for these funds for more information.
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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
OCC ACCUMULATION TRUST, managed by OpCap Advisors and
distributed by OCC Distributors, 1345 Avenue of the
Americas New York, NY 10105;
Global Equity Portfolio
Managed Portfolio
The investment advisory fees charged the Funds by their
advisers are shown listed under "Fund Expenses" in 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.
AIM V.I. CAPITAL APPRECIATION FUND 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 as well as those that have experienced
above-average, long term growth in earnings and have
excellent prospects for future growth.
AIM V.I. DIVERSIFIED INCOME FUND: Seeks to achieve a high
level of current income primarily by investing in a
diversified portfolio of domestic corporate debt securities,
U.S. Government securities, securities issued by foreign
governments, and lower quality debt securities (commonly
known as "junk bonds").
AIM V.I. GROWTH FUND: Seeks growth of capital primarily by
investing in seasoned and better capitalized companies
considered to have strong earnings momentum. Focus is on
companies that have experienced above-average growth in
earnings and have excellent prospects for future growth.
AIM V.I. VALUE FUND: 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.
DELAWARE EMERGING MARKETS SERIES -- STANDARD CLASS: Seeks to
long-term growth by investing primarily in stocks of
companies located or operating in emerging or developing
countries.
DELAWARE SMALL CAP VALUE SERIES -- STANDARD CLASS: Seeks
growth by investing in stocks of small cap companies whose
market values appear low relative to underlying value or
future earnings and growth potential.
DELAWARE TREND SERIES -- STANDARD CLASS: Seeks long-term
growth by investing primarily in stocks of small companies
and convertible securities of emerging and other
growth-oriented companies.
DEUTSCHE VIT EQUITY 500 FUND: 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.
10
<PAGE>
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- INITIAL CLASS :
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).
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- INITIAL CLASS:
Seeks high total return with reduced risk over the long-term
by allocating its assets among domestic and foreign stocks,
bonds and money market instruments.
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO -- INITIAL
CLASS: 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.
LINCOLN MONEY MARKET FUND: 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.
MFS EMERGING GROWTH SERIES: Seeks to provide long-term
growth of capital.
MFS TOTAL RETURN SERIES: 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: Seeks capital growth and current
income (income above that available from a portfolio
invested entirely in equity securities).
OCC ACCUMULATION TRUST GLOBAL EQUITY PORTFOLIO: Seeks
long-term capital appreciation through a global investment
strategy primarily involving equity securities.
OCC ACCUMULATION TRUST MANAGED PORTFOLIO: 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.
TEMPLETON ASSET STRATEGY FUND -- CLASS 1: Seeks a high level
of total return. Invests in stocks of companies in any
nation, bonds of companies and governments of any nation,
and in money market instruments including emerging markets.
Assets are allocated among different investments depending
upon worldwide market and economic conditions.
TEMPLETON GROWTH SECURITIES FUND -- CLASS 1: Seeks long-term
capital growth. Invests primarily in stocks of companies in
various nations throughout the world including the U.S. and
emerging markets. Templeton Global Advisors Limited serves
as the Fund's investment advisor.
TEMPLETON INTERNATIONAL SECURITIES FUND -- CLASS 1: Seeks
long-term capital growth. It invests primarily in stocks of
companies outside the United States, including emerging
markets. Templeton Investment Counsel, Inc. serves as the
Fund's investment advisor.
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
11
<PAGE>
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.
Substitute funds may have higher charges than the funds
being replaced.
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.
To determine how many votes each policy owner is entitled to
direct with respect to a Fund, first we will calculate the
dollar amount of your account value attributable to that
Fund. Second, we will divide that amount by $100.00. The
result is the number of votes you may direct.
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 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.
12
<PAGE>
FUND PARTICIPATION AGREEMENTS
LLANY has entered in to agreements with the various Trusts
or corporations 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.
- 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.
13
<PAGE>
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.
- 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.
14
<PAGE>
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 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").
15
<PAGE>
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.
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.
16
<PAGE>
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 "The Funds" in 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 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.
17
<PAGE>
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.
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 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.
18
<PAGE>
These Monthly Deductions are deducted proportionately from
the value of each funding option. This is accomplished for
the Sub-Accounts by canceling Accumulation Units and
withdrawing the value of the canceled Accumulation Units
from each funding option in the same proportion as their
respective values have to the Net Accumulation Value. The
Monthly Deductions are made on the Monthly Anniversary Day.
If 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 tables reflect 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>
TOTAL FUND
TOTAL ANNUAL FUND OPERATING
OPERATING EXPENSES EXPENSES WITH
MANAGEMENT OTHER WITHOUT WAIVERS OR TOTAL WAIVERS WAIVERS AND
FUND FEES(1) 12(B)1 FEE EXPENSES REDUCTIONS AND REDUCTIONS REIMBURSEMENTS
---- ----------- ---------- -------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund......... 0.62% N/A 0.11% 0.73% N/A 0.73%
AIM V.I. Diversified Income
Fund...................... 0.60 N/A 0.23 0.83 N/A 0.83
AIM V.I. Growth Fund....... 0.63 N/A 0.10 0.73 N/A 0.73
AIM V.I. Value Fund........ 0.61 N/A 0.15 0.76 N/A 0.76
Delaware Emerging Markets
Series -- Standard
Class(2a)................. 1.25 N/A 0.28 1.53 (0.06) 1.47
Delaware Small Cap Value
Series -- Standard
Class(2b)................. 0.75 N/A 0.10 0.85 N/A 0.85
Delaware Trend Series
Standard Class(2c)........ 0.75 N/A 0.07 0.82 N/A 0.82
Deutsche VIT Equity 500
Index Fund(3)............. 0.20 N/A 0.23 0.43 (0.13) 0.30
Fidelity VIP Equity-Income
Portfolio -- Initial
Class(4).................. 0.48 N/A 0.09 0.57 N/A 0.57
Fidelity VIP II Asset
Manager Portfolio --
Initial Class(4).......... 0.53 N/A 0.10 0.63 N/A 0.63
Fidelity VIP II Investment
Grade Bond Fund -- Initial
Class(4).................. 0.43 N/A 0.11 0.54 N/A 0.54
LN Money Market Fund....... 0.48 N/A 0.11 0.59 N/A 0.59
MFS Emerging Growth
Series(5)................. 0.75 N/A 0.09(1) 0.84 N/A 0.84
MFS Total Return
Series(5)................. 0.75 N/A 0.15(1) 0.90 N/A 0.90
MFS Utilities Series(5).... 0.75 N/A 0.16(1) 0.91 N/A 0.91
OCC Accum Trust Global
Equity Portfolio.......... 0.80 N/A 0.30 1.10 N/A 1.10
OCC Accum Trust Managed
Portfolio................. 0.77 N/A 0.06 0.83 N/A 0.83
Templeton Asset Strategy
Fund Class 1(6c).......... 0.60 N/A 0.18 0.78 N/A 0.78
Templeton Growth Securities
Fund Class 1(6a,b)........ 0.83 N/A 0.05 0.88 N/A 0.88
Templeton International
Securities Fund Class
1(6d)..................... 0.69 N/A 0.19 0.88 N/A 0.88
</TABLE>
- ------------------------------
(1) Certain of the fund advisers reimburse the company for administrative costs
incurred in connection with administering the funds as variable funding
options under the contract. These reimbursements are generally paid out of
the management fees and are not charged to investors.
(2) (a) The investment advisor for the Emerging Markets Series is Delaware
International Advisers Ltd. ("DIAL"). Effective May 1, 2000 through
October 31, 2000, DIAL has voluntarily agreed to waive its management
fee and reimburse the Series for expenses to the extent that total
expenses will not exceed 1.50%. Without such an arrangement, the total
annual operating expenses for the Series
20
<PAGE>
would have been 1.53%. Under its Management Agreement, the Series pays
a management fee based on average daily net assets 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.
(b) The investment advisor for the Small Cap Value Series is Delaware
Management Company ("DMC"). Effective May 1, 2000 through October 31,
2000, DMC has voluntarily agreed to waive its management fee and
reimburse the Series for expenses to the extent that total expenses will
not exceed 0.85%. Under its Management Agreement, the Series pays a
management fee based on average daily net assets 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.
(c) The investment advisor for the Trend Series is Delaware Management
Company ("DMC"). Effective May 1, 2000 through October 31, 2000, DMC has
voluntarily agreed to waive its management fee and reimburse the Series
for expenses to the extent that total expenses will not exceed 0.85%.
Under its Management Agreement, the Series pays a management fee based
on average daily net assets 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.
(3) 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 Equity 500 Index Fund. These fees are
accrued daily and paid monthly. The Advisor has voluntarily undertaken to
waive its fee and to reimburse the fund for certain expenses so that the
fund's total operating expenses will not exceed 0.30% of average daily net
assets. Without the reimbursement to the Funds for the year ended 12/31/99
total expenses would have been 0.43% for the Equity 500 Index Fund.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds',
or FMR on behalf of certain funds' custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each applicable
fund's expenses. The total operating expenses, after reimbursement would
have been:
Equity-Income 0.56% (initial); Asset Manager 0.62% (initial).
(5) Each series has an expense offset arrangement which reduces the series'
custodian fee based on the amount of cash maintained by the series with its
custodian and dividend disbursing agent. Each series may enter into other
such arrangement and directed brokerage arrangements, which would also have
the effect of reducing the series' expenses. "Other Expenses" do not take
into account these expense reductions, and are therefore higher than the
actual expenses of the series. Had the fee reductions been taken into
account, "Net Expenses" would be lower for certain series and would equal:
0.83% for Emerging Growth Series
0.89% for Total Return Series
0.90% for Utilities Series
(6) (a) The fund administration fee is paid indirectly through the management
fee.
(b) On 2/8/00, a merger and reorganization was approved that combined the
fund with a similar fund of the Templeton Variable Products Series Fund,
effective 5/1/00. The table shows total expenses based on the fund's
assets as of 12/31/99, and not the assets of the combined fund. However,
if the table reflected combined assets, the fund's expenses after
5/01/00 would be estimated as: Management Fees 0.80%, Other Expenses
0.05%, and Total Fund Operating Expenses 0.85%.
(c) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with Templeton Global Asset Allocation Fund, effective
5/01/00. The shareholders of that fund had approved new management fees,
which apply to the combined fund effective 5/1/00. The table shows
restated total expenses based on the new fees and the assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's
expenses after 5/1/00 would be estimated as: Management Fee 0.60%, Other
Expenses 0.14%, and Total Fund Operating Expenses 0.74%.
(d) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with Templeton International Equity Fund, effective
5/01/00. The shareholders of that fund had approved new management fees,
which apply to the combined fund effective 5/1/00. The table shows
restated total expenses based on the new fees and the assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's
expenses after 5/1/00 would be estimated as: Management Fees 0.65%,
Other Expenses 0.20%, and Total Fund Operating Expenses 0.85%.
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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
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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.
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
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(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
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 Issues".)
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.
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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. If the owner makes a full surrender, all
coverage under the Policy will automatically terminate and
may not be reinstated.
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.
If the Guaranteed Death Benefit Provision is not in effect,
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.
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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.
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 Issues.")
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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.
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.
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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.
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
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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.
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.
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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. Charges for this rider, if elected, are part
of the Monthly Deductions. There may be a separate charge(s)
for any rider(s) that becomes part of the Policy.
TAX ISSUES
INTRODUCTION. The Federal income tax treatment of the policy
is complex and sometimes uncertain. The Federal income tax
rules may vary with your particular circumstances. This
discussion does not include all the Federal income tax
rules that may affect you and your policy, and is not
intended as tax advice. This discussion also does not
address other Federal tax consequences, or state or local
tax consequences, associated with the policy. As a result,
you should always consult a tax adviser about the
application of tax rules to your individual situation.
TAXATION OF LIFE INSURANCE CONTRACTS IN GENERAL
TAX STATUS OF THE POLICY. Section 7702 of the Code
establishes a statutory definition of life insurance for
Federal tax purposes. We believe that the policy will meet
the statutory definition of life insurance, which places
limitations on the amount of premium payments that may be
made and the contract values that can accumulate relative to
the death benefit. As a result, the death benefit payable
under the policy will generally be excludable from the
beneficiary's gross income, and interest and other income
credited under the policy will not be taxable unless certain
withdrawals are made (or are deemed to be made) from the
policy prior to the insured's death, as discussed below.
This tax treatment will only apply, however, if (1) the
investments of the Separate Account are "adequately
diversified" in accordance with Treasury Department
regulations, and (2) we, rather than you, are considered the
owner of the assets of the Separate Account for Federal
income tax purposes.
INVESTMENTS IN THE SEPARATE ACCOUNT MUST BE DIVERSIFIED. For
a policy to be treated as a life insurance contract for
Federal income tax purposes, the investments of the Separate
Account must be "adequately diversified." IRS regulations
define standards for determining whether the investments of
the Separate Account are adequately diversified. If the
Separate Account fails to comply with these diversification
standards, you could be required to pay tax currently on the
excess of the contract value over the contract premium
payments. Although we do not control the investments of the
subaccounts, we expect that the subaccounts will comply with
the IRS regulations so that the Separate Account will be
considered "adequately diversified."
RESTRICTION ON INVESTMENT OPTIONS. Federal income tax law
limits your right to choose particular investments for the
policy. Because the IRS has not issued guidance specifying
those limits, the limits are uncertain and your right to
allocate contract values among the subaccounts may exceed
those limits. If so, you would be treated as the owner of
the assets of the Separate Account and thus subject to
current taxation on the income and gains from those assets.
We do not know what limits may be set by the IRS in any
guidance that it may issue and whether any such limits will
apply to existing policies. We reserve the right to modify
the policy without your consent to try to prevent the tax
law from considering you as the owner of the assets of the
Separate Account.
30
<PAGE>
NO GUARANTEES REGARDING TAX TREATMENT. We make no guarantee
regarding the tax treatment of any policy or of any
transaction involving a policy. However, the remainder of
this discussion assumes that your policy will be treated as
a life insurance contract for Federal income tax purposes
and that the tax law will not impose tax on any increase in
your contract value until there is a distribution from your
policy.
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In
general, the amount of the death benefit payable from a
policy because of the death of the insured is excludable
from gross income. Certain transfers of the policy for
valuable consideration, however, may result in a portion of
the death benefit being taxable. If the death benefit is not
received in a lump sum and is, instead, applied under one of
the settlement options, payments generally will be prorated
between amounts attributable to the death benefit which will
be excludable from the beneficiary's income and amounts
attributable to interest (accruing after the insured's
death) which will be includible in the beneficiary's income.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing
provisions of the Code, except as described below, any
increase in your contract value is generally not taxable to
you unless amounts are received (or are deemed to be
received) from the policy prior to the insured's death. If
there is a total withdrawal from the policy, the surrender
value will be includible in your income to the extent the
amount received exceeds the "investment in the contract."
(If there is any debt at the time of a total withdrawal,
such debt will be treated as an amount received by the
owner.) The "investment in the contract" generally is the
aggregate amount of premium payments and other consideration
paid for the policy, less the aggregate amount received
under the policy previously to the extent such amounts
received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from
the policy constitute income to you depends, in part, upon
whether the policy is considered a "modified endowment
contract" (a "MEC") for Federal income tax purposes.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. A policy will be
classified as a MEC if premiums are paid more rapidly than
allowed by a "7-pay test" under the tax law or if the policy
is received in exchange for another policy that is a MEC. In
addition, even if the policy initially is not a MEC, it may
in certain circumstances become a MEC. These circumstances
would include a later increase in benefits, any other
material change of the policy (within the meaning of the tax
law), and a withdrawal or reduction in the death benefit
during the first seven contract years.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES
UNDER MECS. If the policy is a MEC, withdrawals from the
policy will be treated first as withdrawals of income and
then as a recovery of premium payments. Thus, withdrawals
will be includible in income to the extent the contract
value exceeds the investment in the policy. The Code treats
any amount received as a loan under a policy, and any
assignment or pledge (or agreement to assign or pledge) any
portion of your contract value, as a withdrawal of such
amount or portion. Your investment in the policy is
increased by the amount includible in income with respect to
such assignment, pledge, or loan.
PENALTY TAXES PAYABLE ON WITHDRAWALS. A 10% penalty tax may
be imposed on any withdrawal (or any deemed distribution)
from your MEC which you must include in your gross income.
The 10% penalty tax does not apply if one of several
exceptions exists.
31
<PAGE>
These exceptions include withdrawals or surrenders that: you
receive on or after you reach age 59 1/2, you receive
because you became disabled (as defined in the tax law), or
you receive as a series of substantially equal periodic
payments for your life (or life expectancy).
SPECIAL RULES IF YOU OWN MORE THAN ONE MEC. In certain
circumstances, you must combine some or all of the life
insurance contracts which are MECs that you own in order to
determine the amount of withdrawal (including a deemed
withdrawal) that you must include in income. For example, if
you purchase two or more MECs from the same life insurance
company (or its affiliates) during any calendar year, the
Code treats all such policies as one contract. Treating two
or more policies as one contract could affect the amount of
a withdrawal (or a deemed withdrawal) that you must include
in income and the amount that might be subject to the 10%
penalty tax described above.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS. If the policy is not a MEC,
the amount of any withdrawal from the policy will generally
be treated first as a non-taxable recovery of premium
payments and then as income from the policy. Thus, a
withdrawal from a policy that is not a MEC will not be
includible in income except to the extent it exceeds the
investment in the policy immediately before the withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST
15 POLICY YEARS.Section 7702 places limitations on the
amount of premium payments that may be made and the contract
values that can accumulate relative to the death benefit.
Where cash distributions are required under Section 7702 in
connection with a reduction in benefits during the first 15
years after the policy is issued (or if withdrawals are made
in anticipation of a reduction in benefits, within the
meaning of the tax law, during this period), some or all of
such amounts may be includible in income. A reduction in
benefits may occur when the face amount is decreased,
withdrawals are made, and in certain other instances.
TAX TREATMENT OF LOANS. If your policy is not a MEC, a loan
you receive under the policy is generally treated as your
indebtedness. As a result, no part of any loan under such a
policy constitutes income to you so long as the policy
remains in force. Nevertheless, in those situations where
the interest rate credited to the loan account equals the
interest rate charged to you for the loan, it is possible
that some or all of the loan proceeds may be includible in
your income. If a policy lapses (or if all contract value is
withdrawn) when a loan is outstanding, the amount of the
loan outstanding will be treated as withdrawal proceeds for
purposes of determining whether any amounts are includible
in your income.
OTHER CONSIDERATIONS
INSURED LIVES PAST AGE 100. If the insured survives beyond
the end of the mortality table used to measure charges under
the policy, which ends at age 100, we believe the policy
will continue to qualify as life insurance for Federal tax
purposes. However, there is some uncertainty regarding this
treatment, and it is possible that you would be viewed as
constructively receiving the cash value in the year the
insured attains age 100.
COMPLIANCE WITH THE TAX LAW. We believe that the maximum
amount of premium payments we have determined for the
policies will comply with the Federal tax definition
32
<PAGE>
of life insurance. We will monitor the amount of premium
payments, and, if the premium payments during a contract
year exceed those permitted by the tax law, we will refund
the excess premiums within 60 days of the end of the policy
year and will pay interest and other earnings (which will be
includible in income subject to tax) as required by law on
the amount refunded. We also reserve the right to increase
the death benefit (which may result in larger charges under
a policy) or to take any other action deemed necessary to
maintain compliance of the policy with the Federal tax
definition of life insurance.
DISALLOWANCE OF INTEREST DEDUCTIONS. If an entity (such as a
corporation or a trust, not an individual) purchases a
policy or is the beneficiary of a policy issued after
June 8, 1997, a portion of the interest on indebtedness
unrelated to the policy may not be deductible by the entity.
However, this rule does not apply to a policy owned by an
entity engaged in a trade or business which covers the life
of an individual who is a 20-percent owner of the entity, or
an officer, director, or employee of the trade or business,
at the time first covered by the policy. This rule also does
not apply to a policy owned by an entity engaged in a trade
or business which covers the joint lives of the 20% owner of
the entity and the owner's spouse at the time first covered
by the policy.
FEDERAL INCOME TAX WITHHOLDING. We will withhold and remit
to the IRS a part of the taxable portion of each
distribution made under a policy unless you notify us in
writing at or before the time of the distribution that tax
is not to be withheld. Regardless of whether you request
that no taxes be withheld or whether the Company withholds a
sufficient amount of taxes, you will be responsible for the
payment of any taxes and early distribution penalties that
may be due on the amounts received. You may also be required
to pay penalties under the estimated tax rules, if your
withholding and estimated tax payments are insufficient to
satisfy your total tax liability.
CHANGES IN THE POLICY OR CHANGES IN THE LAW. Changing the
owner, exchanging the contract, and other changes under the
policy may have tax consequences (in addition to those
discussed herein) depending on the circumstances of such
change. The above discussion is based on the Code, IRS
regulations, and interpretations existing on the date of
this Prospectus. However, Congress, the IRS, and the courts
may modify these authorities, sometimes retroactively.
TAX STATUS OF LLANY
Under existing Federal income tax laws, LLANY does not pay
tax on investment income and realized capital gains of the
Separate Account. LLANY does not expect that it will incur
any Federal income tax liability on the income and gains
earned by the Separate Account. We, therefore, do not impose
a charge for Federal income taxes. If Federal income tax law
changes and we must pay tax on some or all of the income and
gains earned by the Separate Account, we may impose a charge
against the Separate Account to pay the taxes.
33
<PAGE>
OTHER MATTERS
DIRECTORS AND OFFICERS OF LLANY
The following persons are Directors and Officers of LLANY.
Except as indicated below, the address of each is 120
Madison Street, Suite 1700, Syracuse, New York 13202 and
each has been employed by LLANY or its affiliates for more
than five years.
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
----------------------------------------------------------------------------
ROLAND C. BAKER President and Director [1/95-present],
DIRECTOR First Penn- Pacific Life Insurance Co.
1801 S. Meyers Rd.
Oakbrook Terrace, IL 60181
J. PATRICK BARRETT Chairman and Chief Executive Officer,
DIRECTOR CARPAT Investments [9/87-present];
One Telergy Parkway President, Chief Operating Officer and
East Syracuse, NY 13057 Director, Telergy, Inc. [4/98-present];
Chief Executive Officer and Director,
Syracuse Executive Air Service, Inc.
[3/89-present]; Director, Bennington Iron
Works, Inc. [6/89-present]; Director,
Coyne Industrial Enterprises Corp.
[1998-present].
DAVID N. BECKER Vice President and Chief Actuarial
SECOND VICE PRESIDENT AND Officer, The Lincoln National Life
APPOINTED ACTUARY Insurance Company
1300 South Clinton St.
Fort Wayne, IN 46802
THOMAS D. BELL, JR. President and Chief Executive Officer
DIRECTOR Young & Rubicam [1/00-present]. Formerly:
285 Madison Avenue President and Chief Executive Officer
New York, NY 10017 [4/95-9/98], Burson- Marstellar; Vice
Chairman [4/94-5/95], Gulfstream Aerospace
Corp.
JON A. BOSCIA President, Chief Executive Officer and
DIRECTOR Director, Lincoln National Corporation
Centre Square [1/98-present]. Formerly: President and
West Tower Chief Executive Officer [10/96-1/98],
Suite 3900 President and Chief Operating Officer
Philadelphia, PA 19102 [5/94-10/96]The Lincoln National Life
Insurance Co.
JOANNE B. COLLINS President, Treasurer and Director, Lincoln
PRESIDENT, TREASURER AND Life & Annuity Company of New York
DIRECTOR [8/99-present]; Second Vice President
Lincoln National Corporation
[4/96-present]. Formerly: Second Vice
President [9/84-3/96] Lincoln National
Corporation -- Reinsurance.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
----------------------------------------------------------------------------
JOHN H. GOTTA Director, Second Vice President and
DIRECTOR, SECOND VICE PRESIDENT Assistant Secretary [12/99-present],
AND ASSISTANT SECRETARY Lincoln Life & Annuity Company of New
350 Church Street York; Chief Executive Officer of Life
Hartford, CT 06103 Insurance, Senior Vice President and
Assistant Secretary [12/99-present] The
Lincoln National Life Insurance Company.
Formerly: Senior Vice President and
Assistant Secretary [4/98-12/99]; Senior
Vice President [2/98-4/98]; Vice President
and General Manager [1/98-2/98] The
Lincoln National Life Insurance Co; Senior
Vice President, Connecticut General Life
Insurance Company [3/96-12/97]; Vice
President, Connecticut (Massachusetts
Mutual) Mutual Life Insurance Company
[8/94-3/96].
BARBARA S. KOWALCZYK Senior Vice President, Corporation
DIRECTOR Planning [5/94-present]Lincoln National
Centre Square Corporation
West Tower
1500 Market Street
Suite 3900
Philadelphia, PA 19102
MARGUERITE L. LACHMAN Principal [11/99-present], Lend Lease Real
DIRECTOR Estate Investments. Formerly: Managing
437 Madison Avenue, Director [4/87-11/99], Schroeder Real
18th Floor Estate Associates.
New York, NY 10022
LOUIS G. MARCOCCIA Senior Vice President for Business,
DIRECTOR Finance and Administrative Services,
Syracuse University Syracuse University [1975-present].
Syracuse, NY 13244
TROY D. PANNING Second Vice President and Chief Financial
SECOND VICE PRESIDENT AND CHIEF Officer [11/96-present], Lincoln Life &
FINANCIAL OFFICER Annuity Company of New York. Formerly:
Accountant [9/90-11/96] Ernst & Young LLP
JOHN M. PIETRUSKI Chairman of the Board, Texas Biotechnology
DIRECTOR Corp.
One Penn Plaza
Suite 3408
New York, NY 10119
LAWRENCE T. ROWLAND Chairman, Chief Executive Officer,
DIRECTOR President and Director [10/96-present]
1700 Magnavox Way Lincoln National Reassurance Co. Formerly:
One Reinsurance Place Senior Vice President [10/95-10/96].
Ft. Wayne, IN 46802
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION(S)
WITH REGISTRANT PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
----------------------------------------------------------------------------
RICHARD C. VAUGHAN Executive Vice President and Chief
DIRECTOR Financial Officer [1/95-present] The
Centre Square Lincoln National Life Insurance Company.
West Tower
1500 Market Street
Suite 3900
Philadelphia, PA 19102
</TABLE>
DISTRIBUTION OF POLICIES
PRINCIPAL UNDERWRITER
LLANY intends to offer the Policies in New York. Lincoln
Financial Advisors Corporation ("LFA"), an affiliate of
LLANY and 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.
36
<PAGE>
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 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.
LEGAL PROCEEDINGS
At this time, the Company is not involved in any material
litigation. From time to time, legal proceedings arise which
generally are routine and in the ordinary course of
business.
37
<PAGE>
EXPERTS
The financial statements of the Separate Account and 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 reports which also appear 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 reports 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.
38
<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>
39
<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>
40
<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.
41
<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.
42
<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, 1999.
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 $7.50
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.
43
<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.
44
<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.
45
<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.
46
<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.
47
<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.
48
<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.
49
<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.
50
<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.
51
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
M-1
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I. AIM AIM
CAPITAL DIVERSIFIED V.I. V.I. BT EQUITY
APPRECIATION INCOME GROWTH VALUE 500 INDEX
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at Market--Affiliated
(Cost $882,679) $ 885,676 $ -- $ -- $ -- $ -- $ --
Investments at
Market--Unaffiliated (Cost
$541,152) 566,983 44,045 22,979 98,853 103,365 52,532
------------------------------------ ---------- ------- --------- --------- --------- ---------
TOTAL ASSETS 1,452,659 44,045 22,979 98,853 103,365 52,532
LIABILITY--
Payable to Lincoln Life & Annuity
Company of New York 32 1 1 2 2 1
------------------------------------ ---------- ------- --------- --------- --------- ---------
NET ASSETS $1,452,627 $44,044 $ 22,978 $ 98,851 $ 103,363 $ 52,531
------------------------------------ ========== ======= ========= ========= ========= =========
Percent of net assets 100.00% 3.03% 1.58% 6.80% 7.12% 3.62%
------------------------------------ ========== ======= ========= ========= ========= =========
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 3,181 2,339 7,923 8,724 4,768
Unit value $13.848 $ 9.822 $ 12.476 $ 11.848 $ 11.018
------------------------------------ ------- --------- --------- --------- ---------
NET ASSETS $44,044 $ 22,978 $ 98,851 $ 103,363 $ 52,531
------------------------------------ ======= ========= ========= ========= =========
<CAPTION>
DELAWARE DELAWARE FIDELITY
PREMIUM DELAWARE PREMIUM VIP
SMALL PREMIUM EMERGING EQUITY-
CAP VALUE TREND MARKETS INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
---------------------------------
ASSETS
Investments at Market--Affiliat
(Cost $882,679) $ 5,489 $ 15,494 $ 1,100 $ --
Investments at
Market--Unaffiliated (Cost
$541,152) -- -- -- 74,727
--------------------------------- --------- --------- --------- ---------
TOTAL ASSETS 5,489 15,494 1,100 74,727
LIABILITY--
Payable to Lincoln Life & Annuity
Company of New York -- -- -- 2
--------------------------------- --------- --------- --------- ---------
NET ASSETS $ 5,489 $ 15,494 $ 1,100 $ 74,725
--------------------------------- ========= ========= ========= =========
Percent of net assets 0.38% 1.07% 0.08% 5.14%
--------------------------------- ========= ========= ========= =========
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 580 995 91 7,772
Unit value $ 9.458 $ 15.579 $ 12.098 $ 9.614
--------------------------------- --------- --------- --------- ---------
NET ASSETS $ 5,489 $ 15,494 $ 1,100 $ 74,725
--------------------------------- ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY OCC
VIP II VIP II LN MFS MFS ACCUMULATION
ASSET INVESTMENT MONEY EMERGING TOTAL MFS GLOBAL
MANAGER GRADE BOND MARKET GROWTH RETURN UTILITIES EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at
Market--Affiliated (Cost
$882,679) $ -- $ -- $ 863,593 $ -- $ -- $ -- $ --
Investments at
Market--Unaffiliated (Cost
$541,152) 5,073 23,014 -- 32,071 4,992 7,645 7,532
---------------------------------- --------- ---------- --------- --------- --------- --------- -----------
TOTAL ASSETS 5,073 23,014 863,593 32,071 4,992 7,645 7,532
LIABILITY--
Payable to Lincoln Life & Annuity
Company of New York -- 1 19 1 -- -- --
---------------------------------- --------- ---------- --------- --------- --------- --------- -----------
NET ASSETS $ 5,073 $ 23,013 $ 863,574 $ 32,070 $ 4,992 $ 7,645 $ 7,532
---------------------------------- ========= ========== ========= ========= ========= ========= ===========
Percent of net assets 0.35% 1.58% 59.44% 2.21% 0.34% 0.53% 0.52%
---------------------------------- ========= ========== ========= ========= ========= ========= ===========
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 471 2,312 84,279 1,944 508 628 661
Unit value $ 10.765 $ 9.951 $ 10.247 $ 16.496 $ 9.835 $ 12.167 $ 11.386
---------------------------------- --------- ---------- --------- --------- --------- --------- -----------
NET ASSETS $ 5,073 $ 23,013 $ 863,574 $ 32,070 $ 4,992 $ 7,645 $ 7,532
---------------------------------- ========= ========== ========= ========= ========= ========= ===========
<CAPTION>
OCC TEMPLETON
ACCUMULATION ASSET TEMPLETON TEMPLETON
MANAGED ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
-------------------------------
ASSETS
Investments at
Market--Affiliated (Cost
$882,679) $ -- $ -- $ -- $ --
Investments at
Market--Unaffiliated (Cost
$541,152) 35,148 4,015 22,494 28,498
------------------------------- ----------- --------- ----------- ---------
TOTAL ASSETS 35,148 4,015 22,494 28,498
LIABILITY--
Payable to Lincoln Life & Annui
Company of New York 1 -- -- 1
------------------------------- ----------- --------- ----------- ---------
NET ASSETS $ 35,147 $ 4,015 $ 22,494 $ 28,497
------------------------------- =========== ========= =========== =========
Percent of net assets 2.42% 0.28% 1.55% 1.96%
------------------------------- =========== ========= =========== =========
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 3,607 363 1,993 2,467
Unit value $ 9.743 $ 11.054 $ 11.285 $ 11.553
------------------------------- ----------- --------- ----------- ---------
NET ASSETS $ 35,147 $ 4,015 $ 22,494 $ 28,497
------------------------------- =========== ========= =========== =========
</TABLE>
See accompanying notes.
M-2
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
STATEMENT OF OPERATIONS
PERIOD FROM MAY 18, 1999 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DELAWARE
AIM V.I. AIM V.I. PREMIUM
CAPITAL DIVERSIFIED AIM V.I. AIM V.I. BT EQUITY SMALL
APPRECIATION INCOME GROWTH VALUE 500 INDEX CAP VALUE
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM MAY 18, 1999 TO DECEMBER 31, 1999
Net Investment Income (Loss):
Dividends from investment income $ 5,606 $ 24 $ 654 $ 148 $ 149 $ 334 $ --
Dividends from net realized gains on
investments 5,283 732 -- 2,587 779 157 --
Mortality and expense guarantees (1,727) (33) (12) (168) (159) (330) (7)
------------------------------------ -------- ---------- --------- --------- --------- --------- ----
NET INVESTMENT INCOME (LOSS) 9,162 723 642 2,567 769 161 (7)
Net Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain (loss) on
investments 12,143 854 (276) 3,033 3,182 3,641 (50)
Net change in unrealized
appreciation or depreciation on
investments 28,828 3,521 (441) 5,999 3,693 2,320 161
------------------------------------ -------- ---------- --------- --------- --------- --------- ----
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 40,971 4,375 (717) 9,032 6,875 5,961 111
------------------------------------ -------- ---------- --------- --------- --------- --------- ----
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 50,133 $ 5,098 $ (75) $ 11,599 $ 7,644 $ 6,122 $104
------------------------------------ ======== ========== ========= ========= ========= ========= ====
<CAPTION>
DELAWARE FIDELITY
DELAWARE PREMIUM VIP
PREMIUM EMERGING EQUITY-
TREND MARKETS INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
---------------------------------
PERIOD FROM MAY 18, 1999 TO DECEM
Net Investment Income (Loss):
Dividends from investment income $ -- $ -- $ --
Dividends from net realized gains
investments -- -- --
Mortality and expense guarantees (21) (5) (182)
--------------------------------- --------- ---- ---------
NET INVESTMENT INCOME (LOSS) (21) (5) (182)
Net Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain (loss) on
investments 332 1 (1,003)
Net change in unrealized
appreciation or depreciation o
investments 2,641 195 595
--------------------------------- --------- ---- ---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 2,973 196 (408)
--------------------------------- --------- ---- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIO $ 2,952 $191 $ (590)
--------------------------------- ========= ==== =========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY OCC
VIP II VIP II LN MFS MFS ACCUMULATION
ASSET INVESTMENT MONEY EMERGING TOTAL MFS GLOBAL
MANAGER GRADE BOND MARKET GROWTH RETURN UTILITIES EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM MAY 18, 1999 TO
DECEMBER 31, 1999
Net Investment Income (Loss):
Dividends from investment income $ -- $ -- $ 4,198 $ -- $-- $ -- $ 99
Dividends from net realized gains
on investments -- -- -- -- -- -- 1,028
Mortality and expense guarantees (6) (13) (655) (45) (8) (8) (8)
---------------------------------- ---- ---- --------- --------- --- ---- -----------
NET INVESTMENT INCOME (LOSS) (6) (13) 3,543 (45) (8) (8) 1,119
Net Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain (loss) on
investments 2 5 -- 2,307 (1) 8 5
Net change in unrealized
appreciation or depreciation on
investments 190 (56) -- 6,675 50 604 (772)
---------------------------------- ---- ---- --------- --------- --- ---- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 192 (51) -- 8,982 49 612 (767)
---------------------------------- ---- ---- --------- --------- --- ---- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $186 $(64) $ 3,543 $ 8,937 $41 $604 $ 352
---------------------------------- ==== ==== ========= ========= === ==== ===========
<CAPTION>
OCC TEMPLETON
ACCUMULATION ASSET TEMPLETON TEMPLETON
MANAGED ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
-------------------------------
PERIOD FROM MAY 18, 1999 TO
DECEMBER 31, 1999
Net Investment Income (Loss):
Dividends from investment incom $ -- $ -- $ -- $ --
Dividends from net realized gai
on investments -- -- -- --
Mortality and expense guarantee (23) (6) (21) (17)
------------------------------- ---- ---- ----------- ---------
NET INVESTMENT INCOME (LOSS) (23) (6) (21) (17)
Net Realized and Unrealized Gai
(Loss) on Investments:
Net realized gain (loss) on
investments (3) 2 91 13
Net change in unrealized
appreciation or depreciation
investments 164 231 1,441 1,617
------------------------------- ---- ---- ----------- ---------
NET REALIZED AND UNREALIZED GAI
(LOSS) ON INVESTMENTS 161 233 1,532 1,630
------------------------------- ---- ---- ----------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $138 $227 $ 1,511 $ 1,613
------------------------------- ==== ==== =========== =========
</TABLE>
See accompanying notes.
M-3
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM MAY 18, 1999 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I. AIM AIM
CAPITAL DIVERSIFIED V.I. V.I. BT EQUITY
APPRECIATION INCOME GROWTH VALUE 500 INDEX
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Changes From Operations:
Net investment income (loss) $ 9,162 $ 723 $ 642 $ 2,567 $ 769 $ 161
Net realized gain (loss) on
investments 12,143 854 (276) 3,033 3,182 3,641
Net change in unrealized
appreciation or depreciation on
investments 28,828 3,521 (441) 5,999 3,693 2,320
------------------------------------ ---------- ---------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 50,133 5,098 (75) 11,599 7,644 6,122
Change From Unit Transactions:
Participant purchases 1,875,382 43,325 29,982 95,471 105,861 58,729
Participant withdrawals (472,888) (4,379) (6,929) (8,219) (10,142) (12,320)
------------------------------------ ---------- ---------- --------- --------- --------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 1,402,494 38,946 23,053 87,252 95,719 46,409
------------------------------------ ---------- ---------- --------- --------- --------- ---------
TOTAL INCREASE IN NET ASSETS 1,452,627 44,044 22,978 98,851 103,363 52,531
------------------------------------ ---------- ---------- --------- --------- --------- ---------
NET ASSETS AT DECEMBER 31, 1999 $1,452,627 $ 44,044 $ 22,978 $ 98,851 $ 103,363 $ 52,531
------------------------------------ ========== ========== ========= ========= ========= =========
<CAPTION>
DELAWARE DELAWARE FIDELITY
PREMIUM DELAWARE PREMIUM VIP
SMALL PREMIUM EMERGING EQUITY-
CAP VALUE TREND MARKETS INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
---------------------------------
Changes From Operations:
Net investment income (loss) $ (7) $ (21) $ (5) $ (182)
Net realized gain (loss) on
investments (50) 332 1 (1,003)
Net change in unrealized
appreciation or depreciation on
investments 161 2,641 195 595
--------------------------------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIO 104 2,952 191 (590)
Change From Unit Transactions:
Participant purchases 8,911 13,532 1,001 81,119
Participant withdrawals (3,526) (990) (92) (5,804)
--------------------------------- --------- --------- --------- ---------
NET INCREASE IN NET ASSETS RESULT
FROM UNIT TRANSACTIONS 5,385 12,542 909 75,315
--------------------------------- --------- --------- --------- ---------
TOTAL INCREASE IN NET ASSETS 5,489 15,494 1,100 74,725
--------------------------------- --------- --------- --------- ---------
NET ASSETS AT DECEMBER 31, 1999 $ 5,489 $ 15,494 $ 1,100 $ 74,725
--------------------------------- ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY OCC
VIP VIP II LN MFS MFS ACCUMULATION
ASSET INVESTMENT MONEY EMERGING TOTAL MFS GLOBAL
MANAGER GRADE BOND MARKET GROWTH RETURN UTILITIES EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
Changes From Operations:
Net investment income (loss) $ (6) $ (13) $ 3,543 $ (45) $ (8) $ (8) $ 1,119
Net realized gain (loss) on
investments 2 5 -- 2,307 (1) 8 5
Net change in unrealized
appreciation or depreciation on
investments 190 (56) -- 6,675 50 604 (772)
---------------------------------- --------- ---------- ---------- ------- --------- --------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 186 (64) 3,543 8,937 41 604 352
Change From Unit Transactions:
Participant purchases 11,041 29,161 1,255,833 25,098 5,599 7,414 9,006
Participant withdrawals (6,154) (6,084) (395,802) (1,965) (648) (373) (1,826)
---------------------------------- --------- ---------- ---------- ------- --------- --------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 4,887 23,077 860,031 23,133 4,951 7,041 7,180
---------------------------------- --------- ---------- ---------- ------- --------- --------- -----------
TOTAL INCREASE IN NET ASSETS 5,073 23,013 863,574 32,070 4,992 7,645 7,532
---------------------------------- --------- ---------- ---------- ------- --------- --------- -----------
NET ASSETS AT DECEMBER 31, 1999 $ 5,073 $ 23,013 $ 863,574 $32,070 $ 4,992 $ 7,645 $ 7,532
---------------------------------- ========= ========== ========== ======= ========= ========= ===========
<CAPTION>
OCC TEMPLETON
ACCUMULATION ASSET TEMPLETON TEMPLETON
MANAGED ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
-------------------------------
Changes From Operations:
Net investment income (loss) $ (23) $ (6) $ (21) $ (17)
Net realized gain (loss) on
investments (3) 2 91 13
Net change in unrealized
appreciation or depreciation
investments 164 231 1,441 1,617
------------------------------- ----------- --------- ----------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 138 227 1,511 1,613
Change From Unit Transactions:
Participant purchases 37,381 3,939 24,119 28,860
Participant withdrawals (2,372) (151) (3,136) (1,976)
------------------------------- ----------- --------- ----------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 35,009 3,788 20,983 26,884
------------------------------- ----------- --------- ----------- ---------
TOTAL INCREASE IN NET ASSETS 35,147 4,015 22,494 28,497
------------------------------- ----------- --------- ----------- ---------
NET ASSETS AT DECEMBER 31, 1999 $ 35,147 $ 4,015 $ 22,494 $ 28,497
------------------------------- =========== ========= =========== =========
</TABLE>
See accompanying notes.
M-4
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND VARIABLE ACCOUNT INFORMATION
THE VARIABLE ACCOUNT:
Lincoln Life & Annuity Flexible Premium Variable Life
Account M (the Variable Account) is a segregated investment
account of Lincoln Life & Annuity Company of New York
(Lincoln Life New York) and is registered as a unit
investment trust with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended. The
operations of the Variable Account, which commenced on May
18, 1999, are part of the operations of Lincoln Life New
York.
The assets of the Variable Account are owned by Lincoln Life
New York. The portion of the Variable Account's assets
supporting the variable life policies may not be used to
satisfy liabilities arising from any other business of
Lincoln Life New York.
BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in
the United Sates for unit investment trusts.
INVESTMENTS:
The assets of the Variable Account are divided into variable
subaccounts each of which is invested in shares of one of
twenty portfolios of nine diversified open-end management
investment companies, each portfolio with its own investment
objective. The variable subaccounts 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:
BT Equity 500 Index Fund
Delaware Group Premium Funds, Inc.:
Small Cap Value Series
Trend Series
Emerging Markets Series
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio
Investment Grade Bond Portfolio
Lincoln National (LN):
LN Money Market Fund, Inc.
MFS Variable Insurance Trust:
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
OCC Accumulation Trust:
OCC Accumulation Global Equity Portfolio
OCC Accumulation Managed Portfolio
Templeton Variable Products Series Fund:
Templeton Asset Allocation Fund
Templeton International Fund
Templeton Stock Fund
Investments in the variable subaccounts are stated at the
closing net asset value per share on December 31, 1999,
which approximates fair value. The difference between cost
and fair value is reflected as unrealized appreciation and
depreciation of investments.
Investment transactions are accounted for on a trade date
basis. The cost of investments sold is determined by the
average cost method.
M-5
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES AND VARIABLE ACCOUNT INFORMATION (CONTINUED)
DIVIDENDS:
Dividends paid to the Variable Account are automatically
reinvested in shares of the variable subaccounts on the
payable date. Dividend income is recorded on the ex-dividend
date.
FEDERAL INCOME TAXES:
Operations of the Variable Account form a part of and are
taxed with operations of Lincoln Life New York, which is
taxed as a "life insurance company" under the Internal
Revenue Code. The Variable Account will not be taxed as a
regulated investment company under Subchapter M of the
Internal Revenue Code. Using current federal income tax law,
no federal income taxes are payable with respect to the
Variable Account's net investment income and the net
realized gain on investments.
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATE
Amounts are paid to Lincoln Life New York for mortality and
expense guarantees at a percentage of the current value of
the Variable Account each day. The current rate of
deduction, stated as an annual percentage, is .80% during
the first twelve years and .55% thereafter. The mortality
and expense risk charges for each of the variable
subaccounts are reported in the statement of operations.
Prior to the allocation of premiums to the Variable Account,
Lincoln Life New York deducts a premium load of 5% of each
premium payment to cover state taxes and federal income tax
liabilities. The premium loads for the period ended December
31, 1999 amounted to $75,563.
Lincoln Life New York charges a monthly administrative fee
of $15 in the first policy year and $5 in subsequent policy
years. This charge is for items such as premium billing and
collection, policy value calculation, confirmations and
periodic reports. Administrative fees for the period ended
December 31, 1999 totaled $3,078.
Lincoln Life New York assumes responsibility for providing
the insurance benefit included in the policy. Lincoln Life
New York charges a monthly deduction of the cost of
insurance and any charges for supplemental riders. The cost
of insurance charge depends on the attained age, risk
classification, gender classification (in accordance with
state law) and the current net amount at risk. On a monthly
basis, the administrative fee and the cost of insurance
charge are deducted proportionately for the value of each
variable subaccount and/or fixed account funding options.
The fixed account is part of the general account of Lincoln
Life New York and is not included in these financial
statements. The cost of insurance charges for the period
ended December 31, 1999 amounted to $106,667.
Under certain circumstances, Lincoln Life New York reserves
the right to charge a transfer fee of up to $25 for
transfers between variable subaccounts. For the period ended
December 31, 1999, no transfer fees were deducted from the
variable subaccounts.
Lincoln Life New York, upon full surrender of a policy, may
charge a surrender charge. This charge is in part a deferred
sales charge and in part a recovery of certain first year
administrative costs. The amount of the surrender charge, if
any, will depend on the amount of the death benefit, the
amount of premium payments made during the first two policy
years and the age of the policy. In no event will the
surrender charge exceed the maximum allowed by state or
federal law. No surrender charge is imposed on a partial
surrender, but an administrative fee of $25 is imposed,
allocated pro-rata among the variable subaccounts (and,
where applicable, the fixed account) from which the partial
surrender proceeds are taken. For the period ended December
31, 1999, no surrender charges or partial surrender
administrative charges were paid to Lincoln Life New York,
attributable to the variable subaccounts.
M-6
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NET ASSETS
The following is a summary of net assets owned at December 31, 1999.
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I. AIM AIM
CAPITAL DIVERSIFIED V.I. V.I. BT EQUITY
APPRECIATION INCOME GROWTH VALUE 500 INDEX
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
- ----------------------------------
Accumulation units $1,402,494 $ 38,946 $ 23,053 $ 87,252 $ 95,719 $ 46,409
- ---------------------------------- ---------- ---------- --------- --------- --------- ---------
Accumulated net investment income
(loss) 9,162 723 642 2,567 769 161
- ---------------------------------- ---------- ---------- --------- --------- --------- ---------
Accumulated net realized gain
(loss) on investments 12,143 854 (276) 3,033 3,182 3,641
- ---------------------------------- ---------- ---------- --------- --------- --------- ---------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS 28,828 3,521 (441) 5,999 3,693 2,320
---------- ---------- --------- --------- --------- ---------
$1,452,627 $ 44,044 $ 22,978 $ 98,851 $ 103,363 $ 52,531
========== ========== ========= ========= ========= =========
<CAPTION>
DELAWARE DELAWARE FIDELITY
PREMIUM DELAWARE PREMIUM VIP
SMALL PREMIUM EMERGING EQUITY-
CAP VALUE TREND MARKETS INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- ----------------------------------
UNIT TRANSACTIONS:
- ----------------------------------
Accumulation units $ 5,385 $ 12,542 $ 909 $ 75,315
- ---------------------------------- --------- --------- --------- ---------
Accumulated net investment income
(loss) (7) (21) (5) (182)
- ---------------------------------- --------- --------- --------- ---------
Accumulated net realized gain
(loss) on investments (50) 332 1 (1,003)
- ---------------------------------- --------- --------- --------- ---------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS 161 2,641 195 595
--------- --------- --------- ---------
$ 5,489 $ 15,494 $ 1,100 $ 74,725
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY OCC
VIP II VIP II LN MFS MFS ACCUMULATION
ASSET INVESTMENT MONEY EMERGING TOTAL MFS GLOBAL
MANAGER GRADE BOND MARKET GROWTH RETURN UTILITIES EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
- -----------------------------
Accumulation units $ 4,887 $ 23,077 $ 860,031 $ 23,133 $ 4,951 $ 7,041 $ 7,180
- ----------------------------- --------- ---------- --------- --------- --------- --------- -----------
Accumulated net investment
income (loss) (6) (13) 3,543 (45) (8) (8) 1,119
- ----------------------------- --------- ---------- --------- --------- --------- --------- -----------
Accumulated net realized gain
(loss) on investments 2 5 -- 2,307 (1) 8 5
- ----------------------------- --------- ---------- --------- --------- --------- --------- -----------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 190 (56) -- 6,675 50 604 (772)
--------- ---------- --------- --------- --------- --------- -----------
$ 5,073 $ 23,013 $ 863,574 $ 32,070 $ 4,992 $ 7,645 $ 7,532
========= ========== ========= ========= ========= ========= ===========
<CAPTION>
OCC TEMPLETON
ACCUMULATION ASSET TEMPLETON TEMPLETON
MANAGED ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- -----------------------------
UNIT TRANSACTIONS:
- -----------------------------
Accumulation units $ 35,009 $ 3,788 $ 20,983 $ 26,884
- ----------------------------- ----------- --------- ----------- ---------
Accumulated net investment
income (loss) (23) (6) (21) (17)
- ----------------------------- ----------- --------- ----------- ---------
Accumulated net realized gain
(loss) on investments (3) 2 91 13
- ----------------------------- ----------- --------- ----------- ---------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 164 231 1,441 1,617
----------- --------- ----------- ---------
$ 35,147 $ 4,015 $ 22,494 $ 28,497
=========== ========= =========== =========
</TABLE>
M-7
<PAGE>
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the
aggregate proceeds from investments sold during the period
from May 18, 1999 to December 31, 1999 were as follows:
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE COST PROCEEDS FROM
OF PURCHASES SALES
----------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund $ 51,210 $ 11,540
------------------------------------------------------------
AIM V.I. Diversified Income Fund 35,765 12,069
------------------------------------------------------------
AIM V.I. Growth Fund 137,707 47,886
------------------------------------------------------------
AIM V.I. Value Fund 172,499 76,009
------------------------------------------------------------
BT Equity 500 Index Fund 188,203 141,632
------------------------------------------------------------
Delaware Premium Small Cap Value Series 7,421 2,043
------------------------------------------------------------
Delaware Premium Trend Series 15,415 2,894
------------------------------------------------------------
Delaware Premium Emerging Markets Series 945 41
------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 128,250 53,115
------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 4,961 80
------------------------------------------------------------
Fidelity VIP II Investment Grade Bond Portfolio 26,234 3,169
------------------------------------------------------------
LN Money Market Account 1,315,655 452,062
------------------------------------------------------------
MFS Emerging Growth Series 39,823 16,734
------------------------------------------------------------
MFS Total Return Series 5,146 203
------------------------------------------------------------
MFS Utilities Series 7,224 191
------------------------------------------------------------
OCC Accumulation Global Equity Portfolio 8,439 140
------------------------------------------------------------
OCC Accumulation Managed Portfolio 35,311 324
------------------------------------------------------------
Templeton Asset Allocation Fund 3,883 101
------------------------------------------------------------
Templeton International Fund 25,786 4,824
------------------------------------------------------------
Templeton Stock Fund 27,180 312
------------------------------------------------------------
---------- --------
$2,237,057 $825,369
========== ========
</TABLE>
5. INVESTMENTS
The following is a summary of investments owned at December
31, 1999.
<TABLE>
<CAPTION>
NET
SHARES ASSET VALUE OF
OUTSTANDING VALUE SHARES COST OF SHARES
--------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 1,238 $35.58 $ 44,045 $ 40,524
------------------------------------------------------------
AIM V.I. Diversified Income Fund 2,284 10.06 22,979 23,420
------------------------------------------------------------
AIM V.I. Growth Fund 3,065 32.25 98,853 92,854
------------------------------------------------------------
AIM V.I. Value Fund 3,086 33.50 103,365 99,672
------------------------------------------------------------
BT Equity 500 Index Fund 3,461 15.18 52,532 50,212
------------------------------------------------------------
Delaware Premium Small Cap Value Series 357 15.36 5,489 5,328
------------------------------------------------------------
Delaware Premium Trend Series 460 33.66 15,494 12,853
------------------------------------------------------------
Delaware Premium Emerging Markets Series 131 8.40 1,100 905
------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 2,906 25.71 74,727 74,132
------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 272 18.67 5,073 4,883
------------------------------------------------------------
Fidelity VIP II Investment Grade Bond Portfolio 1,893 12.16 23,014 23,070
------------------------------------------------------------
LN Money Market Account 86,359 10.00 863,593 863,593
------------------------------------------------------------
MFS Emerging Growth Series 845 37.94 32,071 25,396
------------------------------------------------------------
MFS Total Return Series 281 17.75 4,992 4,942
------------------------------------------------------------
MFS Utilities Series 316 24.16 7,645 7,041
------------------------------------------------------------
OCC Accumulation Global Equity Portfolio 455 16.56 7,532 8,304
------------------------------------------------------------
OCC Accumulation Managed Portfolio 805 43.65 35,148 34,984
------------------------------------------------------------
Templeton Asset Allocation Fund 172 23.37 4,015 3,784
------------------------------------------------------------
Templeton International Fund 1,011 22.25 22,494 21,053
------------------------------------------------------------
Templeton Stock Fund 1,168 24.39 28,498 26,881
------------------------------------------------------------ ---------- ----------
$1,452,659 $1,423,831
========== ==========
</TABLE>
M-8
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of Lincoln Life & Annuity Company of New York
and
Contract Owners of Lincoln Life & Annuity Flexible Premium
Variable Life Account M
We have audited the accompanying statement of assets and
liability of Lincoln Life & Annuity Flexible Premium Variable
Life Account M ("Variable Account") (comprised of the AIM V.I.
Capital Appreciation, AIM V.I. Diversified Income, AIM V.I.
Growth, AIM V.I. Value, Banker's Trust Equity 500 Index,
Delaware Premium Small Cap Value, Delaware Premium Trend,
Delaware Premium Emerging Markets, Fidelity VIP Equity-Income,
Fidelity VIP II Asset Manager, Fidelity VIP II Investment Grade
Bond, Lincoln National Money Market, MFS Emerging Growth, MFS
Total Return, MFS Utilities, OCC Accumulation Global Equity, OCC
Accumulation Managed, Templeton Variable Products Asset
Allocation, Templeton Variable Products International and
Templeton Variable Products Stock subaccounts), as of December
31, 1999, and the related statements of operations and changes
in net assets for the period from May 18, 1999 to December 31,
1999. These financial statements are the responsibility of the
Variable Account's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
investments owned as of December 31, 1999, by correspondence
with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of each of the respective subaccounts constituting the Lincoln
Life & Annuity Flexible Premium Variable Life Account M at
December 31, 1999, and the results of their operations and the
changes in their net assets for the period from May 18, 1999 to
December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
March 24, 2000
M-9
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTED ASSETS:
Bonds $1,482,592,831 $1,435,882,019
- ------------------------------------------------------------
Unaffiliated common stocks 161,005 155,039
- ------------------------------------------------------------
Mortgage loans on real estate 197,425,386 184,503,805
- ------------------------------------------------------------
Policy loans 177,437,149 170,372,567
- ------------------------------------------------------------
Cash and short-term investments 29,467,267 143,546,873
- ------------------------------------------------------------
Other invested assets 223,126 60,000
- ------------------------------------------------------------
Receivable for securities 1,313,866 3,477,120
- ------------------------------------------------------------ -------------- --------------
Total cash and invested assets 1,888,620,630 1,937,997,423
- ------------------------------------------------------------
Premiums and fees in course of collection 6,578,363 6,959,116
- ------------------------------------------------------------
Accrued investment income 29,296,814 25,925,055
- ------------------------------------------------------------
Other admitted assets 38,442,338 438,335
- ------------------------------------------------------------
Separate account assets 328,767,871 236,861,781
- ------------------------------------------------------------ -------------- --------------
Total admitted assets $2,291,706,016 $2,208,181,710
- ------------------------------------------------------------ ============== ==============
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits and claims $ 853,572,463 $ 851,746,596
- ------------------------------------------------------------
Other policyholder funds 951,347,964 962,725,311
- ------------------------------------------------------------
Other liabilities 25,045,378 44,824,520
- ------------------------------------------------------------
Federal income taxes recoverable -- (3,206,611)
- ------------------------------------------------------------
Asset valuation reserve 7,884,503 5,374,594
- ------------------------------------------------------------
Interest maintenance reserve 956,570 5,051,304
- ------------------------------------------------------------
Net transfers due from separate accounts (8,262,299) (6,915,063)
- ------------------------------------------------------------
Separate account liabilities 328,767,871 236,861,781
- ------------------------------------------------------------ -------------- --------------
Total liabilities 2,159,312,450 2,096,462,432
- ------------------------------------------------------------
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 384,128,481 384,128,481
- ------------------------------------------------------------
Unassigned surplus -- deficit (253,734,915) (274,409,203)
- ------------------------------------------------------------ -------------- --------------
Total capital and surplus 132,393,566 111,719,278
- ------------------------------------------------------------ -------------- --------------
Total liabilities and capital and surplus $2,291,706,016 $2,208,181,710
- ------------------------------------------------------------ ============== ==============
</TABLE>
See accompanying notes. S-1
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------ -------------- ------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES:
Premiums and deposits $172,708,594 $1,291,566,984 $184,112,330
- ------------------------------------------------------------
Net investment income 132,213,228 105,083,579 43,953,796
- ------------------------------------------------------------
Surrender and administrative charges 2,401,973 2,834,073 1,334,705
- ------------------------------------------------------------
Mortality and expense charges on deposit funds 2,937,632 1,980,728 1,548,722
- ------------------------------------------------------------
Amortization of the interest maintenance reserve 925,547 579,137 370,129
- ------------------------------------------------------------
Other revenues 2,127,634 536,698 183,048
- ------------------------------------------------------------ ------------ -------------- ------------
Total revenues 313,314,608 1,402,581,199 231,502,730
- ------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits and settlement expenses 207,985,159 1,320,787,190 72,475,389
- ------------------------------------------------------------
Commissions 17,665,459 274,529,390 2,459,308
- ------------------------------------------------------------
Underwriting, insurance and other expenses 32,297,064 28,064,172 8,012,925
- ------------------------------------------------------------
Net transfers to separate accounts 28,255,807 33,875,951 141,027,195
- ------------------------------------------------------------ ------------ -------------- ------------
Total benefits and expenses 286,203,489 1,657,256,703 223,974,817
- ------------------------------------------------------------ ------------ -------------- ------------
Gain (loss) from operations before dividends to
policyholders, federal income taxes (benefit) and net
realized loss on investments 27,111,119 (254,675,504) 7,527,913
- ------------------------------------------------------------
Dividends to policyholders 5,624,728 3,375,629 --
- ------------------------------------------------------------ ------------ -------------- ------------
Gain (loss) from operations before federal income taxes
(benefit) and net realized loss on investments 21,486,391 (258,051,133) 7,527,913
- ------------------------------------------------------------
Federal income taxes (benefit) (427,033) (4,561,826) 1,942,625
- ------------------------------------------------------------ ------------ -------------- ------------
Gain (loss) from operations before net realized loss on
investments 21,913,424 (253,489,307) 5,585,288
- ------------------------------------------------------------
Net realized loss on investments (2,012,331) (721,449) (73,398)
- ------------------------------------------------------------ ------------ -------------- ------------
Net income (loss) $ 19,901,093 $ (254,210,756) $ 5,511,890
- ------------------------------------------------------------ ============ ============== ============
</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 January 1, 1997 $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 service -- -- (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
Add (deduct):
Net income -- -- 19,901,093 19,901,093
- -------------------------------------------------
Increase in unrealized capital losses -- -- (939,080) (939,080)
- -------------------------------------------------
Decrease in nonadmitted assets -- -- 187,322 187,322
- -------------------------------------------------
Increase in asset valuation reserve -- -- (2,509,909) (2,509,909)
- -------------------------------------------------
Increase in liability for reinsurance in
unauthorized companies -- -- (605,340) (605,340)
- -------------------------------------------------
Gain on reinsurance transaction -- -- 4,640,202 4,640,202
- ------------------------------------------------- ---------- ------------ ------------- -------------
Balances at December 31, 1999 $2,000,000 $384,128,481 $(253,734,915) $ 132,393,566
- ------------------------------------------------- ========== ============ ============= =============
</TABLE>
See accompanying notes. S-3
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other considerations received $ 172,535,360 $1,284,669,810 $184,112,330
- ------------------------------------------------------------
Investment income received 138,850,106 96,331,551 43,781,378
- ------------------------------------------------------------
Benefits paid (204,263,171) (83,399,329) (85,008,691)
- ------------------------------------------------------------
Insurance expenses paid (96,041,640) (351,272,500) (154,355,904)
- ------------------------------------------------------------
Federal income taxes received (paid) (656,134) 1,703,193 (1,893,859)
- ------------------------------------------------------------
Dividends paid to policyholders (5,921,665) 2,651,237 --
- ------------------------------------------------------------
Other income received, less other expenses paid 1,653,592 39,064,672 1,613,631
- ------------------------------------------------------------ ------------- -------------- ------------
Net cash provided by (used in) operating activities 6,156,448 989,748,634 (11,751,115)
- ------------------------------------------------------------
INVESTING ACTIVITIES
Sale, maturity or repayment of investments 294,554,595 249,409,117 272,961,178
- ------------------------------------------------------------
Purchase of investments (369,356,711) (1,280,892,696) (265,700,363)
- ------------------------------------------------------------
Net decrease (increase) in policy loans (7,064,582) (131,317,640) 1,554,149
- ------------------------------------------------------------ ------------- -------------- ------------
Net cash provided by (used in) investing activities (81,866,698) (1,162,801,219) 8,814,964
- ------------------------------------------------------------
FINANCING AND MISCELLANEOUS ACTIVITIES
Capital and surplus paid-in -- 156,721,000 158,407,481
- ------------------------------------------------------------
Other (38,369,356) (3,895,136) (11,032,743)
- ------------------------------------------------------------ ------------- -------------- ------------
Net cash provided by financing activities (38,369,356) 152,825,864 147,374,738
- ------------------------------------------------------------ ------------- -------------- ------------
Net increase (decrease) in cash and short-term investments (114,079,606) (20,226,721) 144,438,587
- ------------------------------------------------------------
Total cash and short-term investments at beginning of year 143,546,873 163,773,594 19,335,007
- ------------------------------------------------------------ ------------- -------------- ------------
Total cash and short-term investments at end of year $ 29,467,267 $ 143,546,873 $163,773,594
- ------------------------------------------------------------ ============= ============== ============
</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").
In 1996, the Company was organized under the laws of the state of New York
as a life insurance company and received approval from the New York
Insurance Department (the "Department") to operate as a licensed insurance
company in the State of New York.
The Company's principal business consists of underwriting annuities,
deposit-type contracts and life insurance sold through multiple distribution
channels. The Company conducts business only in the State of New York.
USE OF ESTIMATES
The nature of the insurance business 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") effective January 1, 2001. 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
state of New York must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis
results to the Department. At this time, it is anticipated that New York
will adopt Codification, however, based on current guidance, management
believes that the impact of Codification will not be material to the
Company's statutory-basis financial statements.
Existing statutory accounting practices differ from accounting principles
generally accepted in the United States ("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 commitments 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 a NAIC prescribed
formula and is reported as a liability rather than a reduction to unassigned
surplus. Under GAAP, realized capital gains and losses
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)
are reported in the income statement on a pretax basis in the period that
the asset giving rise to the gain or loss is sold and valuation allowances
are provided when there has been a decline in value deemed other than
temporary, in which case, the provision for such declines are charged to
income.
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 furniture and
equipment, are excluded from the accompanying balance sheets and are charged
directly to unassigned surplus.
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.
PREMIUMS AND DEPOSITS
Premiums and deposits with respect to universal life policies and annuity
and other investment-type contracts consist of the entire premium received
and are reported as premium revenue. Under GAAP, premiums and deposits
received in excess of policy charges would not be recognized as premium
revenue.
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. 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. For traditional life and
disability income products, benefits and expenses are recognized when
incurred in a manner consistent with the related premium recognition
policies.
REINSURANCE
Commissions on business ceded are reported as income when received rather
than deferred and amortized with deferred policy acquisition costs as
required under GAAP. 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, policy benefits and contract liabilities
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 federal income taxes are not provided for differences between
financial statement amounts and tax bases of assets and liabilities.
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)
POLICYHOLDER DIVIDENDS
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
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.
STATEMENTS OF 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)
----------------------------------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998 1997
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(IN THOUSANDS)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts as reported on a
statutory -- basis
$132,394 $111,719 $ 19,901 $(254,211) $ 5,512
-----------------------------------
GAAP adjustments:
Net unrealized gain (loss) on
investments (74,971) 27,851 -- -- --
-----------------------------------
Interest maintenance reserve (792) 5,051 458 (579) (370)
-----------------------------------
Net realized gain (loss) on
investments (1,951) (990) (6,348) 3,050 (240)
-----------------------------------
Asset valuation reserve 7,885 5,375 -- -- --
-----------------------------------
Policy and contract reserves (72,302) (85,875) 25,985 271,293 (3,667)
-----------------------------------
Present value of future profits,
deferred policy acquisition
costs and goodwill 369,032 336,568 (6,639) 6,091 524
-----------------------------------
Policyholders' share of earnings
and surplus on participating
business (9,325) (9,904) 1,071 (100) --
-----------------------------------
Deferred income taxes 17,505 35,280 (12,159) (12,696) 671
-----------------------------------
Nonadmitted assets 1,685 880 -- -- --
-----------------------------------
Other, net 4,304 (1,705) (2,096) (82) --
----------------------------------- -------- -------- -------- --------- -------
Net increase (decrease) 241,070 312,531 272 266,977 (3,082)
----------------------------------- -------- -------- -------- --------- -------
Amounts on a GAAP -- basis $373,464 $424,250 $ 20,173 $ 12,766 $ 2,430
----------------------------------- ======== ======== ======== ========= =======
</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 principal balances.
Mortgage loans on real estate are reported at unpaid principal 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, mortgage loans, and common stocks are credited or charged
directly in unassigned surplus.
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 disability 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 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 inforce, 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.
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 through December 31. 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 unpaid claims and claim adjustment
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)
expenses are adequate. The estimates are continually reviewed and adjusted
as necessary as experience develops or new information becomes known; such
adjustments are included in current operations.
REINSURANCE CEDED AND ASSUMED
Reinsurance premiums, 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 and universal life 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
statutory-basis 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.
2. INVESTMENTS
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, 1999:
Corporate $1,214,312,519 $ 908,731 $(65,599,479) $1,149,621,771
--------------------------------
U.S. government 25,736,299 11,711 (1,900,750) 23,847,260
--------------------------------
Foreign government 17,602,777 362,624 (1,070,496) 16,894,905
--------------------------------
Mortgage-backed 221,570,519 2,732 (9,530,799) 212,042,452
--------------------------------
State and municipal 3,370,717 -- (105,915) 3,264,802
-------------------------------- -------------- ----------- ------------ --------------
$1,482,592,831 $ 1,285,798 $(78,207,439) $1,405,671,190
============== =========== ============ ==============
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
============== =========== ============ ==============
</TABLE>
S-9
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (CONTINUED)
The carrying amount of investments in bonds in the balance
sheet at December 31, 1999 and 1998 reflects adjustments of
$1,123,693 and $178,648, respectively, to decrease amortized
cost as a result of the Securities Valuation Office 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, 1999, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
-----------------------------------
<S> <C> <C>
Maturity:
In 2000 $ 64,699,324 $ 64,449,287
------------------------------------------------------------
In 2001-2004 360,685,026 351,609,953
------------------------------------------------------------
In 2005-2009 490,969,108 462,139,167
------------------------------------------------------------
After 2009 344,668,854 315,430,331
------------------------------------------------------------
Mortgage-backed securities 221,570,519 212,042,452
------------------------------------------------------------ -------------- --------------
Total $1,482,592,831 $1,405,671,190
------------------------------------------------------------ ============== ==============
</TABLE>
The expected maturities may differ from the contractual
maturities in the foregoing table because certain borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
Proceeds from sales of investments in bonds were $253,876,450, $203,748,028
and $274,742,319 in 1999, 1998 and 1997, respectively. Gross gains of
$842,229, $3,612,434 and $1,533,793, and gross losses of $6,968,975,
$1,529,149 and $1,922,165 during 1999, 1998 and 1997, respectively, were
realized on those sales. Net gains (losses) of ($186), $17,705 and ($26)
were realized on sales of short-term investments in 1999, 1998 and 1997,
respectively.
At December 31, 1999 and 1998, investments in bonds with an admitted asset
value of $500,078 and $500,129, respectively, were on deposit with the
Department to satisfy regulatory requirements.
During 1999, 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, 1999, 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.
S-10
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
2. INVESTMENTS (CONTINUED)
The major categories of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Income:
Bonds $106,590,150 $ 78,205,686 $42,237,959
--------------------------------------------------
Mortgage loans on real estate 13,522,104 14,304,385 --
--------------------------------------------------
Policy loans 11,018,423 7,981,377 1,990,613
--------------------------------------------------
Cash and short-term investments 2,391,977 5,893,453 315,328
-------------------------------------------------- ------------ ------------ -----------
Total investment income 133,522,654 106,384,901 44,543,900
----------------------------------------------------
Investment expenses 1,309,426 1,301,322 590,104
---------------------------------------------------- ------------ ------------ -----------
Net investment income $132,213,228 $105,083,579 $43,953,796
---------------------------------------------------- ============ ============ ===========
</TABLE>
Realized capital gains and losses are reported net of federal income taxes
of $437,941, $1,223,897 and $55,541 in 1999, 1998 and 1997, respectively,
and amounts transferred to the interest maintenance reserve of $3,169,187,
$3,035,887 and $239,459 in 1999, 1998 and 1997, respectively.
At December 31, 1999, 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 $80,156,000 was
incurred. The Company utilized $9,162,000 of the net operating loss to
recover taxes paid in prior years. In 1999, an additional $10,170,000 of net
operating loss was utilized to offset taxable income. The remaining portion
of the net operating loss at December 31, 1999 of $60,824,000 will be
available for use to offset taxable income in future years. The net
operating loss carryforward of $60,824,000 will expire in 2013.
The Company paid $3,675,000 in 1997 for federal income taxes. No federal
income tax payments were made in 1999 or 1998. The Company received a refund
of $3,196,000 in 1999 as a result of the utilization of the net operating
loss.
4. REINSURANCE
The Company cedes insurance to other companies, including affiliated
companies. The portion of risks exceeding the Company's retention limits 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 ("CIGNA"). 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 obligations. The Company also received assets, measured
on a historical statutory-basis, equal to the liabilities. Subsequent to the
CIGNA transaction, the
S-11
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
4. REINSURANCE (CONTINUED)
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 on January 2, 1998. This
sale closed on October 12, 1998 with an effective date of September 1, 1998.
During 1999, the Company received $5,800,000 from CIGNA as a result of the
final settlement of the statutory-basis values of assets and liabilities for
the reinsured business. The $5,800,000 is included in the statements of
operations line item "Other revenues." Additionally, on November 1, 1999,
the Company and Lincoln Life closed the previously announced agreement to
retrocede virtually 100% of the disability income business assumed from
CIGNA. This retrocession agreement was effective November 1, 1999. A gain on
the transaction of $4.6 million was recorded directly in unassigned surplus,
net of tax.
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.
The balance sheet caption, "Future policy benefits and claims" has been
reduced for insurance ceded by $97,457,160 and $54,411,763 at December 31,
1999 and 1998, respectively. The balance sheet caption, "Other policyholder
funds" has been reduced for insurance ceded by $2,290,826 and $2,722,404 at
December 31, 1999 and 1998, respectively.
The caption "Premiums and deposits" in the statements of operations includes
$140,394,771 and $1,276,884,778 of insurance assumed and $44,245,573 and
$52,443,264 of insurance ceded in 1999 and 1998, respectively.
The caption "Benefits and settlement expenses" in the statements of
operations is net of reinsurance recoveries of $71,763,962 and $47,526,681
for 1999 and 1998, respectively.
The regulatory required liability for unsecured reserves ceded to
unauthorized reinsurers was $1,287,400 and $682,060 at December 31, 1999 and
1998, respectively. Amounts payable or recoverable for reinsurance on policy
and contract liabilities are not subject to periodic or maximum limits. At
December 31, 1999, 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, 1999 and 1998, the Company had $1,149,964,000 and
$1,092,754,000, respectively, 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 $5,893,549 and $6,937,379 at December 31, 1999 and 1998,
respectively.
At December 31, 1999, 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 adjustment $ 338,886,028 26.5%
------------------------------------------------------------
At book value, less surrender charge 123,141,771 9.6
------------------------------------------------------------
At market value 319,140,374 24.9
------------------------------------------------------------
Subject to discretionary withdrawal without adjustment:
At book value with minimal or no charge or adjustment 487,578,243 38.1
------------------------------------------------------------
Not subject to discretionary withdrawal 10,884,302 .9
------------------------------------------------------------ -------------- ------
Total annuity reserves and deposit fund liabilities, before
reinsurance 1,279,630,718 100.0%
======
Less reinsurance 2,560,424
------------------------------------------------------------ --------------
Net annuity reserves and deposit fund liabilities, including
separate accounts $1,277,070,294
------------------------------------------------------------ ==============
</TABLE>
A reconciliation of the total net annuity reserves and deposit fund
liabilities to the amounts reported in the Company's 1999 Annual Statement
and the Company's Separate Accounts Annual Statement at December 31, 1999 is
as follows:
<TABLE>
<S> <C>
Per 1999 Annual Statement:
Exhibit 8, Section B -- Total (net) $ 10,029,253
------------------------------------------------------------
Exhibit 8, Section C -- Total (net) 1,122,910
------------------------------------------------------------
Exhibit 10, Column 1, Line 19 946,777,757
------------------------------------------------------------ --------------
957,929,920
------------------------------------------------------------
Per Separate Account Annual Statement:
------------------------------------------------------------
Exhibit 6, Column 2, Line 0299999 Page 3, Line 3 319,140,374
------------------------------------------------------------ --------------
319,140,374
--------------
Total net annuity reserves and deposit fund liabilities $1,277,070,294
------------------------------------------------------------ ==============
</TABLE>
Details underlying the balance sheet caption "Other policyholder funds" are
as follows:
<TABLE>
<S> <C> <C>
DECEMBER 31
1999 1998
------------ ------------
Premium deposit funds $920,665,883 $931,230,214
------------------------------------------------------------
Undistributed earnings on participating business 30,544,045 30,772,519
------------------------------------------------------------
Other 138,036 722,578
------------------------------------------------------------ ------------ ------------
$951,347,964 $962,725,311
============ ============
</TABLE>
6. CAPITAL AND SURPLUS
The Company received additional paid-in surplus from Lincoln Life of
$158,407,481 and $156,721,000 in 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,
1999, the Company exceeds the RBC requirements.
S-13
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
6. CAPITAL AND SURPLUS (CONTINUED)
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, 1999, 27,534 shares of LNC common stock were subject to
options granted to Company employees under the stock option incentive plans
of which 8,934 were exercisable on that date. The exercise prices of the
outstanding options range from $21.32 to $50.83. During 1999 and 1998, 3,740
and 137 options, respectively, were exercised. During 1999, 2,400 options
were forfeited.
8. RESTRICTIONS, COMMITMENTS AND CONTINGENCIES
VULNERABILITY FROM CONCENTRATIONS
At December 31, 1999, 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 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
effect 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
S-14
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 prices; 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.
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.
S-15
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------
<CAPTION>
DECEMBER 31
1999 1998
---------------------------------------------------------------
(IN THOUSANDS)
---------------------------------------------------------------
ASSETS (LIABILITIES)
<S> <C> <C> <C> <C>
----------------------------------------------
Bonds $1,482,593 $1,405,671 $1,435,882 $1,462,743
----------------------------------------------
Unaffiliated common stocks 161 161 155 155
----------------------------------------------
Mortgage loans on real estate 197,425 189,179 184,504 185,694
----------------------------------------------
Policy loans 177,437 190,667 170,373 183,408
----------------------------------------------
Cash and short-term investments 29,467 29,467 143,547 143,547
----------------------------------------------
Other invested assets 223 223 60 60
----------------------------------------------
Investment-type insurance contracts (951,348) (910,752) (962,725) (938,191)
----------------------------------------------
Separate account assets 328,768 328,768 236,862 236,862
----------------------------------------------
Separate account liabilities (328,768) (328,768) (236,862) (236,862)
----------------------------------------------
</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 $22,675,891, $18,504,450 and $3,454,014 in 1999, 1998 and
1997, 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 $1,359,279, $273,952 and $578,003 in
1999, 1998 and 1997, 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 $1,309,426,
$1,501,592 and $558,011 in 1999, 1998 and 1997, 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 $6,269,272 and
$2,095,019 for premiums paid on these contracts in 1999 and 1998,
respectively. The caption "Future policy benefits and claims" has been
reduced by $2,323,435 and $2,583,702 related to reserve credits taken on
these contracts as of December 31, 1999 and 1998, respectively.
11. SEPARATE ACCOUNTS
Separate account premiums, deposits and other considerations amounted to
$109,574,216 and $73,993,993 in 1999 and 1998, respectively. Reserves for
separate accounts with assets at fair value were $320,413,080 and
$229,940,273 at December 31, 1999 and 1998, 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 contractholder.
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 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
------------------------------
<S> <C> <C>
Transfers as reported in the Summary of Operations of
various Separate Accounts:
Transfers to separate accounts $109,574,216 $ 73,993,993
------------------------------------------------------------ ------------ ------------
Transfers from separate accounts (81,318,409) (40,118,042)
------------------------------------------------------------ ------------ ------------
Net transfer to separate accounts as reported in the
Company's NAIC Annual Statement -- Summary of Operations $ 28,255,807 $ 33,875,951
------------------------------------------------------------ ============ ============
</TABLE>
12. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue was complex and affected many aspects of the Company's
business. The Company was particularly concerned with Year 2000 issues that
related to the Company's computer systems and interfaces with the computer
systems of vendors, suppliers, customers and business partners. From 1996
through 1999 the Company redirected a large portion of internal Information
Technology ("IT") efforts and contracted with outside consultants to update
systems to address Year 2000 issues. Experts were engaged to assist in
developing work plans and cost estimates and to complete remediation
activities.
For the year ended December 31, 1999, the Company identified expenditures of
$124,000 to address this issue. This brings the expenditures for 1996
through 1999 to $208,000. Because updating systems and procedures is an
integral part of the Company's on-going operations, most of the expenditures
shown above are expected to continue after all Year 2000 issues have been
resolved. All Year 2000 expenditures have been funded from operating cash
flows.
The scope of the overall Year 2000 program included 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 Company
completed these projects prior to year-end.
The Company's businesses have not identified any major problems in their
business processing. Minor problems have been resolved quickly. The
Company's businesses have not experienced any significant interruption in
service to clients or business partners or in reporting to regulators.
S-17
<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, 1999 and 1998, and the related statutory-basis
statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended
December 31, 1999. 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 auditing standards
generally accepted in the United States. 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 accounting principles
generally accepted in the United States. The variances between
such practices and accounting principles generally accepted in
the United States 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 accounting
principles generally accepted in the United States, the
financial position of Lincoln Life & Annuity Company of New York
at December 31, 1999 and 1998, or the results of its operations
or its cash flows for each of the three years in the period
ended December 31, 1999.
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, 1999 and 1998, the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting practices
prescribed or permitted by the New York Insurance Department.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
March 10, 2000
S-18
